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.
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3M Co. pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Price to FCFE (P/FCFE)
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Analysis of Revenues
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Economic Profit
3M Co., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The financial data reveals several noteworthy trends in the company's operational and financial performance over the five-year period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited an overall upward trend from 2017 to 2021, increasing from 5,388 million US dollars to 6,058 million US dollars. There was a decline in 2019 to 4,679 million US dollars, but the figure rebounded in 2020 and 2021, reaching the highest level in the period analyzed.
- Cost of Capital
- The cost of capital showed a general decreasing trend from 13.06% in 2017 to 12.08% in 2019, followed by a slight increase to around 12.24-12.28% in 2020 and 2021. Despite these fluctuations, the overall cost of capital in 2021 remained below the 2017 level.
- Invested Capital
- Invested capital increased steadily over the period, from 32,308 million US dollars in 2017 to 39,156 million US dollars in 2021. The most significant increase occurred between 2018 and 2019, reflecting an expansion in capital resources employed by the company.
- Economic Profit
- Economic profit demonstrated volatility during the period. After rising from 1,169 million US dollars in 2017 to a peak of 1,543 million US dollars in 2018, it dropped sharply to 5 million US dollars in 2019. Subsequently, it recovered to 1,038 million US dollars in 2020 and further increased to 1,250 million US dollars in 2021. This pattern suggests variability in the company's value creation relative to its cost of capital.
In summary, while the company has increased its invested capital and maintained growth in net operating profit after taxes, the fluctuations in economic profit highlight periods of reduced value creation, notably in 2019. The reduction in cost of capital over the years may have partially supported profitability and economic profit recovery in subsequent years.
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
= × =
8 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
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
= × 21.00% =
11 Elimination of after taxes investment income.
- Net Income Attributable to 3M
- The net income exhibits a fluctuating trend over the five-year period. Starting at 4,858 million USD in 2017, it increased to 5,349 million USD in 2018, indicating a positive growth. However, there was a decline in 2019, with net income falling to 4,570 million USD. This downward shift was followed by a recovery in 2020 and 2021, reaching 5,384 million USD and 5,921 million USD respectively, signaling an overall increasing trajectory towards the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT shows similar variability with a general upward movement. It rose from 5,388 million USD in 2017 to 5,630 million USD in 2018, before dropping to 4,679 million USD in 2019, reflecting a noticeable dip in operational profitability after taxes. Subsequently, NOPAT recovered significantly in 2020 and 2021, achieving 5,797 million USD and 6,058 million USD respectively. This rebound suggests improved operational efficiency and tax impact post-2019.
- Overall Summary
- Both the net income and NOPAT follow a similar pattern characterized by growth in the early years, a decline in 2019, and a strong rebound in the last two years. The dip in 2019 indicates potential challenges during that period, impacting both profitability and operational returns after taxes. The recovery phase through 2020 and 2021 suggests strategic or market conditions improving, leading to enhanced financial performance. The data implies resilience and a return to growth momentum after a temporary setback.
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).
The analysis of the provided financial data reveals a notable trend in the company's tax-related figures over a five-year period from 2017 to 2021.
- Provision for Income Taxes
-
This figure shows a significant and consistent decline from 2017 through 2019, decreasing from US$2,679 million in 2017 to US$1,130 million in 2019. The trend then stabilizes somewhat in the following years, with a slight increase to US$1,318 million in 2020 before a marginal decrease to US$1,285 million in 2021.
- Cash Operating Taxes
-
Cash operating taxes exhibit a similar downward pattern initially, falling from US$2,524 million in 2017 to US$1,349 million in 2019. After this period, the figure rises again in 2020 to US$1,585 million and remains relatively stable into 2021 at US$1,557 million. This suggests some recovery or stabilization in cash tax payments following the prior decline.
Overall, both provisions for income taxes and cash operating taxes experienced a marked reduction between 2017 and 2019. Subsequently, from 2020 onward, there appears to be a trend toward stabilization or slight recovery in tax-related expenses, although these amounts have not returned to the higher levels seen in 2017. This pattern could indicate changes in profitability, tax planning strategies, or tax law impacts over the examined period.
Invested Capital
3M Co., invested capital calculation (financing approach)
US$ 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.
- Total Reported Debt & Leases
- The total reported debt and leases increased notably from 15,091 million USD at the end of 2017 to 21,299 million USD by the end of 2019. However, a declining trend is observed afterward, with the total reducing to 19,775 million USD in 2020 and further to 18,317 million USD in 2021. This indicates an initial period of increased leverage followed by a consistent effort to reduce debt and lease obligations over the last two years.
- Total 3M Company Shareholders’ Equity
- Shareholders’ equity showed a downward trend from 11,563 million USD in 2017 to 9,796 million USD in 2018, indicating a reduction in net assets during that period. From 2018 onwards, equity exhibited a recovery and growth, climbing to 10,063 million USD in 2019, then more significantly increasing to 12,867 million USD in 2020 and reaching 15,046 million USD in 2021. This reflects improving retained earnings or capital infusions contributing to the strengthening of the equity base over the latter years.
- Invested Capital
- Invested capital was relatively stable between 2017 and 2018, with marginal decrease from 32,308 million USD to 31,616 million USD. In 2019, a considerable increase occurred, bringing the invested capital to 38,698 million USD. This level was maintained with slight increments through 2020 and 2021, totaling 38,880 million USD and 39,156 million USD respectively. This pattern suggests significant new investments or assets acquisition in 2019, followed by stabilization of capital deployment in subsequent years.
- Overall Insights
- The combined analysis suggests a strategic shift over the reported period. After increasing debt levels through 2019, the company appears to focus on deleveraging in 2020 and 2021, coinciding with rising shareholders' equity and steady invested capital. This could imply improved profitability, asset management, or capital restructuring efforts enhancing the company's financial stability and reducing reliance on borrowed funds.
Cost of Capital
3M Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The financial data displays several notable trends over the five-year period ending December 31, 2021.
- Economic Profit
- The economic profit experienced fluctuations throughout the period. Starting at $1,169 million in 2017, it increased to $1,543 million in 2018, signaling improved profitability. However, there was a sharp decline in 2019, where economic profit fell drastically to $5 million. This decline was followed by a recovery in 2020 and 2021, with economic profits rising to $1,038 million and $1,250 million respectively. The data suggests a significant setback in 2019, followed by a strong rebound in subsequent years.
- Invested Capital
- Invested capital showed an increasing trend with some variability. It started at $32,308 million in 2017, dipping slightly to $31,616 million in 2018. Thereafter, it increased noticeably to $38,698 million in 2019 and remained relatively stable in the following years, reaching $38,880 million in 2020 and slightly increasing to $39,156 million by the end of 2021. This indicates a general growth in the capital base with substantial investment increases occurring mainly from 2018 to 2019.
- Economic Spread Ratio
- The economic spread ratio, which measures return over cost of capital, showed variability correlating with economic profit trends. It increased from 3.62% in 2017 to a peak of 4.88% in 2018. In 2019, it dropped precipitously to 0.01%, reflecting nearly breakeven economic returns. The ratio then recovered to 2.67% in 2020 and 3.19% in 2021. This pattern underscores diminished economic profitability in 2019 with a subsequent strengthening return profile.
Overall, the data indicates a period of strong economic performance up to 2018, followed by a significant contraction in 2019 that affected profitability metrics substantially. Despite the contraction in 2019, invested capital expanded, suggesting continued asset base growth during that year. Economic performance and return measures improved notably in 2020 and 2021, though they have not fully returned to the 2018 peak levels. This demonstrates resilience and recovery after a considerable downturn.
Economic Profit Margin
3M Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net sales | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The analysis of the financial data over the five-year period reveals several notable trends in the economic profit, adjusted net sales, and economic profit margin.
- Economic Profit
- Economic profit exhibited an overall fluctuating trend. It increased from 1169 million US dollars in 2017 to a peak of 1543 million US dollars in 2018. However, in 2019, economic profit dramatically declined to a minimal 5 million US dollars, representing a significant drop. Following this low point, there was a recovery in 2020 to 1038 million US dollars, and further growth in 2021 reaching 1250 million US dollars. Despite recovery, the economic profit in 2021 remained below the 2018 peak, indicating variability in profitability across the period.
- Adjusted Net Sales
- Adjusted net sales demonstrated a more stable and slightly upward trajectory overall. Starting at 31,641 million US dollars in 2017, sales increased moderately to 32,869 million in 2018, followed by a minor decline in 2019 to 31,949 million. Sales slightly rose again in 2020 to 32,252 million and exhibited a more substantial increase in 2021, reaching 35,386 million US dollars. This illustrates gradual growth with a noticeable acceleration in the final year observed.
- Economic Profit Margin
- The economic profit margin mirrored the pattern of economic profit, with notable volatility. The margin rose from 3.7% in 2017 to a high of 4.69% in 2018, then dropped sharply in 2019 to 0.01%, indicating near breakeven economic profitability. Recovery followed in 2020, with the margin increasing to 3.22%, and continued improvement in 2021, reaching 3.53%. Despite this rebound, the margin in 2021 did not fully recapture the peak levels of 2018, suggesting ongoing challenges to sustained profit efficiency.
In summary, while adjusted net sales showed steady growth with modest fluctuations, economic profit and related margins experienced substantial volatility, particularly in 2019. The company demonstrated resilience with a recovery in economic profit and margin post-2019, yet the levels did not consistently return to the highest values observed in 2018. This pattern may reflect external or operational factors impacting profitability disproportionately relative to sales over the period.