Economic Value Added (EVA)
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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
- Common-Size Balance Sheet: Assets
- Analysis of Liquidity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Net Profit Margin since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) 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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes demonstrated an overall fluctuating trend over the five-year period. It increased from $5,388 million in 2017 to $5,630 million in 2018, followed by a notable decline to $4,679 million in 2019. Subsequently, it rebounded significantly to $5,797 million in 2020 and continued rising to $6,058 million in 2021. This indicates recovery and improvement in operational profitability after the dip in 2019.
- Cost of Capital
- The cost of capital showed a gradual decline from 13.05% in 2017 to 12.07% in 2019, suggesting a reduction in the expense related to financing or perceived risk. There was a slight increase afterward, rising to around 12.23% in 2020 and 12.27% in 2021, indicating a minor uptick but still remaining lower than the initial value in 2017.
- Invested Capital
- Invested capital exhibited growth over the period analyzed with fluctuations. It decreased slightly from $32,308 million in 2017 to $31,616 million in 2018, then sharply increased to $38,698 million in 2019. From 2019 onwards, it remained relatively stable with marginal growth to $38,880 million in 2020 and $39,156 million in 2021. This pattern suggests significant investment expansion around 2019 followed by stabilization.
- Economic Profit
- Economic profit experienced considerable volatility. There was an increase from $1,172 million in 2017 to $1,546 million in 2018, followed by a sharp decline to just $8 million in 2019, almost erasing economic profit for that year. The metric recovered notably in subsequent years, rising to $1,041 million in 2020 and further to $1,253 million in 2021. This demonstrates that the company faced a near breakeven situation in 2019 but managed to restore substantial economic profitability thereafter.
- Overall Observations
- The data indicates a period of operational and financial fluctuation, notably around 2019, where both NOPAT and economic profit declined substantially despite a peak in invested capital. Following this, the company improved profitability and economic value generation, with NOPAT and economic profit reaching their highest points in 2021 within the period studied. The cost of capital decreased initially, reducing financing costs, which may have supported investments, but showed a slight increase later. The stabilization of invested capital post-2019 contrasts with the recovery in profit metrics, suggesting improved efficiency or returns on capital invested during the later years.
Net Operating Profit after Taxes (NOPAT)
3M Co., NOPAT calculation
US$ 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.
- Economic Profit
- The economic profit demonstrates considerable fluctuations over the five-year period. It started at $1,172 million in 2017 and saw a notable increase to $1,546 million in 2018. However, in 2019, there was a sharp decline to a minimal $8 million, indicating a near break-even economic profit scenario. Recovery began in 2020, with economic profit rising to $1,041 million, and further growth was observed in 2021, reaching $1,253 million. This pattern suggests considerable volatility, with a significant dip in 2019, but an overall positive trend resuming thereafter.
- Invested Capital
- Invested capital displayed a generally upward trend across the examined period. From $32,308 million in 2017, it slightly decreased to $31,616 million in 2018, then increased substantially to $38,698 million in 2019. It remained relatively stable around this higher level through 2020 and 2021, registering $38,880 million and $39,156 million respectively. This progression suggests sustained investment growth and capital stability after 2018.
- Economic Spread Ratio
- The economic spread ratio reveals considerable volatility. Initially, it increased from 3.63% in 2017 to a peak of 4.89% in 2018, denoting improved returns relative to invested capital. A drastic decline occurred in 2019 to just 0.02%, aligning with the sharp drop in economic profit observed that year. The ratio partially recovered in the subsequent years, rising to 2.68% in 2020 and further to 3.2% in 2021. Despite recovery, the ratio remained below peak levels experienced in 2018, indicating a moderate regression in profitability efficiency.
Economic Profit Margin
3M Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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.
- Economic Profit
- The economic profit demonstrated variability over the analyzed period, beginning at a substantial value of 1,172 million US dollars in 2017. It increased notably to 1,546 million US dollars in 2018, indicating strong profitability. However, 2019 saw a drastic decline to 8 million US dollars, suggesting significant operational or market challenges during that year. The figure improved again in 2020, reaching 1,041 million US dollars, and continued to grow in 2021 to 1,253 million US dollars, indicating a recovery trend towards the earlier high profitability levels.
- Adjusted Net Sales
- Adjusted net sales displayed a generally positive trend throughout the period. Starting at 31,641 million US dollars in 2017, sales increased moderately to 32,869 million US dollars in 2018. There was a slight decrease in 2019 to 31,949 million US dollars, followed by a modest recovery to 32,252 million US dollars in 2020. A more significant increase occurred in 2021, with adjusted net sales reaching 35,386 million US dollars. This upward trend in sales denotes a growing or stabilizing revenue base despite fluctuations in economic profit.
- Economic Profit Margin
- The economic profit margin followed a pattern consistent with the changes in economic profit. It rose from 3.7% in 2017 to a peak of 4.7% in 2018, implying efficient utilization of resources to generate economic profit. In 2019, the margin plummeted dramatically to nearly zero (0.03%), reflecting the minimal economic profit during that period. The margin recovered to 3.23% in 2020 and further to 3.54% in 2021, suggesting improved profitability relative to sales. Despite the fluctuations, margins in 2020 and 2021 remained below the 2018 peak, indicating potential room for improvement in operational efficiency or market conditions.