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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

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.

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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.

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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.

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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.

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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 »

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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.

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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.

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