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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

Altria Group Inc., economic profit calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net operating profit after taxes (NOPAT)1
Cost of capital2 % % % % %
Invested capital3
Economic profit4

Source: Based on data from Altria Group Inc. 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. Altria Group Inc.'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)

Altria Group Inc., NOPAT calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net earnings attributable to Altria Group, Inc.
Deferred income tax expense (benefit)1
Increase (decrease) in LIFO reserve2
Increase (decrease) in restructuring liabilities3
Increase (decrease) in equity equivalents4
Interest expense
Interest expense, operating lease obligations5
Adjusted interest expense
Tax benefit of interest expense6
Adjusted interest expense, after taxes7
Interest income
Investment income, before taxes
Tax expense (benefit) of investment income8
Investment income, after taxes9
Net income (loss) attributable to noncontrolling interest
Net operating profit after taxes (NOPAT)

Source: Based on data from Altria Group Inc. Annual Reports

2017 Calculations

1 Elimination of deferred tax expense. See Details »

2 Addition of increase (decrease) in LIFO reserve. See Details »

3 Addition of increase (decrease) in restructuring liabilities.

4 Addition of increase (decrease) in equity equivalents to net earnings attributable to Altria Group, Inc..

5 Addition of interest expense on capitalized operating leases. See Details »

6 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35% =

7 Addition of after taxes interest expense to net earnings attributable to Altria Group, Inc..

8 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =

9 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. Altria Group Inc.'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

Altria Group Inc., cash operating taxes calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Provision (benefit) 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 Altria Group Inc. 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. Altria Group Inc.'s cash operating taxes increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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Invested Capital

Altria Group Inc., invested capital calculation (financing approach)

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current portion of long-term debt
Long-term debt, excluding current portion
PV of operating lease payments1
Total reported debt & leases
Stockholders’ equity attributable to Altria Group, Inc.
Net deferred tax (assets) liabilities2
LIFO reserve3
Restructuring liabilities4
Equity equivalents5
Accumulated other comprehensive (income) loss, net of tax6
Redeemable noncontrolling interest
Noncontrolling interests
Adjusted stockholders’ equity attributable to Altria Group, Inc.
Construction in progress7
Invested capital

Source: Based on data from Altria Group Inc. Annual Reports

1 Addition of capitalized operating leases. See Details »

2 Elimination of deferred taxes from assets and liabilities. See Details »

3 Addition of LIFO reserve. See Details »

4 Addition of restructuring liabilities.

5 Addition of equity equivalents to stockholders’ equity attributable to Altria Group, Inc..

6 Removal of accumulated other comprehensive income.

7 Subtraction of construction in progress.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Altria Group Inc.'s invested capital increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

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Cost of Capital

Altria Group Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Altria Group Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Altria Group Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Altria Group Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Altria Group Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Long-term debt, including current portion3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Altria Group Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Long-term debt, including current portion. See Details »

4 PV of operating lease payments. See Details »

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Economic Spread

Altria Group Inc., economic spread calculation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Economic profit1
Invested capital2
Ratio
Economic spread3 % % % % %

Source: Based on data from Altria Group Inc. 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. Altria Group Inc.'s economic spread improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Economic Profit Margin

Altria Group Inc., economic profit margin calculation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Economic profit1
Net revenues
Ratio
Economic profit margin2 % % % % %

Source: Based on data from Altria Group Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ Net 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. Altria Group Inc.'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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