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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.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

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	5,719)	5,934)	5,246)	4,855)	5,501)	3,086)
Cost of capital²	10.04%	11.25%	11.36%	11.43%	11.78%	11.30%
Invested capital³	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)

Economic profit⁴	(2,052)	(2,646)	(3,444)	(4,904)	(4,010)	(3,130)

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 = -2,052

The analysis of economic profit from 2014 to 2019 reveals a period of consistent value destruction, characterized by negative economic profit throughout the timeframe. However, a distinct recovery trend emerged after 2016, as the company successfully reduced the magnitude of its economic losses.

Net Operating Profit After Taxes (NOPAT): NOPAT demonstrated significant growth over the observed period, rising from 3,086 million in 2014 to a peak of 5,934 million in 2018. While there was a slight contraction to 5,719 million in 2019, the overall trend indicates a substantial increase in the company's ability to generate operating earnings.
Invested Capital and Cost of Capital: Invested capital experienced a sharp expansion between 2014 and 2016, peaking at 85,356 million. After 2016, a trend of capital optimization is observed, with the balance stabilizing between 76,286 million and 77,429 million. The cost of capital remained relatively stagnant around the 11% mark for five years before decreasing to 10.04% in 2019, reducing the overall capital charge.
Economic Profit Performance: Economic profit declined from -3,130 million in 2014 to a trough of -4,904 million in 2016, a period that coincided with the peak in invested capital. From 2017 through 2019, the economic profit trend reversed, improving steadily to -2,052 million. This recovery was driven by the convergence of increasing NOPAT and a more disciplined approach to invested capital, alongside a reduction in the cost of capital in the final year.

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Walgreens Boots Alliance Inc., NOPAT 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 earnings attributable to Walgreens Boots Alliance, Inc.	3,982)	5,024)	4,078)	4,173)	4,220)	1,932)
Deferred income tax expense (benefit)¹	100)	(324)	(434)	(429)	(39)	175)
Increase (decrease) in allowance for doubtful accounts²	20)	(83)	(8)	(6)	(1)	19)
Increase (decrease) in LIFO reserve³	200)	—)	200)	300)	200)	200)
Increase (decrease) in liabilities related to the exit and disposal activities⁴	147)	150)	324)	—)	—)	—)
Increase (decrease) in equity equivalents⁵	467)	(257)	82)	(135)	160)	394)
Interest expense, net	704)	616)	693)	596)	605)	156)
Interest expense, operating lease liability⁶	929)	945)	943)	901)	1,028)	860)
Adjusted interest expense, net	1,633)	1,561)	1,636)	1,497)	1,633)	1,016)
Tax benefit of interest expense, net⁷	(343)	(401)	(573)	(524)	(572)	(356)
Adjusted interest expense, net, after taxes⁸	1,290)	1,160)	1,063)	973)	1,062)	661)
(Gain) loss on marketable securities	—)	—)	—)	(268)	—)	—)
Investment income, before taxes	—)	—)	—)	(268)	—)	—)
Tax expense (benefit) of investment income⁹	—)	—)	—)	94)	—)	—)
Investment income, after taxes¹⁰	—)	—)	—)	(174)	—)	—)
Net income (loss) attributable to noncontrolling interest	(20)	7)	23)	18)	59)	99)
Net operating profit after taxes (NOPAT)	5,719)	5,934)	5,246)	4,855)	5,501)	3,086)

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.

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.

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Walgreens Boots Alliance Inc., cash operating taxes 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
Income tax provision	588)	998)	760)	997)	1,056)	1,526)
Less: Deferred income tax expense (benefit)	100)	(324)	(434)	(429)	(39)	175)
Add: Tax savings from interest expense, net	343)	401)	573)	524)	572)	356)
Less: Tax imposed on investment income	—)	—)	—)	94)	—)	—)
Cash operating taxes	831)	1,723)	1,767)	1,856)	1,667)	1,707)

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.

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Walgreens Boots Alliance Inc., invested capital calculation (financing approach)

US$ in millions

	Aug 31, 2019	Aug 31, 2018	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014
Short-term debt	5,738)	1,966)	251)	323)	1,068)	774)
Long-term debt	11,098)	12,431)	12,684)	18,705)	13,315)	3,736)
Operating lease liability¹	26,628)	26,624)	26,194)	27,480)	29,803)	27,399)
Total reported debt & leases	43,464)	41,021)	39,129)	46,508)	44,186)	31,909)
Total Walgreens Boots Alliance, Inc. shareholders’ equity	23,512)	26,007)	27,466)	29,880)	30,861)	20,457)
Net deferred tax (assets) liabilities²	1,724)	1,750)	2,274)	2,641)	3,541)	1,123)
Allowance for doubtful accounts³	95)	75)	158)	166)	172)	173)
LIFO reserve⁴	3,200)	3,000)	3,000)	2,800)	2,500)	2,300)
Liabilities related to the exit and disposal activities⁵	897)	750)	600)	—)	—)	—)
Equity equivalents⁶	5,916)	5,575)	6,032)	5,607)	6,213)	3,596)
Accumulated other comprehensive (income) loss, net of tax⁷	3,897)	3,002)	3,051)	2,992)	214)	(178)
Noncontrolling interests	640)	682)	808)	401)	439)	104)
Adjusted total Walgreens Boots Alliance, Inc. shareholders’ equity	33,965)	35,266)	37,357)	38,880)	37,727)	23,979)
Available-for-sale investments⁸	—)	(1)	(1)	(32)	(1,183)	(887)
Invested capital	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)

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.

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Walgreens Boots Alliance Inc., cost of capital calculations

Aug 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	49,804)	49,804)	÷	93,844)	=	0.53	0.53	×	16.47%	=	8.74%
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 »

Aug 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	67,296)	67,296)	÷	108,160)	=	0.62	0.62	×	16.47%	=	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 »

Aug 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	70,022)	70,022)	÷	109,692)	=	0.64	0.64	×	16.47%	=	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					11.36%

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 »

Aug 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	87,768)	87,768)	÷	135,335)	=	0.65	0.65	×	16.47%	=	10.68%
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					11.43%

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 »

Aug 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	92,493)	92,493)	÷	138,008)	=	0.67	0.67	×	16.47%	=	11.04%
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					11.78%

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 »

Aug 31, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	57,213)	57,213)	÷	89,168)	=	0.64	0.64	×	16.47%	=	10.57%
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					11.30%

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 »

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	(2,052)	(2,646)	(3,444)	(4,904)	(4,010)	(3,130)
Invested capital²	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)
Performance Ratio
Economic spread ratio³	-2.65%	-3.47%	-4.50%	-5.75%	-4.97%	-5.69%
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 × -2,052 ÷ 77,429 = -2.65%

⁴ Click competitor name to see calculations.

The financial performance between 2014 and 2019 is characterized by a consistent failure to achieve positive economic value added, although a sustained trajectory of improvement is evident from 2016 onward.

Economic Profit Trends: Economic profit remained negative throughout the analyzed period. A downward trend was observed initially, with losses widening from 3,130 million US dollars in 2014 to a peak deficit of 4,904 million US dollars in 2016. Following this trough, a consistent recovery occurred, reducing the economic loss to 2,052 million US dollars by August 31, 2019.
Invested Capital Fluctuations: Invested capital saw a sharp increase in the early part of the period, rising from 55,001 million US dollars in 2014 to 85,356 million US dollars in 2016. From 2017 to 2019, the capital base entered a phase of relative stabilization, maintaining a range between approximately 76,286 million and 77,429 million US dollars.
Economic Spread Ratio Analysis: The economic spread ratio remained negative for the entire duration, indicating that the return on invested capital consistently fell below the weighted average cost of capital. After reaching a low of -5.75% in 2016, the ratio improved steadily each subsequent year, narrowing to -2.65% by 2019. This steady progression suggests a gradual reduction in the gap between actual returns and the required cost of capital, signaling improved capital efficiency over time.

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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	(2,052)	(2,646)	(3,444)	(4,904)	(4,010)	(3,130)
Sales	136,866)	131,537)	118,214)	117,351)	103,444)	76,392)
Performance Ratio
Economic profit margin²	-1.50%	-2.01%	-2.91%	-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 × -2,052 ÷ 136,866 = -1.50%

³ Click competitor name to see calculations.

The financial performance from 2014 to 2019 is characterized by consistent negative economic profit, indicating that the company did not generate returns sufficient to cover its cost of capital during this period. However, a distinct trend of recovery is observable starting in 2017, as the magnitude of economic loss decreased steadily despite significant growth in total sales.

Economic Profit Trend: Economic profit exhibited a volatile trajectory, initially declining from -3,130 million US$ in 2014 to a peak loss of -4,904 million US$ in 2016. Following this trough, a consistent recovery phase occurred, with losses narrowing to -3,444 million US$ in 2017, -2,646 million US$ in 2018, and reaching -2,052 million US$ by 2019. This represents a substantial reduction in economic value destruction over the final three years of the analyzed period.
Sales Expansion: Revenue demonstrated uninterrupted growth throughout the six-year interval. Sales increased from 76,392 million US$ in 2014 to 136,866 million US$ in 2019. The most significant jump occurred between 2014 and 2015, where sales rose by approximately 35%. This sustained growth in the top line provided the scale necessary to begin mitigating the economic losses observed in the earlier years.
Economic Profit Margin Analysis: The economic profit margin, which measures the economic loss relative to sales, remained negative but showed an improving trend after 2016. The margin dipped to its lowest point of -4.18% in 2016, correlating with the highest absolute economic loss. Subsequently, the margin improved markedly to -2.91% in 2017, -2.01% in 2018, and -1.50% in 2019. The steady contraction of this negative margin suggests an increase in capital efficiency and a gradual convergence toward positive economic value creation.

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Walgreens Boots Alliance Inc. (NASDAQ:WBA)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin