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
3M Co., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 6,058 – 14.34% × 39,156 = 445
An analysis of the economic profit from 2017 to 2021 reveals a period of significant volatility, characterized by a transition from value creation to value destruction in 2019, followed by a gradual recovery in subsequent years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a generally positive trajectory, growing from 5,388 million US$ in 2017 to 6,058 million US$ by 2021. A notable contraction occurred in 2019, where profit fell to 4,679 million US$, representing the lowest point in the five-year period before rebounding strongly in 2020 and 2021.
- Invested Capital and Cost of Capital
- Invested capital remained relatively stable between 2017 and 2018 but experienced a substantial increase in 2019, rising from 31,616 million US$ to 38,698 million US$. This capital base continued to expand slightly through 2021. Concurrently, the cost of capital remained stable, fluctuating within a narrow range between 14.09% and 15.29%.
- Economic Profit Dynamics
- Economic profit peaked in 2018 at 850 million US$ before plummeting to a deficit of 775 million US$ in 2019. This negative result was driven by the simultaneous occurrence of declining NOPAT and a sharp increase in invested capital, indicating that the returns on the expanded capital base failed to meet the cost of capital during that period. A recovery was observed in 2020 and 2021, with economic profit returning to positive values of 242 million US$ and 445 million US$, respectively, as NOPAT growth began to offset the higher capital requirements.
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Net Operating Profit after Taxes (NOPAT)
3M Co., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in product warranty liabilities.
5 Addition of increase (decrease) in accrued restructuring action balances.
6 Addition of increase (decrease) in equity equivalents to net income attributable to 3M.
7 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 854 × 1.80% = 15
8 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 503 × 21.00% = 106
9 Addition of after taxes interest expense to net income attributable to 3M.
10 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 26 × 21.00% = 5
11 Elimination of after taxes investment income.
Between 2017 and 2021, the operating performance and net profitability of the organization demonstrated a fluctuating trajectory characterized by a significant dip in 2019 followed by a period of sustained recovery and growth.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT experienced growth from US$ 5,388 million in 2017 to US$ 5,630 million in 2018, before declining to a five-year low of US$ 4,679 million in 2019. A strong rebound occurred in 2020, with NOPAT rising to US$ 5,797 million, and further increasing to US$ 6,058 million by 2021. This indicates a recovery in core operating efficiency and profitability following the 2019 contraction.
- Correlation Between NOPAT and Net Income
- Net income attributable to the company closely mirrored the movements of NOPAT throughout the period. Both metrics declined in 2019 and rose consistently through 2021. This synchronization suggests that the primary drivers of bottom-line volatility were linked to operating performance rather than non-operating anomalies.
- Comparative Analysis of Operating vs. Net Profit
- A consistent gap is observed where NOPAT remained higher than net income in every reported year. For instance, in 2021, NOPAT was US$ 6,058 million compared to a net income of US$ 5,921 million. This variance implies that non-operating items, such as interest expenses or other non-operating financial charges, exerted a downward pressure on the final net income relative to the pure operating profit after taxes.
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Cash Operating Taxes
3M Co., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
An analysis of tax expenditures between 2017 and 2021 reveals a pronounced decline in both accounting provisions and actual cash outflows, followed by a period of relative stabilization. Both metrics peaked in 2017 and reached their lowest points in 2019, indicating a significant reduction in the company's tax burden during the early part of the period.
- Provision for Income Taxes Trend
- A substantial decrease is observed from 2017 to 2019, where the provision fell from 2,679 million US$ to 1,130 million US$, representing a reduction of approximately 57.8%. Following this trough, the provision stabilized, recording 1,318 million US$ in 2020 and 1,285 million US$ in 2021.
- Cash Operating Taxes Trend
- Cash outflows for taxes followed a similar trajectory, declining from 2,524 million US$ in 2017 to a low of 1,349 million US$ in 2019. A moderate increase occurred in 2020 to 1,585 million US$, with a slight adjustment to 1,557 million US$ by the end of 2021.
- Variance Between Provision and Cash Outflows
- A shift in the relationship between tax provisions and cash payments occurred after 2017. In 2017, the provision for income taxes exceeded cash operating taxes by 155 million US$. However, from 2018 through 2021, cash operating taxes consistently exceeded the accounting provision. This divergence widened progressively, with the gap increasing from 174 million US$ in 2018 to 272 million US$ in 2021, suggesting a growing difference between recognized tax expenses and actual cash settlements.
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Invested Capital
3M Co., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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 product warranty liabilities.
6 Addition of accrued restructuring action balances.
7 Addition of equity equivalents to total 3M Company shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of construction in progress.
10 Subtraction of marketable securities.
The financial trajectory between 2017 and 2021 reveals a significant expansion and subsequent stabilization of the capital base. The shift is characterized by a notable increase in the total amount of capital deployed, with a changing reliance between debt and equity financing over the five-year period.
- Total Reported Debt and Leases
- A period of volatility is observed in debt levels, which rose moderately from 15,091 million US$ in 2017 to 15,714 million US$ in 2018. A substantial spike occurred in 2019, with debt reaching a peak of 21,299 million US$. Following this peak, a consistent downward trend emerged, with totals decreasing to 19,775 million US$ in 2020 and further to 18,317 million US$ by the end of 2021.
- Total Shareholders’ Equity
- Equity experienced an initial contraction in 2018, falling to 9,796 million US$ from 11,563 million US$ in 2017. From 2019 onward, a steady and progressive recovery is evident. Equity grew annually, reaching 12,867 million US$ in 2020 and peaking at 15,046 million US$ in 2021, suggesting a strengthening of the internal capital position.
- Invested Capital Analysis
- Invested capital remained relatively flat between 2017 and 2018, followed by a sharp increase in 2019 to 38,698 million US$. This growth coincides with the spike in reported debt during the same year. From 2019 through 2021, invested capital entered a plateau phase, showing minimal growth to reach 39,156 million US$ by December 31, 2021. The stability of the invested capital in the final three years is attributable to the growth in shareholders' equity offsetting the simultaneous reduction in total debt.
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Cost of Capital
3M Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 93,455) | 93,455) | ÷ | 113,317) | = | 0.82 | 0.82 | × | 16.94% | = | 13.97% | ||
| Debt and finance lease liabilities3 | 19,008) | 19,008) | ÷ | 113,317) | = | 0.17 | 0.17 | × | 2.70% × (1 – 21.00%) | = | 0.36% | ||
| Operating lease liability4 | 854) | 854) | ÷ | 113,317) | = | 0.01 | 0.01 | × | 1.80% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 113,317) | 1.00 | 14.34% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 102,559) | 102,559) | ÷ | 124,841) | = | 0.82 | 0.82 | × | 16.94% | = | 13.91% | ||
| Debt and finance lease liabilities3 | 21,417) | 21,417) | ÷ | 124,841) | = | 0.17 | 0.17 | × | 2.68% × (1 – 21.00%) | = | 0.36% | ||
| Operating lease liability4 | 865) | 865) | ÷ | 124,841) | = | 0.01 | 0.01 | × | 2.40% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 124,841) | 1.00 | 14.29% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 93,759) | 93,759) | ÷ | 116,015) | = | 0.81 | 0.81 | × | 16.94% | = | 13.69% | ||
| Debt and finance lease liabilities3 | 21,402) | 21,402) | ÷ | 116,015) | = | 0.18 | 0.18 | × | 2.67% × (1 – 21.00%) | = | 0.39% | ||
| Operating lease liability4 | 854) | 854) | ÷ | 116,015) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 116,015) | 1.00 | 14.09% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 115,068) | 115,068) | ÷ | 130,957) | = | 0.88 | 0.88 | × | 16.94% | = | 14.88% | ||
| Debt and finance lease liabilities3 | 14,889) | 14,889) | ÷ | 130,957) | = | 0.11 | 0.11 | × | 2.43% × (1 – 21.00%) | = | 0.22% | ||
| Operating lease liability4 | 1,000) | 1,000) | ÷ | 130,957) | = | 0.01 | 0.01 | × | 3.15% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 130,957) | 1.00 | 15.12% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 132,731) | 132,731) | ÷ | 148,261) | = | 0.90 | 0.90 | × | 16.94% | = | 15.16% | ||
| Debt and finance lease liabilities3 | 14,461) | 14,461) | ÷ | 148,261) | = | 0.10 | 0.10 | × | 1.97% × (1 – 35.00%) | = | 0.12% | ||
| Operating lease liability4 | 1,069) | 1,069) | ÷ | 148,261) | = | 0.01 | 0.01 | × | 0.75% × (1 – 35.00%) | = | 0.00% | ||
| Total: | 148,261) | 1.00 | 15.29% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
3M Co., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 445) | 242) | (775) | 850) | 448) | |
| Invested capital2 | 39,156) | 38,880) | 38,698) | 31,616) | 32,308) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 1.14% | 0.62% | -2.00% | 2.69% | 1.39% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -19.01% | — | — | — | — | |
| Caterpillar Inc. | -5.60% | — | — | — | — | |
| Eaton Corp. plc | -9.30% | — | — | — | — | |
| GE Aerospace | -18.58% | — | — | — | — | |
| Honeywell International Inc. | -2.03% | — | — | — | — | |
| Lockheed Martin Corp. | 14.99% | — | — | — | — | |
| RTX Corp. | -4.36% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 445 ÷ 39,156 = 1.14%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by significant volatility in economic value creation, punctuated by a sharp contraction in 2019 followed by a gradual recovery phase.
- Economic Profit Trends
- Economic profit experienced an initial increase, rising from 448 million US dollars in 2017 to a peak of 850 million US dollars in 2018. This positive momentum was reversed in 2019, when economic profit fell to negative 775 million US dollars. A recovery phase began in 2020 with a return to positive territory at 242 million US dollars, eventually reaching 445 million US dollars by the end of 2021, effectively returning to the levels observed at the start of the period.
- Invested Capital Expansion
- Invested capital remained relatively stable between 2017 and 2018, hovering around 32 billion US dollars. A substantial increase occurred in 2019, where capital expanded to 38.698 billion US dollars. This expanded capital base was maintained through 2020 and 2021, ending the period at 39.156 billion US dollars, which represents an overall increase of approximately 21% compared to 2017 levels.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility observed in economic profit. After peaking at 2.69% in 2018, the ratio dropped sharply to negative 2.00% in 2019, indicating that the return on invested capital fell below the weighted average cost of capital during that year. The ratio subsequently recovered to 0.62% in 2020 and 1.14% in 2021. While the spread returned to positive territory, the 2021 ratio remained below the 2017 baseline of 1.39% despite the significantly larger capital base.
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Economic Profit Margin
3M Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 445) | 242) | (775) | 850) | 448) | |
| Net sales | 35,355) | 32,184) | 32,136) | 32,765) | 31,657) | |
| Add: Increase (decrease) in deferred revenue | 31) | 68) | (187) | 104) | (16) | |
| Adjusted net sales | 35,386) | 32,252) | 31,949) | 32,869) | 31,641) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 1.26% | 0.75% | -2.43% | 2.59% | 1.42% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.10% | — | — | — | — | |
| Caterpillar Inc. | -6.46% | — | — | — | — | |
| Eaton Corp. plc | -13.96% | — | — | — | — | |
| GE Aerospace | -18.76% | — | — | — | — | |
| Honeywell International Inc. | -2.84% | — | — | — | — | |
| Lockheed Martin Corp. | 6.40% | — | — | — | — | |
| RTX Corp. | -7.58% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × 445 ÷ 35,386 = 1.26%
3 Click competitor name to see calculations.
Between 2017 and 2021, the company's economic profit and corresponding margins exhibited significant volatility, characterized by a sharp contraction in 2019 followed by a gradual recovery through 2021.
- Economic Profit Trends
- Economic profit increased from 448 million USD in 2017 to a peak of 850 million USD in 2018. This growth was followed by a substantial reversal in 2019, where profit declined to negative 775 million USD. A recovery phase ensued in 2020, with profit returning to positive territory at 242 million USD, and further improving to 445 million USD by the end of 2021.
- Adjusted Net Sales Performance
- Revenue levels remained relatively stable between 2017 and 2020, fluctuating within a range of 31.6 billion USD to 32.9 billion USD. A notable expansion occurred in 2021, with adjusted net sales rising to 35.4 billion USD, marking the highest revenue level during the period analyzed.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility observed in absolute profit figures. The margin expanded from 1.42% in 2017 to a period high of 2.59% in 2018. The sharp decline in 2019 resulted in a negative margin of -2.43%, indicating that returns fell below the cost of capital for that fiscal year. Subsequent recovery brought the margin to 0.75% in 2020 and 1.26% in 2021, although the 2021 margin remained below the 2018 peak despite higher net sales.
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