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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.

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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.

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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.

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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.

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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 »

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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.

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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.

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