Economic Value Added (EVA)
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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
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Walgreens Boots Alliance Inc. pages available for free this week:
- Income Statement
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Enterprise Value to EBITDA (EV/EBITDA)
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
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Economic Profit
Walgreens Boots Alliance Inc., economic profit calculation
US$ in millions
| 12 months ended: | Aug 31, 2019 | Aug 31, 2018 | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | |
|---|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | |||||||
| Cost of capital2 | |||||||
| Invested capital3 | |||||||
| Economic profit4 | |||||||
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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes experienced a significant increase from 2014 to 2015, rising from 3,086 million USD to 5,501 million USD. Following this peak, there was a decline in 2016 to 4,855 million USD, after which the figure showed a modest recovery and fluctuated around the 5,200 to 5,900 million USD range through 2019. Overall, NOPAT remained relatively stable after the initial spike, ending slightly lower in 2019 compared to the 2018 peak.
- Cost of Capital
- The cost of capital showed minor fluctuations across the periods, with a general declining trend. It started at 9.67% in 2014, peaked slightly at 10.08% in 2015, then gradually decreased until reaching 8.69% in 2019. The reduction in cost of capital toward the end of the period suggests improved financial conditions or reduced risk perception.
- Invested Capital
- Invested capital rose substantially from 55,001 million USD in 2014 to 80,730 million USD in 2015, indicating a major increase in the capital base. After a further increase to 85,356 million USD in 2016, invested capital declined through 2017 and 2018 to approximately 76,286 million USD, then slightly rose again in 2019 to 77,429 million USD. This pattern reflects some volatility and possible company restructuring or asset adjustments during the period.
- Economic Profit
- The company reported negative economic profit throughout the entire period, indicating that the net operating profit after taxes was insufficient to cover the cost of capital. The economic loss deepened from -2,232 million USD in 2014 to a low of -3,495 million USD in 2016. From 2017 onward, there was a consistent improvement, with economic losses decreasing to -1,006 million USD by 2019. This trend suggests gradual progress toward value creation, though the company did not achieve positive economic profit within this timeframe.
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
= × =
7 2019 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 21.00% =
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
= × 21.00% =
10 Elimination of after taxes investment income.
- Net earnings attributable to Walgreens Boots Alliance, Inc.
- The net earnings exhibit volatility over the six-year period. Starting at 1,932 million USD in 2014, there is a significant increase to 4,220 million USD in 2015. This level is mostly sustained through 2016 and 2017, with values of 4,173 and 4,078 million USD respectively. In 2018, net earnings peak at 5,024 million USD, marking the highest point in the period analyzed. However, a decline occurs in 2019, where earnings fall to 3,982 million USD, indicating a downward shift after the 2018 peak.
- Net operating profit after taxes (NOPAT)
- The NOPAT shows an overall upward trend with some fluctuations. Beginning at 3,086 million USD in 2014, it rises sharply to 5,501 million USD in 2015. After this peak, it dips to 4,855 million USD in 2016, before increasing again in 2017 and 2018 to 5,246 and 5,934 million USD respectively. The highest NOPAT value is recorded in 2018. In 2019, NOPAT slightly decreases to 5,719 million USD but remains close to the peak level, indicating relatively stable operating profitability in recent years compared to net earnings.
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).
- Income Tax Provision
- The income tax provision exhibited a general downward trend from 2014 to 2019. Beginning at $1,526 million in 2014, the figure decreased steadily through subsequent years, reaching $588 million in 2019. Notably, the most significant decline occurred between 2017 and 2019.
- Cash Operating Taxes
- Cash operating taxes remained relatively stable between 2014 and 2018, fluctuating within a narrow range from $1,667 million to $1,856 million. However, in 2019, there was a sharp decrease to $831 million, which represents a substantial reduction compared to the previous years.
- Overall Observations
- Both income tax provision and cash operating taxes showed significant declines by 2019 compared to earlier periods. While income tax provision steadily decreased over the years, cash operating taxes were stable for several years before dropping markedly in the last year observed. These trends may reflect changes in tax policies, operational adjustments, or shifts in taxable income and cash tax payments.
Invested Capital
Walgreens Boots Alliance Inc., invested capital calculation (financing approach)
US$ 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.
The financial data reveals several notable trends concerning the company's capital structure and invested capital over the six-year period ending in 2019.
- Total reported debt & leases
- This figure shows an overall increasing trend from 31,909 million USD in 2014 to 43,464 million USD in 2019, with a peak at 46,508 million USD in 2016. After reaching this peak, there is a decline in 2017 to 39,129 million USD, followed by a gradual increase again through 2018 and 2019. This pattern suggests a significant increase in leveraging activities up to 2016, some deleveraging or repayment in 2017, and subsequent additional borrowings or lease liabilities through 2019.
- Total shareholders’ equity
- Shareholders' equity exhibits a declining trend over the period. Starting at 20,457 million USD in 2014, the equity rose sharply to 30,861 million USD in 2015 but then continuously decreased each year thereafter to 23,512 million USD by 2019. This reduction over time indicates a depletion of equity capital, which could be attributed to factors such as sustained net losses, dividend distributions exceeding net income, share repurchases, or other equity-reducing activities.
- Invested capital
- The invested capital closely aligns with the combined effect of debt and equity, representing the total capital used in operations. It increased substantially from 55,001 million USD in 2014 to a peak of 85,356 million USD in 2016. Following this peak, invested capital decreased to 76,485 million USD in 2017 and remained relatively stable, with a slight increase, reaching 77,429 million USD by 2019. This behavior suggests expansion or acquisition activity up to 2016, followed by a period of consolidation or capital optimization in subsequent years.
In summary, the company experienced considerable growth in debt financing and invested capital until 2016, accompanied by an initial rise and then a steady decline in shareholders' equity. The data implies a strategic shift post-2016, characterized by deleveraging and stabilization of invested capital, while equity erosion continued, highlighting potential risks related to capital structure and financial sustainability.
Cost of Capital
Walgreens Boots Alliance Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 25.70%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 25.70%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | |||||||
| Invested capital2 | |||||||
| Performance Ratio | |||||||
| Economic spread ratio3 | |||||||
| 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 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit Trend
- The economic profit consistently displays negative values throughout the analyzed period, indicating that the company operated below its cost of capital. The losses deepened from -2,232 million US$ in 2014 to a peak of -3,495 million US$ in 2016. Following this peak loss, there was a gradual recovery with the losses decreasing year-over-year, reaching -1,006 million US$ in 2019. This suggests an improvement in generating value over time, although the figure remained negative by the end of the period.
- Invested Capital Trend
- The invested capital shows a generally increasing trend, starting at 55,001 million US$ in 2014 and reaching 85,356 million US$ in 2016. After 2016, invested capital slightly declined by 10.4% in 2017 but stabilized with minor fluctuations in the subsequent years, ending at 77,429 million US$ in 2019. The peak in 2016 may imply a period of significant investment or asset accumulation, followed by a period of consolidation or divestiture.
- Economic Spread Ratio Trend
- The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, remained negative throughout the timeline, reflecting value destruction. It worsened from -4.06% in 2014 to -4.09% at its lowest point in 2016, mirroring the trend seen in economic profit. Afterward, it steadily improved, reaching -1.3% by 2019. This incremental improvement corresponds with the reduction in economic losses and suggests better operational performance or more efficient capital use, although it still indicates returns below cost of capital at the end of the period.
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 | |||||||
| Sales | |||||||
| Performance Ratio | |||||||
| Economic profit margin2 | |||||||
| 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 × ÷ =
3 Click competitor name to see calculations.
- Sales
- There is a consistent upward trend in sales figures over the six-year period. Starting at approximately 76.4 billion US dollars in 2014, sales increased substantially to 136.9 billion US dollars by 2019. This represents an overall growth of nearly 80%, indicating strong revenue expansion.
- Economic Profit
- Despite the steady increase in sales, economic profit remains negative throughout the entire period. The economic loss, however, shows a decreasing trend in absolute value—from -2.23 billion US dollars in 2014 to -1.01 billion US dollars in 2019. This suggests gradual improvement in profitability, albeit still below break-even.
- Economic Profit Margin
- The economic profit margin, expressed as a percentage, is consistently negative, reflecting ongoing economic losses relative to sales. Nonetheless, the margin improves from -2.92% in 2014 to -0.74% in 2019. This improvement indicates enhanced efficiency or reduced economic capital charges relative to revenue, although the margin remains negative indicating that the company is not yet generating economic profit.