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 = -4,845
The analysis of economic value added over the six-year period reveals a persistent failure to generate positive economic profit, indicating that the returns on invested capital have consistently remained below the required cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme volatility throughout the period. Following a significant drop to negative 15 million US dollars in 2019, the metric recovered steadily, reaching a peak of 1,840 million US dollars in 2022. However, this trend reversed sharply in 2023, with NOPAT falling to negative 1,604 million US dollars.
- Invested Capital
- A consistent downward trend in invested capital is observed, declining from 22,667 million US dollars in 2018 to 18,928 million US dollars in 2023. This steady reduction suggests a contraction in the total capital employed in operations over the analyzed timeframe.
- Cost of Capital
- The cost of capital remained relatively stable, oscillating between a low of 14.36% in 2020 and a high of 18.01% in 2022. The stability of this rate indicates that the fluctuations in economic profit were primarily driven by operational performance rather than shifts in the cost of financing.
- Economic Profit
- Economic profit remained negative for all six years, signifying continuous value destruction. Although the deficit narrowed from 2,954 million US dollars in 2018 to 1,719 million US dollars in 2022, the 2023 fiscal year experienced a severe deterioration, with the economic profit dropping to negative 4,845 million US dollars. This indicates that the company's operational losses in 2023, combined with the capital charge, significantly amplified the erosion of shareholder value.
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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 | 18.01% | ||||||||||
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% | = | 14.88% | ||
| 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 | (4,845) | (1,719) | (2,643) | (2,788) | (3,414) | (2,954) | |
| Invested capital2 | 18,928) | 19,768) | 19,579) | 19,684) | 21,085) | 22,667) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -25.60% | -8.70% | -13.50% | -14.17% | -16.19% | -13.03% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Apple Inc. | 137.62% | 199.14% | 195.50% | 143.47% | — | — | |
| Arista Networks Inc. | 20.62% | 16.15% | 31.20% | — | — | — | |
| Cisco Systems Inc. | 6.45% | 6.37% | 5.62% | 9.92% | — | — | |
| Dell Technologies Inc. | -0.65% | 3.23% | -1.30% | — | — | — | |
| Lumentum Holdings Inc. | -17.16% | -5.23% | 7.20% | -4.29% | — | — | |
| Super Micro Computer Inc. | 4.24% | -4.67% | -12.64% | -15.58% | — | — | |
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 × -4,845 ÷ 18,928 = -25.60%
4 Click competitor name to see calculations.
An analysis of the economic value added metrics reveals a persistent inability to generate positive economic profit over the six-year period ending June 30, 2023. The company consistently operated below its cost of capital, resulting in negative economic spread ratios across all reported years.
- Economic Profit Trends
- Economic profit remained negative throughout the period, characterized by significant volatility. While there was a trend of improvement between 2020 and 2022, where losses narrowed from $2.788 billion to a low of $1.719 billion, this progress was reversed in 2023. The final year saw a substantial decline, with economic profit dropping to negative $4.845 billion, the lowest point in the observed timeframe.
- Invested Capital Dynamics
- A gradual decline in invested capital is observed, decreasing from $22.667 billion in 2018 to $18.928 billion in 2023. This overall contraction of the capital base occurred despite a slight increase in 2022, suggesting a long-term reduction in the total assets deployed to generate returns.
- Economic Spread Ratio Performance
- The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, remained negative, indicating value destruction. The ratio improved from -16.19% in 2019 to a peak of -8.70% in 2022. However, a severe deterioration occurred in 2023, with the ratio falling to -25.60%, reflecting a sharp increase in the gap between actual returns and the required cost of capital.
The correlation between the narrowing of economic losses and the improvement in the spread ratio up to 2022 suggests a period of operational stabilization. However, the abrupt decline in 2023 indicates a significant increase in economic value erosion, as the spread ratio reached its most negative level despite a continuing decrease in the total invested capital base.
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Economic Profit Margin
Western Digital Corp., economic profit margin calculation, comparison to benchmarks
| Jun 30, 2023 | Jul 1, 2022 | Jul 2, 2021 | Jul 3, 2020 | Jun 28, 2019 | Jun 29, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (4,845) | (1,719) | (2,643) | (2,788) | (3,414) | (2,954) | |
| Revenue, net | 12,318) | 18,793) | 16,922) | 16,736) | 16,569) | 20,647) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -39.33% | -9.15% | -15.62% | -16.66% | -20.61% | -14.31% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Apple Inc. | 21.65% | 23.53% | 22.71% | 18.80% | — | — | |
| Arista Networks Inc. | 15.57% | 11.13% | 18.27% | — | — | — | |
| Cisco Systems Inc. | 6.42% | 7.15% | 6.26% | 10.35% | — | — | |
| Dell Technologies Inc. | -0.36% | 1.69% | -1.11% | — | — | — | |
| Lumentum Holdings Inc. | -28.16% | -7.64% | 8.12% | -4.09% | — | — | |
| Super Micro Computer Inc. | 1.43% | -1.99% | -4.56% | -5.78% | — | — | |
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 × -4,845 ÷ 12,318 = -39.33%
3 Click competitor name to see calculations.
An analysis of the financial performance from June 2018 to June 2023 reveals a persistent inability to generate positive economic value added. The company operated with a negative economic profit throughout the entire six-year period, indicating that the returns on invested capital did not exceed the cost of that capital.
- Economic Profit Trends
- Economic profit exhibited significant volatility, starting at -2,954 million USD in 2018 and worsening to -3,414 million USD in 2019. A gradual recovery phase occurred between 2020 and 2022, with losses narrowing to a period low of -1,719 million USD. However, this trend reversed sharply in 2023, with economic profit plummeting to -4,845 million USD, the lowest point in the observed timeframe.
- Revenue Correlation
- Net revenue showed a fluctuating pattern that heavily influenced the economic profit outcomes. Following a decline from 20,647 million USD in 2018 to approximately 16,500-16,900 million USD between 2019 and 2021, revenue recovered to 18,793 million USD in 2022. The subsequent collapse in revenue to 12,318 million USD in 2023 coincided with the most severe economic loss, suggesting a high sensitivity of economic value to top-line performance.
- Economic Profit Margin Analysis
- The economic profit margin remained negative for all recorded years, reflecting a continuous erosion of shareholder value. The margin deteriorated from -14.31% in 2018 to -20.61% in 2019, before improving steadily to its peak of -9.15% in 2022. This improvement was abruptly erased in 2023, as the margin expanded to -39.33%, signaling a drastic decline in capital efficiency and operational profitability relative to the cost of capital.
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