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
eBay Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,553 – 16.15% × 7,597 = 1,326
The financial performance from 2014 to 2018 is characterized by significant volatility in operational earnings and a substantial contraction of the capital base, which directly influenced the generation of economic profit.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT experienced a non-linear trajectory, starting at 2,846 million USD in 2014 and declining to a low of 821 million USD in 2017. A sharp recovery occurred in 2018, with profit increasing to 2,553 million USD, indicating a restoration of operational efficiency toward levels seen at the start of the period.
- Invested Capital and Capital Charge
- A profound reduction in invested capital occurred between 2014 and 2015, falling from 20,937 million USD to 7,328 million USD. This represents a significant structural adjustment in the asset base. Following this shift, the invested capital remained relatively stable, fluctuating between 6,903 million USD and 7,597 million USD through 2018.
- Cost of Capital
- The cost of capital remained relatively consistent throughout the five-year period, exhibiting a slight downward trend from 18.24% in 2014 to 16.15% in 2018. This suggests a stable risk profile and a consistent weighted average cost of funding despite the volatility in operational profits.
- Economic Profit Trends
- Economic profit shifted from a deficit of 973 million USD in 2014 to positive values in 2015 and 2016. The initial deficit was driven by a high capital charge relative to NOPAT. Although the capital base was reduced, economic profit returned to a negative value in 2017 (-332 million USD) coinciding with the lowest NOPAT of the period. The cycle concluded with a peak economic profit of 1,326 million USD in 2018, resulting from the recovery of NOPAT applied against a maintained lean capital structure.
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Net Operating Profit after Taxes (NOPAT)
eBay Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts and authorized credits.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in restructuring reserve.
5 Addition of increase (decrease) in equity equivalents to net income (loss).
6 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 515 × 3.45% = 18
7 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 344 × 21.00% = 72
8 Addition of after taxes interest expense to net income (loss).
9 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 175 × 21.00% = 37
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
The financial performance between 2014 and 2018 is characterized by significant volatility in net income contrasted with a more stable, though fluctuating, trend in net operating profit after taxes (NOPAT).
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT experienced an initial decline from US$ 2,846 million in 2014 to US$ 1,944 million in 2015, remaining relatively stagnant through 2016. A significant contraction was observed in 2017, where NOPAT reached a period low of US$ 821 million, before recovering to US$ 2,553 million in 2018.
- Net Income Volatility
- Net income exhibited extreme variance over the five-year period. Following a low baseline in 2014, a sharp increase occurred, peaking at US$ 7,266 million in 2016. This was followed by a substantial reversal in 2017, resulting in a net loss of US$ 1,016 million, before returning to a positive value of US$ 2,530 million in 2018.
- Operational versus Net Performance Divergence
- A pronounced divergence between operating profitability and net results is evident. In 2016, net income substantially exceeded NOPAT, suggesting the impact of significant non-operating gains. In contrast, during 2017, the entity maintained positive operational profitability (NOPAT of US$ 821 million) while reporting a net loss, indicating that non-operating charges or one-time expenses heavily influenced the bottom line.
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Cash Operating Taxes
eBay Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
The financial records exhibit a significant divergence between the accrual-based provision for income taxes and the actual cash operating taxes paid between 2014 and 2018. While the tax provision shows extreme volatility, including a substantial tax benefit in 2016, the cash operating taxes remained relatively stable for much of the period, with one notable exception in 2017.
- Volatility of Tax Provisions
- The provision for income taxes demonstrates high instability, fluctuating from 3,485 million USD in 2014 to a tax benefit of 3,634 million USD in 2016, before returning to 3,288 million USD in 2017. This erratic pattern suggests the influence of significant non-cash adjustments, deferred tax assets, or one-time accounting events rather than a direct reflection of annual operational profitability.
- Cash Operating Tax Trends
- Cash operating taxes remained consistent between 2014 and 2016, ranging from 505 million USD to 659 million USD. A sharp increase occurred in 2017, where cash taxes peaked at 1,600 million USD, representing a more than threefold increase over the previous year. By 2018, cash taxes reverted to a lower level of 378 million USD, the lowest point in the five-year period analyzed.
- Accrual versus Cash Divergence
- A marked disconnect is observable between the tax expense recorded and the actual cash outflow. In 2016, despite reporting a tax benefit of 3,634 million USD, the company still incurred a cash tax payment of 505 million USD. Similarly, the 2018 provision of 190 million USD closely aligns with the cash outflow of 378 million USD, contrasting with the 2017 period where the provision exceeded cash payments by approximately 1,688 million USD.
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Invested Capital
eBay Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
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 deferred revenue.
5 Addition of restructuring reserve.
6 Addition of equity equivalents to stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of marketable securities.
A significant contraction in the capital base is evident between 2014 and 2015, followed by a period of relative stabilization in invested capital through 2018. The transition indicates a fundamental shift in the company's financial structure and capital allocation strategy over the five-year period.
- Invested Capital Trajectory
- Invested capital experienced a precipitous decline from 20,937 million US dollars in 2014 to 7,328 million US dollars in 2015. Following this sharp decrease, the figure remained relatively stable, fluctuating within a narrow range between 6,903 million US dollars in 2017 and 7,687 million US dollars in 2016, ending the period at 7,597 million US dollars in 2018.
- Stockholders' Equity Volatility
- Stockholders' equity showed extreme volatility, decreasing from a peak of 19,906 million US dollars in 2014 to 6,576 million US dollars in 2015. Although a partial recovery occurred in 2016, reaching 10,539 million US dollars, a subsequent downward trend followed, resulting in a balance of 6,281 million US dollars by December 31, 2018.
- Debt and Lease Obligations
- Total reported debt and leases exhibited a more moderate trend compared to equity. After a slight dip in 2015, obligations rose steadily to peak at 10,296 million US dollars in 2017, before declining slightly to 9,746 million US dollars in 2018. This suggests an increasing reliance on debt to support the capital structure as the equity base contracted.
- Capital Structure Shift
- The relationship between debt and equity shifted dramatically. In 2014, the capital structure was heavily weighted toward stockholders' equity. By 2018, total reported debt and leases exceeded stockholders' equity, reflecting a significant increase in financial leverage and a reduction in the total invested capital required to sustain the business model.
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Cost of Capital
eBay Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 31,179) | 31,179) | ÷ | 40,698) | = | 0.77 | 0.77 | × | 20.25% | = | 15.51% | ||
| Debt3 | 9,004) | 9,004) | ÷ | 40,698) | = | 0.22 | 0.22 | × | 3.45% × (1 – 21.00%) | = | 0.60% | ||
| Operating lease liability4 | 515) | 515) | ÷ | 40,698) | = | 0.01 | 0.01 | × | 3.45% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 40,698) | 1.00 | 16.15% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 42,882) | 42,882) | ÷ | 53,294) | = | 0.80 | 0.80 | × | 20.25% | = | 16.29% | ||
| Debt3 | 10,131) | 10,131) | ÷ | 53,294) | = | 0.19 | 0.19 | × | 3.30% × (1 – 35.00%) | = | 0.41% | ||
| Operating lease liability4 | 281) | 281) | ÷ | 53,294) | = | 0.01 | 0.01 | × | 3.30% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 53,294) | 1.00 | 16.71% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 34,818) | 34,818) | ÷ | 43,932) | = | 0.79 | 0.79 | × | 20.25% | = | 16.05% | ||
| Debt3 | 8,902) | 8,902) | ÷ | 43,932) | = | 0.20 | 0.20 | × | 3.07% × (1 – 35.00%) | = | 0.40% | ||
| Operating lease liability4 | 212) | 212) | ÷ | 43,932) | = | 0.00 | 0.00 | × | 3.07% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 43,932) | 1.00 | 16.46% | ||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 28,218) | 28,218) | ÷ | 34,925) | = | 0.81 | 0.81 | × | 20.25% | = | 16.36% | ||
| Debt3 | 6,500) | 6,500) | ÷ | 34,925) | = | 0.19 | 0.19 | × | 2.53% × (1 – 35.00%) | = | 0.31% | ||
| Operating lease liability4 | 206) | 206) | ÷ | 34,925) | = | 0.01 | 0.01 | × | 2.53% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 34,925) | 1.00 | 16.68% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 65,948) | 65,948) | ÷ | 73,885) | = | 0.89 | 0.89 | × | 20.25% | = | 18.07% | ||
| Debt3 | 7,519) | 7,519) | ÷ | 73,885) | = | 0.10 | 0.10 | × | 2.41% × (1 – 35.00%) | = | 0.16% | ||
| Operating lease liability4 | 419) | 419) | ÷ | 73,885) | = | 0.01 | 0.01 | × | 2.41% × (1 – 35.00%) | = | 0.01% | ||
| Total: | 73,885) | 1.00 | 18.24% | ||||||||||
Based on: 10-K (reporting date: 2014-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
eBay Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 1,326) | (332) | 689) | 722) | (973) | |
| Invested capital2 | 7,597) | 6,903) | 7,687) | 7,328) | 20,937) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 17.46% | -4.82% | 8.97% | 9.86% | -4.65% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Amazon.com Inc. | — | — | — | — | — | |
| Home Depot Inc. | — | — | — | — | — | |
| Lowe’s Cos. Inc. | — | — | — | — | — | |
| TJX Cos. Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,326 ÷ 7,597 = 17.46%
4 Click competitor name to see calculations.
The period from 2014 to 2018 was marked by significant volatility in economic value creation and a substantial reduction in the capital base. The overall trajectory indicates a transition toward higher capital efficiency, culminating in a strong positive economic spread by the end of the period.
- Invested Capital Trends
- A sharp contraction in invested capital occurred between 2014 and 2015, decreasing from 20,937 million to 7,328 million. Following this significant reduction, the capital base remained relatively stable, fluctuating between 6,903 million and 7,687 million through 2018.
- Economic Profit Fluctuations
- Economic profit exhibited an inconsistent trend, alternating between positive and negative values. A loss of 973 million in 2014 improved to gains in 2015 and 2016, followed by a dip to -332 million in 2017. The period concluded with a peak economic profit of 1,326 million in 2018, representing the highest value achieved within the analyzed timeframe.
- Economic Spread Ratio Performance
- The economic spread ratio closely tracked the fluctuations in economic profit. After starting at -4.65% in 2014, the ratio rose to 9.86% in 2015 and 8.97% in 2016. A return to negative territory occurred in 2017 at -4.82%, before surging to a period high of 17.46% in 2018. This final increase indicates a substantial expansion in the margin between the return on invested capital and the company's cost of capital.
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Economic Profit Margin
eBay Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 1,326) | (332) | 689) | 722) | (973) | |
| Net revenues | 10,746) | 9,567) | 8,979) | 8,592) | 17,902) | |
| Add: Increase (decrease) in deferred revenue | 33) | 7) | 4) | (2) | 30) | |
| Adjusted net revenues | 10,779) | 9,574) | 8,983) | 8,590) | 17,932) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 12.31% | -3.47% | 7.68% | 8.41% | -5.43% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Amazon.com Inc. | — | — | — | — | — | |
| Home Depot Inc. | — | — | — | — | — | |
| Lowe’s Cos. Inc. | — | — | — | — | — | |
| TJX Cos. Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 Economic profit. See details »
2 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × 1,326 ÷ 10,779 = 12.31%
3 Click competitor name to see calculations.
Between 2014 and 2018, the company experienced significant volatility in its ability to generate economic profit, characterized by alternating periods of value creation and value destruction. A notable structural shift occurred in adjusted net revenues between 2014 and 2015, followed by a consistent upward trajectory in both top-line revenue and economic profitability through 2018.
- Adjusted Net Revenue Trends
- A substantial contraction in adjusted net revenues is observed between 2014 and 2015, where figures decreased from 17,932 million US$ to 8,590 million US$. Following this sharp decline, revenues exhibited a steady growth pattern, increasing annually to reach 10,779 million US$ by December 31, 2018.
- Economic Profit Volatility
- Economic profit demonstrated an inconsistent trend, starting with a deficit of 973 million US$ in 2014. While a recovery occurred in 2015 and 2016 with profits of 722 million US$ and 689 million US$ respectively, a reversal took place in 2017 with a loss of 332 million US$. The period concluded with a significant peak in 2018, reaching 1,326 million US$, marking the highest level of economic profit within the analyzed timeframe.
- Economic Profit Margin Performance
- The economic profit margin mirrored the volatility of the absolute economic profit figures. The margin shifted from -5.43% in 2014 to a positive 8.41% in 2015, before declining to -3.47% in 2017. By the end of 2018, the margin expanded to 12.31%, indicating a substantial improvement in the efficiency of capital utilization relative to adjusted net revenues.
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