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 – 17.08% × 18,928 = -4,837
An analysis of the economic profit over the period from June 2018 to June 2023 reveals a consistent trend of value destruction. The organization failed to generate a positive economic profit in any of the reported fiscal years, indicating that operating returns were systematically insufficient to cover the cost of the capital employed.
- Net Operating Profit After Taxes (NOPAT) Volatility
- Operating profitability exhibited extreme fluctuations throughout the period. After a period of relative instability between 2018 and 2020, NOPAT saw a significant increase, peaking at 1,840 million US dollars in July 2022. However, this growth was short-lived, as the figure plummeted to negative 1,604 million US dollars by June 2023, marking a severe contraction in operating performance.
- Capital Structure and Cost of Capital
- Invested capital demonstrated a gradual and steady decline, moving from 22,667 million US dollars in June 2018 to 18,928 million US dollars in June 2023. Simultaneously, the cost of capital remained relatively stable, oscillating within a narrow range between 14.32% and 17.96%. The stability of the cost of capital suggests that the fluctuations in economic profit were driven primarily by operational performance rather than changes in the weighted average cost of capital.
- Economic Profit Trends
- Economic profit remained negative for the entire six-year duration. The lowest point of value creation occurred in June 2023, with an economic profit of negative 4,837 million US dollars. A period of relative improvement was observed in July 2022, where economic profit rose to negative 1,710 million US dollars, directly correlating with the peak in NOPAT. Despite the reduction in the total invested capital base, the operating returns were not sufficient to bridge the gap to a positive economic value added state.
The convergence of high cost of capital and volatile NOPAT has resulted in a sustained inability to generate economic value. The sharp decline in the final reported year indicates an acceleration of value destruction, as the company faced both a collapse in operating profit and a high hurdle rate for its remaining invested capital.
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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.
The financial performance over the observed six-year period is characterized by extreme volatility, with both net income and net operating profit after taxes (NOPAT) experiencing alternating cycles of significant gains and substantial losses. A general pattern of instability is evident, culminating in a sharp peak in 2022 followed by a severe contraction in 2023.
- NOPAT Performance Trends
- Net operating profit after taxes exhibited significant fluctuations, starting at US$ 782 million in 2018 and declining to US$ -15 million in 2019. After a period of relative stability near the break-even point in 2020 (US$ 38 million), a strong upward trajectory occurred, peaking at US$ 1,840 million in 2022. This growth was abruptly reversed in 2023, with NOPAT falling to a period low of US$ -1,604 million.
- Correlation Between NOPAT and Net Income
- While both metrics generally move in the same direction, a notable divergence occurred between 2019 and 2020. During this window, net income reported significant losses of US$ -754 million and US$ -250 million, whereas NOPAT remained near the break-even threshold. This discrepancy suggests that during those specific years, non-operating items or financing costs had a more detrimental impact on the bottom line than the core operational performance.
- Operational Volatility Analysis
- The data indicates a highly unstable operational environment. The transition from a peak NOPAT of US$ 1,840 million in 2022 to a loss of US$ -1,604 million in 2023 represents a swing of US$ 3,444 million within a single fiscal year. This magnitude of variance reflects substantial instability in the company's ability to maintain consistent positive economic value added from its operations.
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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).
An analysis of the fiscal periods from June 2018 through June 2023 reveals significant volatility in both tax-related metrics. The divergence between accrual-based tax expenses and actual cash outflows indicates substantial timing differences and non-cash adjustments, which are critical factors when determining the actual cash flow available for Economic Value Added (EVA) calculations.
- Cash Operating Taxes Trend
- A precipitous decline in cash outflows occurred between June 2018 and June 2019, with payments falling from US$ 1,932 million to US$ 181 million. Following this sharp contraction, a consistent recovery trend was observed from 2020 through 2022, during which cash taxes increased annually to reach US$ 574 million. This growth trend reversed in June 2023, with cash operating taxes decreasing to US$ 243 million.
- Income Tax Expense Trend
- Accrual-based income tax expenses showed a general downward trajectory from 2018 to 2021, declining from US$ 1,410 million to a period low of US$ 106 million. A notable anomaly occurred in July 2022, where the expense spiked to US$ 623 million, before sharply retreating to US$ 146 million by June 2023.
- Cash-to-Accrual Variance
- The relationship between cash operating taxes and income tax expense remained inconsistent across the six-year period. In 2018, 2020, 2021, and 2023, cash operating taxes exceeded the recognized income tax expense, suggesting that cash outflows for taxation were higher than the period's reported accruals. In contrast, during 2019 and 2022, the income tax expense exceeded the actual cash paid, indicating that a portion of the tax burden was deferred or offset by non-cash tax assets.
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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.
A sustained reduction in the overall capital base is observed over the six-year period from June 2018 to June 2023. Invested capital declined from 22,667 million US dollars to 18,928 million US dollars, representing a total decrease of approximately 16.5%. This trend indicates a contraction in the total resources deployed within the business to generate value.
- Invested Capital Trajectory
- The total invested capital exhibited a nearly continuous downward trend, with a brief stabilization between July 2020 and July 2022. The most significant contraction occurred between 2018 and 2020, after which the capital base remained relatively flat before another decline in 2023.
- Debt and Lease Obligations
- A significant driver of the reduction in invested capital is the aggressive deleveraging strategy. Total reported debt and leases fell from 11,344 million US dollars in June 2018 to 7,354 million US dollars by June 2023. This represents a reduction of nearly 35%, suggesting a focused effort to lower financial leverage and reduce interest-bearing liabilities.
- Shareholders' Equity Dynamics
- Shareholders' equity demonstrated more volatility compared to the debt component. After an initial decline from 11,531 million US dollars in 2018 to a low of 9,551 million US dollars in 2020, equity grew steadily to peak at 12,221 million US dollars in July 2022. A slight moderation followed, ending the period at 11,723 million US dollars.
The divergence between the debt and equity trends reveals that the decline in invested capital was primarily facilitated by the reduction of liabilities rather than a loss of equity. By June 2023, the composition of invested capital shifted toward a higher proportion of equity financing, as debt levels reached their lowest point in the analyzed period while equity remained close to its 2018 levels.
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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 | × | 24.99% | = | 15.59% | ||
| 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 | 17.08% | ||||||||||
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 | × | 24.99% | = | 17.08% | ||
| 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 | 17.96% | ||||||||||
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 | × | 24.99% | = | 16.87% | ||
| 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 | 17.50% | ||||||||||
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 | × | 24.99% | = | 13.42% | ||
| 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 | 14.32% | ||||||||||
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 | × | 24.99% | = | 14.84% | ||
| 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 | 16.08% | ||||||||||
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 | × | 24.99% | = | 15.43% | ||
| 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 | 16.44% | ||||||||||
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 | (4,837) | (1,710) | (2,634) | (2,781) | (3,406) | (2,945) | |
| Invested capital2 | 18,928) | 19,768) | 19,579) | 19,684) | 21,085) | 22,667) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -25.56% | -8.65% | -13.45% | -14.13% | -16.15% | -12.99% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Apple Inc. | 138.73% | 200.23% | 196.59% | — | — | — | |
| Arista Networks Inc. | 20.64% | 16.17% | 31.22% | — | — | — | |
| Cisco Systems Inc. | 3.38% | 3.36% | 2.60% | — | — | — | |
| Dell Technologies Inc. | -0.70% | 3.17% | -1.36% | — | — | — | |
| Lumentum Holdings Inc. | -19.00% | -6.33% | 5.99% | — | — | — | |
| Super Micro Computer Inc. | -1.42% | -9.62% | -18.07% | — | — | — | |
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 × -4,837 ÷ 18,928 = -25.56%
4 Click competitor name to see calculations.
The financial performance from 2018 to 2023 is characterized by a consistent failure to generate positive economic value, as evidenced by negative economic profit and a negative economic spread ratio across all reported periods.
- Economic Profit Trends
- Economic profit remained negative throughout the analysis period. After an initial increase in losses in 2019, the figures showed a gradual recovery, reaching a peak in 2022 with a loss of 1,710 million US$. However, this trend reversed sharply in 2023, with economic profit falling to -4,837 million US$, marking the most significant value destruction in the six-year sequence.
- Invested Capital Dynamics
- A general downward trend in invested capital is observed, decreasing from 22,667 million US$ in 2018 to 18,928 million US$ in 2023. The capital base exhibited relative stability between 2020 and 2022, fluctuating within a narrow range around 19,600 million US$, before experiencing a further decline in the final period.
- Economic Spread Ratio Analysis
- The economic spread ratio reflects a persistent gap where the return on invested capital failed to exceed the cost of capital. The ratio fluctuated between -12.99% and -16.15% from 2018 to 2021, followed by a notable improvement to -8.65% in 2022. This relative improvement was followed by a severe contraction in 2023, where the ratio deteriorated to -25.56%, indicating a substantial misalignment between the cost of capital and the returns generated by the invested base.
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Economic Profit Margin
Western Digital Corp., economic profit margin calculation, comparison to benchmarks
| Jun 30, 2023 | Jul 1, 2022 | Jul 2, 2021 | Jul 3, 2020 | Jun 28, 2019 | Jun 29, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (4,837) | (1,710) | (2,634) | (2,781) | (3,406) | (2,945) | |
| Revenue, net | 12,318) | 18,793) | 16,922) | 16,736) | 16,569) | 20,647) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -39.27% | -9.10% | -15.56% | -16.62% | -20.56% | -14.26% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Apple Inc. | 21.82% | 23.66% | 22.84% | — | — | — | |
| Arista Networks Inc. | 15.58% | 11.14% | 18.28% | — | — | — | |
| Cisco Systems Inc. | 3.37% | 3.77% | 2.90% | — | — | — | |
| Dell Technologies Inc. | -0.39% | 1.66% | -1.17% | — | — | — | |
| Lumentum Holdings Inc. | -31.18% | -9.25% | 6.75% | — | — | — | |
| Super Micro Computer Inc. | -0.48% | -4.09% | -6.51% | — | — | — | |
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 × -4,837 ÷ 12,318 = -39.27%
3 Click competitor name to see calculations.
The analyzed period is characterized by a consistent inability to generate positive economic value, as evidenced by negative economic profit across all six fiscal years. While a period of relative stabilization and improvement occurred between 2020 and 2022, the fiscal year ending June 30, 2023, represents a severe deterioration in financial performance.
- Economic Profit Trends
- Economic profit remained negative throughout the period, fluctuating between a peak loss of -4,837 million US dollars in 2023 and a minimum loss of -1,710 million US dollars in 2022. A period of recovery is observed from 2020 to 2022, where losses narrowed steadily. However, this progress was erased in 2023, when economic losses increased by approximately 182% compared to the previous year.
- Revenue Volatility
- Net revenue exhibited significant instability, starting at 20,647 million US dollars in 2018 and ending at its lowest point of 12,318 million US dollars in 2023. A modest recovery trend was visible between 2020 and 2022, with revenue rising from 16,736 million to 18,793 million US dollars, before a sharp contraction of approximately 34% occurred in the final year of the period.
- Economic Profit Margin Analysis
- The economic profit margin reflects a volatile relationship between capital costs and operational returns. The margin deteriorated from -14.26% in 2018 to -20.56% in 2019, followed by a gradual improvement that culminated in a period-low of -9.10% in 2022. The final year saw a critical collapse in the margin to -39.27%, indicating that the decline in revenue was compounded by a substantial increase in economic losses, suggesting a sharp increase in the cost of capital relative to the earnings generated.
The data indicates that the most recent fiscal year experienced a disproportionate collapse in value creation compared to previous cycles. The alignment of the lowest revenue levels with the deepest economic losses in 2023 suggests a significant erosion of operational efficiency and a failure to cover the cost of invested capital.
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