Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Walgreens Boots Alliance Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 5,719 – 10.04% × 77,429 = -2,055
Between 2014 and 2019, the financial performance regarding economic profit demonstrates a consistent failure to generate returns above the cost of capital, although a positive trend in value recovery is evident in the latter half of the period.
- Net Operating Profit After Taxes (NOPAT)
- A substantial increase occurred between 2014 and 2015, with NOPAT rising from 3,086 million to 5,501 million. While fluctuations were observed in subsequent years, the operating profit peaked in 2018 at 5,934 million before slightly declining to 5,719 million in 2019. This overall upward movement suggests an improvement in the core earning capacity of the business over the six-year span.
- Invested Capital and Capital Efficiency
- Invested capital expanded rapidly from 55,001 million in 2014 to a peak of 85,356 million in 2016. Following this peak, a period of contraction and stabilization occurred, with invested capital settling at 77,429 million by 2019. The rapid expansion of the capital base between 2014 and 2016 outpaced the growth in NOPAT, which contributed to the widening of economic losses during those years.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating within a narrow range between 11.25% and 11.79% from 2014 to 2018. A notable reduction to 10.04% was recorded in 2019, which reduced the hurdle rate required to achieve a positive economic profit.
- Economic Profit Analysis
- Economic profit remained negative throughout the entire analyzed period, indicating that the company did not create economic value for shareholders. The deficit reached its maximum depth in 2016 at -4,908 million, coinciding with the peak in invested capital. However, a consistent recovery trend began in 2017, with the economic profit improving to -2,055 million by 2019. This narrowing of the deficit is the result of a combination of higher operating profits, a reduced capital base compared to the 2016 peak, and a lower cost of capital in the final year.
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Net Operating Profit after Taxes (NOPAT)
Walgreens Boots Alliance Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in liabilities related to the exit and disposal activities.
5 Addition of increase (decrease) in equity equivalents to net earnings attributable to Walgreens Boots Alliance, Inc..
6 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 26,628 × 3.49% = 929
7 2019 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 1,633 × 21.00% = 343
8 Addition of after taxes interest expense to net earnings attributable to Walgreens Boots Alliance, Inc..
9 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 0 × 21.00% = 0
10 Elimination of after taxes investment income.
Analysis of the financial performance from August 31, 2014, to August 31, 2019, reveals an overall upward shift in operating profitability, characterized by a significant initial expansion followed by a period of volatility.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT experienced a substantial increase between 2014 and 2015, rising from 3,086 million to 5,501 million. Following a dip in 2016 to 4,855 million, the metric entered a recovery phase, peaking at 5,934 million in 2018 before slightly declining to 5,719 million in 2019. This pattern indicates that the core operational earning power remained relatively resilient and significantly higher than the 2014 baseline.
- Net Earnings Performance
- Net earnings attributable to the company exhibited more pronounced volatility than NOPAT. A sharp increase occurred in 2015, with earnings rising to 4,220 million from 1,932 million in the previous year. Earnings remained relatively flat between 2015 and 2017, followed by a peak of 5,024 million in 2018. However, a notable decline was observed in 2019, with earnings dropping to 3,982 million, representing a decrease of approximately 20.7% from the previous year's peak.
- Operational Profitability Gap
- A consistent positive variance is observed where NOPAT exceeded net earnings in every reported period. This gap suggests that non-operating items—such as interest expenses related to debt financing—materially reduced the final net income. The divergence became more pronounced in 2019, where the difference between NOPAT and net earnings reached its widest point in the series, indicating that while operating profits remained strong, other financial pressures heavily impacted the bottom line.
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Cash Operating Taxes
Walgreens Boots Alliance Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
The financial data reveals a distinct divergence between the reported income tax provision and the actual cash operating taxes paid between 2014 and 2019. While both metrics experienced a significant decline in the final fiscal year of the period, their trajectories differed considerably during the intervening years, impacting the cash flow components essential for Economic Value Added (EVA) calculations.
- Income Tax Provision Trends
- The income tax provision exhibited a general downward trajectory, decreasing from 1,526 million US$ in 2014 to 588 million US$ in 2019. Despite a temporary increase in 2018 to 998 million US$, the overall trend suggests a sustained reduction in the accrual-based tax expense over the six-year period.
- Cash Operating Taxes Behavior
- Cash operating taxes remained relatively resilient and stable from 2014 through 2018, oscillating within a narrow range between 1,667 million US$ and 1,856 million US$. A sharp and significant contraction occurred in 2019, with cash taxes falling to 831 million US$, marking a precipitous drop from the previous year's 1,723 million US$.
- Analysis of Provision versus Cash Outflow
- A notable variance is observed between the tax provision and actual cash taxes. From 2015 to 2018, cash operating taxes consistently and significantly exceeded the tax provision, with the discrepancy peaking in 2017 at 1,007 million US$. This gap indicates that actual cash outflows for taxes were substantially higher than the periodic expenses recognized in the profit and loss statements. This divergence narrowed considerably by 2019, as both metrics declined toward a more aligned level.
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Invested Capital
Walgreens Boots Alliance Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of LIFO reserve. See details »
5 Addition of liabilities related to the exit and disposal activities.
6 Addition of equity equivalents to total Walgreens Boots Alliance, Inc. shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of available-for-sale investments.
Invested capital experienced a significant expansion between 2014 and 2016, rising from 55,001 million US$ to a peak of 85,356 million US$. Following this peak, a correction occurred in 2017, after which the capital base entered a period of stabilization, fluctuating marginally between 76,286 million US$ and 77,429 million US$ through 2019.
- Total Reported Debt and Leases
- A sharp upward trend was observed from 2014 to 2016, with debt increasing from 31,909 million US$ to 46,508 million US$. After a notable decline to 39,129 million US$ in 2017, debt levels resumed a steady climb, reaching 43,464 million US$ by August 31, 2019.
- Shareholders' Equity
- Equity peaked in 2015 at 30,861 million US$ after a strong initial increase from 20,457 million US$ in 2014. From 2016 onward, a consistent downward trend is evident, with shareholders' equity declining annually to reach 23,512 million US$ by the end of the period.
- Invested Capital Dynamics
- The growth in invested capital was initially driven by simultaneous increases in both debt and equity. However, in the later years of the analysis, the capital structure shifted; the continuous erosion of shareholders' equity was offset by rising debt levels, resulting in a stabilized total invested capital figure despite the changing underlying components.
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Cost of Capital
Walgreens Boots Alliance Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 49,804) | 49,804) | ÷ | 93,844) | = | 0.53 | 0.53 | × | 16.48% | = | 8.75% | ||
| Borrowings3 | 17,413) | 17,413) | ÷ | 93,844) | = | 0.19 | 0.19 | × | 3.49% × (1 – 21.00%) | = | 0.51% | ||
| Operating lease liability4 | 26,628) | 26,628) | ÷ | 93,844) | = | 0.28 | 0.28 | × | 3.49% × (1 – 21.00%) | = | 0.78% | ||
| Total: | 93,844) | 1.00 | 10.04% | ||||||||||
Based on: 10-K (reporting date: 2019-08-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 67,296) | 67,296) | ÷ | 108,160) | = | 0.62 | 0.62 | × | 16.48% | = | 10.25% | ||
| Borrowings3 | 14,240) | 14,240) | ÷ | 108,160) | = | 0.13 | 0.13 | × | 3.55% × (1 – 25.70%) | = | 0.35% | ||
| Operating lease liability4 | 26,624) | 26,624) | ÷ | 108,160) | = | 0.25 | 0.25 | × | 3.55% × (1 – 25.70%) | = | 0.65% | ||
| Total: | 108,160) | 1.00 | 11.25% | ||||||||||
Based on: 10-K (reporting date: 2018-08-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 70,022) | 70,022) | ÷ | 109,692) | = | 0.64 | 0.64 | × | 16.48% | = | 10.52% | ||
| Borrowings3 | 13,475) | 13,475) | ÷ | 109,692) | = | 0.12 | 0.12 | × | 3.60% × (1 – 35.00%) | = | 0.29% | ||
| Operating lease liability4 | 26,194) | 26,194) | ÷ | 109,692) | = | 0.24 | 0.24 | × | 3.60% × (1 – 35.00%) | = | 0.56% | ||
| Total: | 109,692) | 1.00 | 11.37% | ||||||||||
Based on: 10-K (reporting date: 2017-08-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 87,768) | 87,768) | ÷ | 135,335) | = | 0.65 | 0.65 | × | 16.48% | = | 10.69% | ||
| Borrowings3 | 20,088) | 20,088) | ÷ | 135,335) | = | 0.15 | 0.15 | × | 3.28% × (1 – 35.00%) | = | 0.32% | ||
| Operating lease liability4 | 27,480) | 27,480) | ÷ | 135,335) | = | 0.20 | 0.20 | × | 3.28% × (1 – 35.00%) | = | 0.43% | ||
| Total: | 135,335) | 1.00 | 11.44% | ||||||||||
Based on: 10-K (reporting date: 2016-08-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 92,493) | 92,493) | ÷ | 138,008) | = | 0.67 | 0.67 | × | 16.48% | = | 11.05% | ||
| Borrowings3 | 15,712) | 15,712) | ÷ | 138,008) | = | 0.11 | 0.11 | × | 3.45% × (1 – 35.00%) | = | 0.26% | ||
| Operating lease liability4 | 29,803) | 29,803) | ÷ | 138,008) | = | 0.22 | 0.22 | × | 3.45% × (1 – 35.00%) | = | 0.48% | ||
| Total: | 138,008) | 1.00 | 11.79% | ||||||||||
Based on: 10-K (reporting date: 2015-08-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 57,213) | 57,213) | ÷ | 89,168) | = | 0.64 | 0.64 | × | 16.48% | = | 10.58% | ||
| Borrowings3 | 4,556) | 4,556) | ÷ | 89,168) | = | 0.05 | 0.05 | × | 3.14% × (1 – 35.00%) | = | 0.10% | ||
| Operating lease liability4 | 27,399) | 27,399) | ÷ | 89,168) | = | 0.31 | 0.31 | × | 3.14% × (1 – 35.00%) | = | 0.63% | ||
| Total: | 89,168) | 1.00 | 11.31% | ||||||||||
Based on: 10-K (reporting date: 2014-08-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Walgreens Boots Alliance Inc., economic spread ratio calculation, comparison to benchmarks
| Aug 31, 2019 | Aug 31, 2018 | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (2,055) | (2,649) | (3,448) | (4,908) | (4,014) | (3,133) | |
| Invested capital2 | 77,429) | 76,286) | 76,485) | 85,356) | 80,730) | 55,001) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -2.65% | -3.47% | -4.51% | -5.75% | -4.97% | -5.70% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Costco Wholesale Corp. | — | — | — | — | — | — | |
| Target Corp. | — | — | — | — | — | — | |
| Walmart Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,055 ÷ 77,429 = -2.65%
4 Click competitor name to see calculations.
Between 2014 and 2019, the organization consistently operated with negative economic profit, indicating that the returns generated were insufficient to cover the cost of invested capital. While performance deteriorated through 2016, a sustained recovery trend is evident in the subsequent three fiscal years.
- Economic Profit Analysis
- Economic profit exhibited a downward trend in the early period, reaching a peak deficit of 4,908 million US dollars in 2016. Following this trough, the company achieved a consistent reduction in economic losses, which narrowed to 2,055 million US dollars by August 31, 2019. This improvement suggests a gradual recovery in value creation efficiency.
- Invested Capital Trends
- A significant expansion of invested capital was observed between 2014 and 2016, increasing from 55,001 million US dollars to 85,356 million US dollars. After this peak, the capital base underwent a correction and stabilized, remaining within the range of 76,286 million to 77,429 million US dollars from 2017 through 2019.
- Economic Spread Ratio Interpretation
- The economic spread ratio mirrored the volatility and subsequent recovery of economic profit. The ratio reached its lowest point of -5.75% in 2016, coinciding with the peak of economic losses. From 2017 onward, a consistent upward trend is observed, with the ratio improving to -4.51% in 2017, -3.47% in 2018, and -2.65% in 2019. This progression indicates a narrowing gap between the internal rate of return and the cost of capital, reflecting improved financial performance over the latter half of the analyzed period.
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Economic Profit Margin
Walgreens Boots Alliance Inc., economic profit margin calculation, comparison to benchmarks
| Aug 31, 2019 | Aug 31, 2018 | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (2,055) | (2,649) | (3,448) | (4,908) | (4,014) | (3,133) | |
| Sales | 136,866) | 131,537) | 118,214) | 117,351) | 103,444) | 76,392) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -1.50% | -2.01% | -2.92% | -4.18% | -3.88% | -4.10% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Costco Wholesale Corp. | — | — | — | — | — | — | |
| Target Corp. | — | — | — | — | — | — | |
| Walmart Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × -2,055 ÷ 136,866 = -1.50%
3 Click competitor name to see calculations.
The financial performance from 2014 to 2019 is characterized by significant revenue expansion coupled with a gradual recovery in economic value generation, although economic profit remained negative throughout the analyzed period.
- Economic Profit Trends
- Economic profit experienced an initial deterioration, reaching a peak deficit of US$ 4,908 million in 2016. Following this trough, a consistent recovery trend is observed, with the annual deficit narrowing to US$ 2,055 million by August 31, 2019. This trajectory indicates a steady reduction in the gap between generated returns and the cost of capital over the final three years of the period.
- Sales Performance
- A strong and continuous upward trend in sales is evident, with figures rising from US$ 76,392 million in 2014 to US$ 136,866 million in 2019. The consistent growth in top-line revenue provided the scale that supported the subsequent improvement in economic efficiency.
- Economic Profit Margin Analysis
- The economic profit margin remained negative for the entire duration, signifying that the company did not generate sufficient returns to cover its cost of capital. However, after fluctuating between -3.88% and -4.18% from 2014 to 2016, the margin improved significantly. By August 31, 2019, the margin had narrowed to -1.50%, reflecting a substantial increase in capital efficiency and a reduction in the relative economic loss per unit of sales.
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