.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
Boeing Co., 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 Boeing Co. 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. | Boeing Co.'s economic profit increased from 2015 to 2016 and from 2016 to 2017. |
Net Operating Profit after Taxes (NOPAT)
Boeing Co., 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 related to parent | |||||
| | Deferred income tax expense (benefit)1 | |||||
| | Increase (decrease) in valuation allowance for doubtful accounts2 | |||||
| | Increase (decrease) in product warranties3 | |||||
| | Increase (decrease) in equity equivalents4 | |||||
| | Interest and debt expense | |||||
| | Interest expense, operating lease obligations5 | |||||
| | Adjusted interest and debt expense | |||||
| | Tax benefit of interest and debt expense6 | |||||
| | Adjusted interest and debt expense, after taxes7 | |||||
| | (Income) loss from discontinued operations, net of tax8 | |||||
| | Net income (loss) attributable to noncontrolling interest | |||||
| | Net operating profit after taxes (NOPAT) |
Source: Based on data from Boeing Co. Annual Reports
2017 Calculations
1 Elimination of deferred tax expense. See Details »
2 Addition of increase (decrease) in valuation allowance for doubtful accounts.
3 Addition of increase (decrease) in product warranties.
4 Addition of increase (decrease) in equity equivalents to net earnings related to parent.
5 Addition of interest expense on capitalized operating leases. See Details »
6 Tax benefit of interest and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= × 35% =
7 Addition of after taxes interest expense to net earnings related to parent.
8 Elimination of discontinued operations.
| 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. | Boeing Co.'s NOPAT declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Cash Operating Taxes
Boeing Co., 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 | |
|---|---|---|---|---|---|---|
| | Income tax expense | |||||
| | Less: Deferred income tax expense (benefit) | |||||
| | Add: Tax savings from interest and debt expense | |||||
| | Cash operating taxes |
Source: Based on data from Boeing Co. 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. | Boeing Co.'s cash operating taxes declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Invested Capital
Boeing Co., invested capital calculation (financing approach)
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Short-term debt and current portion of long-term debt | |||||
| | Long-term debt, excluding current portion | |||||
| | PV of operating lease payments1 | |||||
| | Total reported debt & leases | |||||
| | Shareholders’ equity | |||||
| | Net deferred tax (assets) liabilities2 | |||||
| | Valuation allowance for doubtful accounts3 | |||||
| | Product warranties4 | |||||
| | Equity equivalents5 | |||||
| | Accumulated other comprehensive (income) loss, net of tax6 | |||||
| | Noncontrolling interests | |||||
| | Adjusted shareholders’ equity | |||||
| | Construction in progress7 | |||||
| | Investments, excluding Equity method investments8 | |||||
| | Invested capital |
Source: Based on data from Boeing Co. 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 product warranties.
5 Addition of equity equivalents to shareholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
8 Subtraction of investments, excluding Equity method 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. | Boeing Co.'s invested capital declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Cost of Capital
Boeing Co., cost of capital calculations
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital lease obligations and commercial paper3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Boeing Co. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital lease obligations and commercial paper. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital lease obligations and commercial paper3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Boeing Co. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital lease obligations and commercial paper. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital lease obligations and commercial paper3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Boeing Co. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital lease obligations and commercial paper. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital lease obligations and commercial paper3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Boeing Co. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital lease obligations and commercial paper. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital lease obligations and commercial paper3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Boeing Co. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital lease obligations and commercial paper. See Details »
4 PV of operating lease payments. See Details »
Economic Spread
Boeing Co., 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 Boeing Co. 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. | Boeing Co.'s economic spread improved from 2015 to 2016 and from 2016 to 2017. |
Economic Profit Margin
Boeing Co., 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 | |||||
| | Revenues | |||||
| Ratio | ||||||
| | Economic profit margin2 | % | % | % | % | % |
Source: Based on data from Boeing Co. Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Economic profit margin = 100 × Economic profit ÷ 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. | Boeing Co.'s economic profit margin improved from 2015 to 2016 and from 2016 to 2017. |
