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: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
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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 exhibits several notable trends and fluctuations over the five-year period analyzed.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrates variability across the years. It increased from 5388 million USD in 2017 to 5630 million USD in 2018, then declined significantly to 4679 million USD in 2019. Thereafter, it recovered to 5797 million USD in 2020 and further rose to 6058 million USD in 2021. This indicates a dip in profitability in 2019 followed by a consistent recovery and growth in subsequent years.
- Cost of Capital
- The cost of capital shows a gradual decline from 12.87% in 2017 to 11.91% in 2019, followed by a slight increase to 12.07% in 2020 and 12.1% in 2021. This suggests an improvement in the cost efficiency of capital up until 2019, with a modest reversal thereafter.
- Invested Capital
- Invested capital remained relatively stable around 32,000 million USD for 2017 and 2018, then increased significantly by approximately 22% in 2019 to 38,698 million USD. This elevated level of invested capital was maintained in 2020 and 2021, indicating a substantial investment growth beginning in 2019 and sustaining in the following periods.
- Economic Profit
- Economic profit mirrors some of the volatility seen in NOPAT. It rose from 1231 million USD in 2017 to 1602 million USD in 2018, then plummeted sharply to only 71 million USD in 2019, coinciding with the drop in profit. Economic profit subsequently rebounded to 1106 million USD in 2020 and further improved to 1319 million USD in 2021. While positive throughout, the sharp dip in 2019 signals a year of constrained value creation relative to capital costs.
In summary, the period under review is characterized by a significant downturn in financial performance in 2019, marked by lower operating profit and economic profit despite expanded invested capital. Post-2019, there is a clear recovery trend, with improved profitability and sustained economic profit levels, alongside stable but slightly increased cost of capital. The data reflects a cycle of expansion, contraction, and recovery in financial returns and value generation within the five-year timeframe.
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 annual financial data indicates variable performance in economic profit over the five-year period from 2017 to 2021. Economic profit peaked in 2018 at 1,602 million US dollars, followed by a significant decline to 71 million in 2019. However, there was a notable recovery in 2020 and 2021, with economic profits rising to 1,106 million and 1,319 million US dollars, respectively. This pattern suggests fluctuations in the company's ability to generate returns above its cost of capital.
Invested capital shows a general upward trend, starting at 32,308 million US dollars in 2017 and increasing to 39,156 million US dollars by the end of 2021. The most substantial increase occurred between 2018 and 2019, where invested capital rose from 31,616 million to 38,698 million US dollars. After 2019, the growth in invested capital moderated but continued to increase steadily over the next two years.
The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital expressed as a percentage, aligns with the economic profit trends. It was highest in 2018 at 5.07%, sharply decreased to 0.18% in 2019, and then gradually improved over the following years to 3.37% by the end of 2021. The sharp drop in 2019 indicates a period of minimal value creation relative to the company's capital costs, while subsequent improvements suggest a restoration of profitability spreads.
Overall, the data reveals that the company experienced a period of diminished profitability and economic value creation in 2019, despite an increase in invested capital. Subsequent years show recovery in both economic profit and economic spread ratio, suggesting improved efficiency or profitability relative to capital invested. The steady increase in invested capital over the entire period indicates ongoing capital deployment aimed at supporting business operations or growth initiatives.
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 displayed a fluctuating trend over the five-year period. It started at $1,231 million in 2017, increased notably to $1,602 million in 2018, then experienced a sharp decline to $71 million in 2019. Following this significant drop, economic profit rebounded to $1,106 million in 2020 and further increased to $1,319 million in 2021. This pattern indicates a period of volatility around 2019, with recovery in subsequent years.
- Adjusted Net Sales
- Adjusted net sales showed a generally upward trend from 2017 to 2021. Beginning at $31,641 million in 2017, sales rose to $32,869 million in 2018 but slightly declined to $31,949 million in 2019. From 2019 onwards, there was a steady increase with $32,252 million in 2020 and further growth to $35,386 million in 2021. Overall, the data suggests resilience and growth in sales despite minor fluctuations.
- Economic Profit Margin
- The economic profit margin followed a similar pattern to economic profit, reflecting variable profitability margins across the years. In 2017, the margin was 3.89%, rising to a peak of 4.87% in 2018. A sharp decrease to 0.22% was observed in 2019, indicating a substantial decline in profitability relative to sales. The margin improved to 3.43% in 2020 and slightly increased further to 3.73% in 2021. This suggests that profitability returned to healthier levels after the downturn in 2019.