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
Western Digital Corp., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-07-01), 10-K (reporting date: 2021-07-02), 10-K (reporting date: 2020-07-03), 10-K (reporting date: 2019-06-28), 10-K (reporting date: 2018-06-29).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= -1,604 – 17.12% × 18,928 = -4,844
The financial analysis reveals a persistent destruction of economic value over the six-year period ending June 30, 2023. Despite periodic fluctuations in operating profitability, the entity failed to generate returns sufficient to cover its cost of capital, resulting in negative economic profit across all analyzed years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme volatility throughout the period. After an initial positive result in 2018, profitability dropped significantly in 2019 and remained marginal in 2020. A strong recovery phase was observed between 2021 and 2022, with the latter reaching a peak of US$ 1,840 million. However, this trend reversed sharply in 2023, resulting in a substantial loss of US$ 1,604 million.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating between a low of 14.36% in 2020 and a high of 18.00% in 2022. The consistently high hurdle rate contributed to the difficulty of achieving positive economic profit, as the required return on invested capital remained elevated throughout the analysis window.
- Invested Capital
- A steady downward trend in invested capital is evident, decreasing from US$ 22,667 million in 2018 to US$ 18,928 million in 2023. This contraction suggests a reduction in the total capital employed in the business, though the reduction in the capital base was insufficient to offset the operating losses in the final year.
- Economic Profit
- Economic profit remained negative for six consecutive years, signifying that the entity did not create shareholder value from an economic perspective. Value destruction was most severe in 2023, with economic profit falling to negative US$ 4,844 million. The least negative result was recorded in 2022 at negative US$ 1,719 million, aligning with the peak in NOPAT.
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Net Operating Profit after Taxes (NOPAT)
Western Digital Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-07-01), 10-K (reporting date: 2021-07-02), 10-K (reporting date: 2020-07-03), 10-K (reporting date: 2019-06-28), 10-K (reporting date: 2018-06-29).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in warranty accrual.
3 Addition of increase (decrease) in equity equivalents to net income (loss).
4 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 284 × 4.20% = 12
5 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 324 × 21.00% = 68
6 Addition of after taxes interest expense to net income (loss).
7 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 24 × 21.00% = 5
8 Elimination of after taxes investment income.
- Net Income (Loss)
- The net income demonstrates significant volatility over the six-year period. Initially, there was a positive net income of $675 million in 2018, followed by a sharp decline resulting in a net loss of $754 million in 2019. The net loss continued in 2020 but to a lesser extent, amounting to $250 million. A recovery is observed in 2021 with net income rebounding to $821 million, further increasing to $1,500 million in 2022. However, in 2023, the trend reverses dramatically with a substantial net loss of $1,706 million. This pattern indicates instability in profitability with notable peaks and troughs.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures largely mirror the trends seen in net income, showing considerable fluctuations. Starting with a positive $782 million in 2018, NOPAT turned slightly negative in 2019 at -$15 million. A modest recovery occurs in 2020 with a positive $38 million, followed by a strong improvement to $793 million in 2021. The peak value is recorded in 2022 at $1,840 million, indicating optimal operational efficiency and profitability that year. Yet, similar to net income, 2023 sees a significant decline to a negative $1,604 million, which suggests operational challenges or extraordinary expenses affecting the company's core profitability.
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Cash Operating Taxes
Western Digital Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-07-01), 10-K (reporting date: 2021-07-02), 10-K (reporting date: 2020-07-03), 10-K (reporting date: 2019-06-28), 10-K (reporting date: 2018-06-29).
- Income Tax Expense
- The income tax expense exhibited a significant decline from 1,410 million USD in June 2018 to 467 million USD in June 2019. This downward trend continued with further reductions to 204 million USD in July 2020 and 106 million USD in July 2021. However, there was a notable increase to 623 million USD in July 2022, followed by a sharp decrease to 146 million USD in June 2023. Overall, the figures indicate volatility in the income tax expense with periods of substantial reduction interspersed with a sudden spike in 2022.
- Cash Operating Taxes
- Cash operating taxes experienced a drastic drop from 1,932 million USD in June 2018 to 181 million USD in June 2019. After this steep decline, cash operating taxes showed a fluctuating but generally increasing trend, rising to 369 million USD in July 2020, 417 million USD in July 2021, and peaking at 574 million USD in July 2022. In the most recent period ending June 2023, cash operating taxes decreased to 243 million USD. This pattern suggests variability with an initial sharp decrease followed by a gradual upward movement and a slight pullback towards the end of the period.
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Invested Capital
Western Digital Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-07-01), 10-K (reporting date: 2021-07-02), 10-K (reporting date: 2020-07-03), 10-K (reporting date: 2019-06-28), 10-K (reporting date: 2018-06-29).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of warranty accrual.
4 Addition of equity equivalents to shareholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction-in-process.
7 Subtraction of available-for-sale securities.
- Total Reported Debt & Leases
- The total reported debt and leases exhibit a consistent downward trend from June 29, 2018, to July 1, 2022, decreasing from $11,344 million to $7,339 million. However, there is a marginal increase observed in the period ending June 30, 2023, where the figure rises slightly to $7,354 million. This overall reduction suggests an effort to deleverage or refinance liabilities over the years, with stabilization noted in the most recent year.
- Shareholders’ Equity
- Shareholders’ equity experienced a decline from $11,531 million in June 29, 2018, to $9,551 million as of July 3, 2020. Subsequently, equity improved significantly, reaching a peak of $12,221 million by July 1, 2022. There is a minor decrease in the following year, ending June 30, 2023, at $11,723 million. This pattern indicates a recovery phase after initial pressure on equity, reflecting improved retained earnings or other comprehensive income components in the latter years.
- Invested Capital
- Invested capital displays a steady decline throughout the observed timeframe, moving from $22,667 million in June 29, 2018, down to $18,928 million by June 30, 2023. The decrease appears gradual and continuous, suggesting divestment or capital efficiency measures. The reduction in invested capital alongside decreasing debt levels may indicate a strategic shift towards optimizing the capital structure or asset base.
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Cost of Capital
Western Digital Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,011) | 13,011) | ÷ | 20,863) | = | 0.62 | 0.62 | × | 25.06% | = | 15.63% | ||
| Series A Convertible Perpetual Preferred Stock | 876) | 876) | ÷ | 20,863) | = | 0.04 | 0.04 | × | 6.25% | = | 0.26% | ||
| Long-term debt, including current portion3 | 6,692) | 6,692) | ÷ | 20,863) | = | 0.32 | 0.32 | × | 4.68% × (1 – 21.00%) | = | 1.19% | ||
| Operating lease liability4 | 284) | 284) | ÷ | 20,863) | = | 0.01 | 0.01 | × | 4.20% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 20,863) | 1.00 | 17.12% | ||||||||||
Based on: 10-K (reporting date: 2023-06-30).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,067) | 15,067) | ÷ | 22,051) | = | 0.68 | 0.68 | × | 25.06% | = | 17.12% | ||
| Series A Convertible Perpetual Preferred Stock | —) | —) | ÷ | 22,051) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt, including current portion3 | 6,667) | 6,667) | ÷ | 22,051) | = | 0.30 | 0.30 | × | 3.53% × (1 – 21.00%) | = | 0.84% | ||
| Operating lease liability4 | 317) | 317) | ÷ | 22,051) | = | 0.01 | 0.01 | × | 3.40% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 22,051) | 1.00 | 18.00% | ||||||||||
Based on: 10-K (reporting date: 2022-07-01).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,525) | 19,525) | ÷ | 28,931) | = | 0.67 | 0.67 | × | 25.06% | = | 16.91% | ||
| Series A Convertible Perpetual Preferred Stock | —) | —) | ÷ | 28,931) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt, including current portion3 | 9,169) | 9,169) | ÷ | 28,931) | = | 0.32 | 0.32 | × | 2.44% × (1 – 21.00%) | = | 0.61% | ||
| Operating lease liability4 | 237) | 237) | ÷ | 28,931) | = | 0.01 | 0.01 | × | 3.80% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 28,931) | 1.00 | 17.55% | ||||||||||
Based on: 10-K (reporting date: 2021-07-02).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,448) | 11,448) | ÷ | 21,317) | = | 0.54 | 0.54 | × | 25.06% | = | 13.46% | ||
| Series A Convertible Perpetual Preferred Stock | —) | —) | ÷ | 21,317) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt, including current portion3 | 9,624) | 9,624) | ÷ | 21,317) | = | 0.45 | 0.45 | × | 2.42% × (1 – 21.00%) | = | 0.86% | ||
| Operating lease liability4 | 245) | 245) | ÷ | 21,317) | = | 0.01 | 0.01 | × | 4.20% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 21,317) | 1.00 | 14.36% | ||||||||||
Based on: 10-K (reporting date: 2020-07-03).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,588) | 15,588) | ÷ | 26,260) | = | 0.59 | 0.59 | × | 25.06% | = | 14.87% | ||
| Series A Convertible Perpetual Preferred Stock | —) | —) | ÷ | 26,260) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt, including current portion3 | 10,430) | 10,430) | ÷ | 26,260) | = | 0.40 | 0.40 | × | 3.88% × (1 – 21.00%) | = | 1.22% | ||
| Operating lease liability4 | 242) | 242) | ÷ | 26,260) | = | 0.01 | 0.01 | × | 3.88% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 26,260) | 1.00 | 16.12% | ||||||||||
Based on: 10-K (reporting date: 2019-06-28).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 18,591) | 18,591) | ÷ | 30,114) | = | 0.62 | 0.62 | × | 25.06% | = | 15.47% | ||
| Series A Convertible Perpetual Preferred Stock | —) | —) | ÷ | 30,114) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Long-term debt, including current portion3 | 11,351) | 11,351) | ÷ | 30,114) | = | 0.38 | 0.38 | × | 3.67% × (1 – 28.00%) | = | 1.00% | ||
| Operating lease liability4 | 172) | 172) | ÷ | 30,114) | = | 0.01 | 0.01 | × | 3.67% × (1 – 28.00%) | = | 0.02% | ||
| Total: | 30,114) | 1.00 | 16.48% | ||||||||||
Based on: 10-K (reporting date: 2018-06-29).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Western Digital Corp., economic spread ratio calculation, comparison to benchmarks
| Jun 30, 2023 | Jul 1, 2022 | Jul 2, 2021 | Jul 3, 2020 | Jun 28, 2019 | Jun 29, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (4,844) | (1,719) | (2,642) | (2,788) | (3,414) | (2,953) | |
| Invested capital2 | 18,928) | 19,768) | 19,579) | 19,684) | 21,085) | 22,667) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -25.59% | -8.69% | -13.49% | -14.16% | -16.19% | -13.03% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Apple Inc. | 137.56% | 199.07% | 195.44% | 143.41% | — | — | |
| Arista Networks Inc. | 20.60% | 16.12% | 31.17% | — | — | — | |
| Cisco Systems Inc. | 3.37% | 3.35% | 2.59% | — | — | — | |
| Dell Technologies Inc. | -0.70% | 3.17% | -1.35% | — | — | — | |
| Lumentum Holdings Inc. | -19.02% | -6.35% | 5.97% | — | — | — | |
| Super Micro Computer Inc. | -1.51% | -9.69% | -18.15% | — | — | — | |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-07-01), 10-K (reporting date: 2021-07-02), 10-K (reporting date: 2020-07-03), 10-K (reporting date: 2019-06-28), 10-K (reporting date: 2018-06-29).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -4,844 ÷ 18,928 = -25.59%
4 Click competitor name to see calculations.
The financial performance from 2018 to 2023 indicates a consistent inability to generate positive economic value. Throughout the observed period, economic profit remained negative, signaling that the returns on invested capital did not exceed the company's cost of capital.
- Economic Profit Trends
- Economic profit exhibited significant volatility, remaining in negative territory for six consecutive years. After an initial decline in 2019 to -3,414 million USD, a recovery trend was observed between 2020 and 2022, with the deficit narrowing to a period high of -1,719 million USD. However, this progress was reversed in 2023, when economic profit dropped sharply to its lowest point of -4,844 million USD.
- Invested Capital Dynamics
- There is a general downward trend in invested capital over the analysis period. Capital levels decreased from 22,667 million USD in 2018 to 18,928 million USD in 2023. This sustained contraction indicates a reduction in the total capital employed in the business, although this reduction did not translate into positive economic value.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative across all reported years, reflecting a persistent gap between the actual return on capital and the required rate of return. The ratio showed marginal improvement from 2019 through 2022, peaking at -8.69%. This stability was disrupted in 2023, where the ratio plummeted to -25.59%, representing the most severe deterioration in value creation efficiency within the six-year window.
The convergence of the lowest economic profit and the most negative economic spread ratio in 2023, occurring alongside a continuing decrease in invested capital, suggests a significant escalation in value destruction during the final year of the period.
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Economic Profit Margin
Western Digital Corp., economic profit margin calculation, comparison to benchmarks
| Jun 30, 2023 | Jul 1, 2022 | Jul 2, 2021 | Jul 3, 2020 | Jun 28, 2019 | Jun 29, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (4,844) | (1,719) | (2,642) | (2,788) | (3,414) | (2,953) | |
| Revenue, net | 12,318) | 18,793) | 16,922) | 16,736) | 16,569) | 20,647) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -39.33% | -9.15% | -15.61% | -16.66% | -20.60% | -14.30% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Apple Inc. | 21.64% | 23.53% | 22.71% | 18.79% | — | — | |
| Arista Networks Inc. | 15.55% | 11.11% | 18.26% | — | — | — | |
| Cisco Systems Inc. | 3.36% | 3.76% | 2.89% | — | — | — | |
| Dell Technologies Inc. | -0.39% | 1.66% | -1.16% | — | — | — | |
| Lumentum Holdings Inc. | -31.20% | -9.27% | 6.73% | — | — | — | |
| Super Micro Computer Inc. | -0.51% | -4.12% | -6.54% | — | — | — | |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-07-01), 10-K (reporting date: 2021-07-02), 10-K (reporting date: 2020-07-03), 10-K (reporting date: 2019-06-28), 10-K (reporting date: 2018-06-29).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenue, net
= 100 × -4,844 ÷ 12,318 = -39.33%
3 Click competitor name to see calculations.
An analysis of the financial performance from 2018 to 2023 reveals a consistent failure to generate positive economic profit, indicating that the company did not create value above its cost of capital throughout the entire period. While there was a period of gradual recovery and improvement between 2020 and 2022, the 2023 fiscal year shows a severe deterioration in all measured economic value metrics.
- Economic Profit Trends
- Economic profit remained negative for six consecutive years. The losses deepened in 2019 to -3,414 million USD before beginning a steady recovery phase. This recovery culminated in 2022, where economic profit reached its highest point in the series at -1,719 million USD. However, this progress was erased in 2023, when economic profit fell sharply to -4,844 million USD, the lowest level in the analyzed period.
- Revenue Correlation
- Net revenue exhibited significant volatility, which correlates with the fluctuations in economic profit. A decline in revenue from 20,647 million USD in 2018 to 16,569 million USD in 2019 coincided with a dip in economic performance. A subsequent recovery in revenue to 18,793 million USD by 2022 supported the improvement in economic profit. The drastic revenue contraction in 2023 to 12,318 million USD served as a primary driver for the substantial increase in economic losses.
- Economic Profit Margin Analysis
- The economic profit margin reflects a pattern of instability and eventual collapse. After worsening to -20.60% in 2019, the margin improved incrementally for three years, reaching a peak of -9.15% in 2022. The most significant volatility occurred in 2023, where the margin plummeted to -39.33%. This suggests that the cost of capital far exceeded the operating returns relative to the diminished revenue base, representing a critical decline in economic efficiency.
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