.Economic Value Added (EVA)
Difficulty: Advanced
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
Accenture PLC, economic profit calculation
USD $ in thousands
| 12 months ended | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | |
|---|---|---|---|---|---|---|---|
| | Net operating profit after taxes (NOPAT)1 | ||||||
| | Cost of capital2 | % | % | % | % | % | % |
| | Invested capital3 | ||||||
| | Economic profit4 | ||||||
Source: Based on data from Accenture PLC Annual Reports
2017 Calculations
1 NOPAT. See Details »
2 Cost of capital. See Details »
3 Invested capital. See Details »
4 Economic profit = NOPAT – Cost of capital × Invested capital
= – % × =
| Item | Description | The company |
|---|---|---|
| Economic profit | Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. | Accenture PLC's economic profit increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level. |
Net Operating Profit after Taxes (NOPAT)
Accenture PLC, NOPAT calculation
USD $ in thousands
| 12 months ended | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | |
|---|---|---|---|---|---|---|---|
| | Net income attributable to Accenture plc | ||||||
| | Deferred income tax expense (benefit)1 | ||||||
| | Increase (decrease) in allowances recorded for client receivables and unbilled services2 | ||||||
| | Increase (decrease) in deferred revenues3 | ||||||
| | Increase (decrease) in reorganization liability4 | ||||||
| | Increase (decrease) in equity equivalents5 | ||||||
| | Interest expense | ||||||
| | Interest expense, operating lease obligations6 | ||||||
| | Adjusted interest expense | ||||||
| | Tax benefit of interest expense7 | ||||||
| | Adjusted interest expense, after taxes8 | ||||||
| | (Gain) loss on marketable securities | ||||||
| | Interest income | ||||||
| | Investment income, before taxes | ||||||
| | Tax expense (benefit) of investment income9 | ||||||
| | Investment income, after taxes10 | ||||||
| | Net income (loss) attributable to noncontrolling interest | ||||||
| | Net operating profit after taxes (NOPAT) |
Source: Based on data from Accenture PLC Annual Reports
2017 Calculations
1 Elimination of deferred tax expense. See Details »
2 Addition of increase (decrease) in allowances recorded for client receivables and unbilled services.
3 Addition of increase (decrease) in deferred revenues.
4 Addition of increase (decrease) in reorganization liability.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Accenture plc.
6 Addition of interest expense on capitalized operating leases. See Details »
7 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35% =
8 Addition of after taxes interest expense to net income attributable to Accenture plc.
9 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =
10 Elimination of after taxes investment income.
| Item | Description | The company |
|---|---|---|
| NOPAT | Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. | Accenture PLC's NOPAT increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level. |
Cash Operating Taxes
Accenture PLC, cash operating taxes calculation
USD $ in thousands
| 12 months ended | Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | |
|---|---|---|---|---|---|---|---|
| | Provision for income taxes | ||||||
| | Less: Deferred income tax expense (benefit) | ||||||
| | Add: Tax savings from interest expense | ||||||
| | Less: Tax imposed on investment income | ||||||
| | Cash operating taxes |
Source: Based on data from Accenture PLC Annual Reports
| Item | Description | The company |
|---|---|---|
| Cash operating taxes | Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. | Accenture PLC's cash operating taxes declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Invested Capital
Accenture PLC, invested capital calculation (financing approach)
USD $ in thousands
| Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Current portion of long-term debt and bank borrowings | ||||||
| | Long-term debt, excluding current portion | ||||||
| | PV of operating lease payments1 | ||||||
| | Total reported debt & leases | ||||||
| | Total Accenture plc shareholders' equity | ||||||
| | Net deferred tax (assets) liabilities2 | ||||||
| | Allowances recorded for client receivables and unbilled services3 | ||||||
| | Deferred revenues4 | ||||||
| | Reorganization liability5 | ||||||
| | Equity equivalents6 | ||||||
| | Accumulated other comprehensive (income) loss, net of tax7 | ||||||
| | Noncontrolling interests | ||||||
| | Adjusted total Accenture plc shareholders' equity | ||||||
| | Short-term investments8 | ||||||
| | Invested capital |
Source: Based on data from Accenture PLC Annual Reports
1 Addition of capitalized operating leases. See Details »
2 Elimination of deferred taxes from assets and liabilities. See Details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of deferred revenues.
5 Addition of reorganization liability.
6 Addition of equity equivalents to total Accenture plc shareholders' equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of short-term investments.
| Item | Description | The company |
|---|---|---|
| Invested capital | Capital is an approximation of the economic book value of all cash invested in going-concern business activities. | Accenture PLC's invested capital increased from 2015 to 2016 and from 2016 to 2017. |
Cost of Capital
Accenture PLC, cost of capital calculations
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Outstanding debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Accenture PLC Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Outstanding debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Outstanding debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Accenture PLC Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Outstanding debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Outstanding debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Accenture PLC Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Outstanding debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Outstanding debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Accenture PLC Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Outstanding debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Outstanding debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Accenture PLC Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Outstanding debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Outstanding debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Accenture PLC Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Outstanding debt. See Details »
4 PV of operating lease payments. See Details »
Economic Spread
Accenture PLC, economic spread calculation
| Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | |||||||
| | Economic profit1 | ||||||
| | Invested capital2 | ||||||
| Ratio | |||||||
| | Economic spread3 | % | % | % | % | % | % |
Source: Based on data from Accenture PLC Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Invested capital. See Details »
3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Economic spread | The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. | Accenture PLC's economic spread improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Economic Profit Margin
Accenture PLC, economic profit margin calculation
| Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | |||||||
| | Economic profit1 | ||||||
| | Revenues before reimbursements (Net revenues) | ||||||
| | Increase (decrease) in deferred revenues | ||||||
| Ratio | |||||||
| | Economic profit margin2 | % | % | % | % | % | % |
Source: Based on data from Accenture PLC Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Economic profit margin = 100 × Economic profit ÷ (Revenues before reimbursements (Net revenues) + Change in deferred revenues)
= 100 × ÷ ( + ) = %
| Ratio | Description | The company |
|---|---|---|
| Economic profit margin | The ratio of economic profit to sales. It is the company's profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. | Accenture PLC's economic profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level. |
