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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	9.98%	11.18%	11.30%	11.36%	11.71%	11.23%
Invested capital³	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)

Economic profit⁴	(2,009)	(2,596)	(3,393)	(4,846)	(3,953)	(3,093)

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 – 9.98% × 77,429 = -2,009

The analysis of economic value added from 2014 to 2019 reveals a period of consistent economic loss, although a trajectory of recovery is evident in the latter years. Despite fluctuations in operating profits and invested capital, the entity did not achieve a positive economic profit during the observed timeframe, indicating that the generated returns were insufficient to cover the cost of the capital employed.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited a significant increase between 2014 and 2015, rising from 3,086 million to 5,501 million. Following this initial growth, operating profits remained volatile but trended generally upward, reaching a peak of 5,934 million in 2018 before experiencing a slight contraction to 5,719 million in 2019.
Invested Capital and Cost of Capital: A substantial expansion in invested capital occurred between 2014 and 2016, moving from 55,001 million to a peak of 85,356 million. This expansion was followed by a period of capital reduction and stabilization, ending at 77,429 million in 2019. The cost of capital remained relatively stable, fluctuating between 11.18% and 11.71% for the majority of the period, before declining to a low of 9.98% in 2019.
Economic Profit Trends: Economic profit remained negative throughout the entire period, confirming a consistent failure to create economic value. The deficit widened during the initial phase of capital expansion, reaching its lowest point in 2016 at -4,846 million. From 2017 onward, a steady improvement is observed, with the economic loss narrowing to -2,009 million by 2019. This recovery was driven by the combination of stabilizing NOPAT and a decreasing cost of capital.

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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	×	16.37%	=	8.69%
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					9.98%

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	×	16.37%	=	10.18%
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					11.18%

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	×	16.37%	=	10.45%
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					11.30%

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	×	16.37%	=	10.62%
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					11.36%

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	×	16.37%	=	10.97%
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					11.71%

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	×	16.37%	=	10.50%
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					11.23%

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	(2,009)	(2,596)	(3,393)	(4,846)	(3,953)	(3,093)
Invested capital²	77,429)	76,286)	76,485)	85,356)	80,730)	55,001)
Performance Ratio
Economic spread ratio³	-2.59%	-3.40%	-4.44%	-5.68%	-4.90%	-5.62%
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 × -2,009 ÷ 77,429 = -2.59%

⁴ Click competitor name to see calculations.

An analysis of the economic value added metrics between fiscal years 2014 and 2019 reveals a period of consistent value destruction, characterized by negative economic profit and a negative economic spread ratio. However, a distinct trend of recovery is observable starting after 2016, as the magnitude of economic losses declined and the spread ratio improved.

Economic Profit Trends: Economic profit remained negative throughout the entire six-year period, indicating that the returns generated were insufficient to cover the cost of capital. The deficit deepened from US$ -3,093 million in 2014 to a peak loss of US$ -4,846 million in 2016. Following this trough, a steady recovery was observed, with losses narrowing to US$ -2,009 million by August 31, 2019. This trajectory suggests an improvement in the company's ability to generate returns relative to its capital charges in the latter half of the period.
Invested Capital Dynamics: Invested capital experienced a significant expansion in the early part of the analyzed timeframe, rising from US$ 55,001 million in 2014 to a peak of US$ 85,356 million in 2016. Subsequent years showed a correction and stabilization, with capital levels settling between US$ 76,286 million and US$ 77,429 million from 2017 through 2019. The initial surge in capital did not immediately translate into positive economic profit, coinciding with the period of maximum economic loss.
Economic Spread Ratio Analysis: The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, remained negative across all years, confirming that the company failed to achieve its hurdle rate. The ratio reached its lowest point of -5.68% in 2016. From that point forward, a consistent upward trend is evident, with the ratio improving to -4.44% in 2017, -3.40% in 2018, and finally -2.59% in 2019. This narrowing gap indicates a progressive reduction in the cost of capital deficit and a move toward potential value creation.

In summary, while the company operated with a negative economic spread for the duration of the period, the data indicates a successful trend of narrowing losses and improving efficiency from 2016 to 2019. The alignment of decreasing economic losses with a stabilizing capital base suggests a strengthening of the underlying economic performance.

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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	(2,009)	(2,596)	(3,393)	(4,846)	(3,953)	(3,093)
Sales	136,866)	131,537)	118,214)	117,351)	103,444)	76,392)
Performance Ratio
Economic profit margin²	-1.47%	-1.97%	-2.87%	-4.13%	-3.82%	-4.05%
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 × -2,009 ÷ 136,866 = -1.47%

³ Click competitor name to see calculations.

The analysis of economic value added indicators between 2014 and 2019 reveals a consistent failure to generate positive economic profit, although a significant trend toward recovery is observable in the latter half of the period. While the organization operated below its cost of capital throughout the timeframe, the narrowing gap between actual returns and required returns suggests an improvement in value creation efficiency.

Revenue Trajectory: A sustained growth pattern in sales is evident, with figures increasing from 76,392 million US dollars in 2014 to 136,866 million US dollars in 2019. This represents a substantial expansion of the top line, providing a larger base to potentially absorb costs and improve economic returns.
Economic Profit Trends: Economic profit exhibited an initial decline, reaching a peak deficit of 4,846 million US dollars in 2016. Following this low point, a steady recovery occurred, with the deficit reducing to 3,393 million US dollars in 2017, 2,596 million US dollars in 2018, and finally 2,009 million US dollars in 2019. This indicates a progressive reduction in the amount by which the company underperformed its cost of capital.
Economic Profit Margin Analysis: The economic profit margin remained negative throughout the period but showed marked improvement after 2016. After hitting a minimum of -4.13% in 2016, the margin improved to -2.87% in 2017, -1.97% in 2018, and -1.47% in 2019. The convergence toward zero suggests that the organization is becoming more efficient at generating returns relative to its invested capital.

The correlation between expanding sales and the improving economic profit margin indicates that the recovery was not merely a result of scale, but an improvement in the underlying profitability relative to the cost of capital. The trajectory from 2016 to 2019 demonstrates a consistent strengthening of the economic position, although the company had not yet achieved positive economic value added by the end of the observed period.

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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