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:
- Balance Sheet: Assets
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Reportable Segments
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
- Aggregate Accruals
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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 period between 2017 and 2021 demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibited an initial increase followed by a decline and subsequent recovery. The cost of capital remained relatively stable, while invested capital showed an increasing trend over the five-year period.
- NOPAT Trend
- NOPAT increased from US$5,388 million in 2017 to US$5,630 million in 2018, representing a modest growth. A significant decrease was then observed in 2019, with NOPAT falling to US$4,679 million. This was followed by a recovery in 2020 and 2021, reaching US$5,797 million and US$6,058 million respectively. The 2021 NOPAT represents the highest value within the observed period.
- Cost of Capital
- The cost of capital experienced a slight decrease from 15.17% in 2017 to 15.00% in 2018. It continued to decline to 13.99% in 2019, before increasing slightly to 14.18% in 2020 and 14.23% in 2021. These fluctuations were relatively minor, indicating a generally stable cost of funding throughout the period.
- Invested Capital
- Invested capital showed a consistent upward trend. Starting at US$32,308 million in 2017, it decreased slightly to US$31,616 million in 2018. However, it then increased substantially to US$38,698 million in 2019 and continued to grow, reaching US$38,880 million in 2020 and US$39,156 million in 2021.
- Economic Profit
- Economic profit, a key indicator of value creation, fluctuated considerably. It began at US$486 million in 2017, increased to US$886 million in 2018, then experienced a substantial decline, resulting in a loss of US$734 million in 2019. A recovery occurred in 2020, with economic profit reaching US$283 million, and further improvement was seen in 2021, with economic profit rising to US$487 million. The negative economic profit in 2019 suggests the company did not generate returns exceeding its cost of capital in that year.
The interplay between NOPAT, cost of capital, and invested capital significantly influenced economic profit. While NOPAT generally trended upwards, the increase in invested capital, coupled with the cost of capital, impacted the overall economic profit generated. The recovery in economic profit in 2020 and 2021 suggests improved efficiency in utilizing invested capital to generate returns.
Net Operating Profit after Taxes (NOPAT)
3M Co., NOPAT calculation
US$ 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 period between 2017 and 2021 demonstrates considerable fluctuation in economic performance. Economic profit exhibited volatility, moving from positive values to a substantial loss before recovering. Invested capital generally increased over the five-year span, though with a slight decrease between 2017 and 2018. The economic spread ratio, a key indicator of value creation, mirrored this variability.
- Economic Profit
- Economic profit began at US$486 million in 2017, increased significantly to US$886 million in 2018, then experienced a marked decline, resulting in a loss of US$734 million in 2019. A recovery was observed in 2020 with a profit of US$283 million, followed by further improvement to US$487 million in 2021. This suggests periods of strong value creation interspersed with significant underperformance.
- Invested Capital
- Invested capital decreased from US$32,308 million in 2017 to US$31,616 million in 2018. Subsequently, it increased steadily over the remaining period, reaching US$39,156 million in 2021. This upward trend indicates a growing capital base, despite the initial decrease.
- Economic Spread Ratio
- The economic spread ratio began at 1.50% in 2017, rose to a peak of 2.80% in 2018, coinciding with the highest economic profit. A substantial decrease followed, with the ratio falling to -1.90% in 2019, reflecting the significant economic loss. The ratio recovered to 0.73% in 2020 and further to 1.24% in 2021, though it did not return to the levels seen in 2017 and 2018. This indicates a fluctuating ability to generate returns exceeding the cost of capital.
The correlation between economic profit and the economic spread ratio is evident. Periods of positive and increasing economic profit are associated with a higher economic spread ratio, while losses correspond to a negative or declining ratio. The increase in invested capital did not consistently translate into improved economic performance, as evidenced by the negative economic spread ratio in 2019.
Economic Profit Margin
3M Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 economic profit margin exhibited considerable fluctuation between 2017 and 2021. Initial positive values transitioned to a substantial loss before recovering, ultimately demonstrating an improving, though still variable, performance.
- Economic Profit Margin Trend
- The economic profit margin began at 1.53% in 2017, increasing to a peak of 2.70% in 2018. A significant decline followed in 2019, resulting in a negative margin of -2.30%. The margin partially recovered to 0.88% in 2020, and continued to improve to 1.38% in 2021, though it did not reach the levels observed in 2017 and 2018.
The economic profit itself mirrors this trend. Positive economic profit of US$486 million in 2017 grew substantially to US$886 million in 2018. This was followed by a significant economic loss of US$734 million in 2019. Economic profit recovered to US$283 million in 2020 and further to US$487 million in 2021.
- Relationship to Adjusted Net Sales
- Adjusted net sales demonstrated a generally upward trend over the period, increasing from US$31,641 million in 2017 to US$35,386 million in 2021. However, the economic profit margin did not consistently benefit from this sales growth. The negative margin in 2019 occurred despite relatively stable net sales compared to the prior year, suggesting that factors beyond revenue were significantly impacting profitability.
The volatility in economic profit margin suggests sensitivity to underlying cost of capital or operational efficiency changes. While the margin improved in the latter two years of the observed period, the substantial loss in 2019 warrants further investigation to understand the contributing factors and assess the sustainability of the recent recovery.