.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. |
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. |
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. |
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. |
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 »
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. |
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. |
