Economic Value Added (EVA)
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
Builders FirstSource Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,864,596 – 23.93% × 8,565,898 = 815,017
The financial trajectory between 2018 and 2022 is characterized by a transition from consistent value destruction to significant value creation. While the company experienced negative economic profit for four consecutive years, a substantial pivot occurred in 2022, resulting in a positive economic profit of 815,017 thousand US dollars.
- Net Operating Profit After Taxes (NOPAT)
- A period of exponential growth is observed in NOPAT, which rose from 352,490 thousand US dollars in 2018 to 2,864,596 thousand US dollars by 2022. The most aggressive acceleration occurred between 2020 and 2021, where NOPAT increased more than fourfold, signaling a dramatic improvement in operational efficiency or scale.
- Invested Capital
- Invested capital remained relatively stable between 2018 and 2020, followed by a sharp increase in 2021, jumping from 3,091,935 thousand US dollars to 8,507,614 thousand US dollars. This substantial expansion of the capital base suggests significant strategic investments or acquisitions during that period, which stabilized at 8,565,898 thousand US dollars in 2022.
- Cost of Capital
- The cost of capital exhibited an upward trend from 16.09% in 2018, peaking at 24.79% in 2020, before stabilizing near 23.9% in 2021 and 2022. This high cost of capital established a rigorous threshold for achieving positive economic profit, as the return on invested capital had to exceed this percentage to generate value.
- Economic Profit Trends
- Economic profit remained negative from 2018 through 2021, reaching its lowest point in 2020 at -315,261 thousand US dollars. This indicates that for several years, NOPAT was insufficient to cover the imputed cost of the invested capital. However, the surge in NOPAT in 2021 and 2022 eventually outpaced the cost of the expanded capital base, leading to the realization of positive economic profit in the final year of the period analyzed.
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Net Operating Profit after Taxes (NOPAT)
Builders FirstSource Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 505,221 × 5.60% = 28,292
5 2022 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 226,665 × 21.00% = 47,600
6 Addition of after taxes interest expense to net income.
A significant upward trajectory in both Net Income and Net Operating Profit After Taxes (NOPAT) is observed between 2018 and 2022. While the period from 2018 to 2020 was characterized by steady, incremental growth, the fiscal years 2021 and 2022 experienced exponential increases in profitability.
- NOPAT Growth Analysis
- NOPAT increased from 352,490 thousand US$ in 2018 to 451,161 thousand US$ in 2020, representing a period of stable expansion. A substantial acceleration occurred in 2021, with NOPAT rising to 1,833,934 thousand US$, and further climbing to 2,864,596 thousand US$ by December 31, 2022. This indicates a massive expansion in core operating profitability over the final two years of the period.
- Net Income Correlation
- Net income mirrored the acceleration seen in NOPAT, rising from 205,191 thousand US$ in 2018 to 2,749,369 thousand US$ in 2022. The most pronounced surge occurred between 2020 and 2021, where net income increased more than fivefold, shifting from 313,537 thousand US$ to 1,725,416 thousand US$.
- Operating Performance vs. Bottom Line
- NOPAT consistently remained higher than net income throughout the five-year period. This variance indicates that the profit generated from core operations, after adjusting for taxes, exceeded the final net earnings. The persistence of this gap suggests that non-operating expenses, such as interest payments on debt, influenced the final net income, although the core operating engine demonstrated stronger growth capabilities.
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Cash Operating Taxes
Builders FirstSource Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
Analysis of tax obligations reveals a period of exponential growth between 2018 and 2022. Both income tax expense and cash operating taxes exhibit a strong upward trajectory, with the most significant acceleration occurring after 2020.
- Income Tax Expense Trend
- The income tax expense grew modestly between 2018 and 2019, followed by a notable increase in 2020. A sharp escalation occurred in 2021, where expenses rose to 526,131 thousand USD, before continuing upward to 822,464 thousand USD by the end of 2022.
- Cash Operating Taxes Trend
- Cash operating taxes followed a similar growth pattern but demonstrated higher volatility. From a baseline of 28,796 thousand USD in 2018, these outflows surged to 962,525 thousand USD by 2022, representing a substantial increase in the actual cash burden associated with tax obligations.
- Comparative Analysis of Accounting Expense and Cash Outflow
- A pivotal shift in the relationship between accounting accruals and cash payments is observed. In 2018 and 2019, cash operating taxes remained below the reported income tax expense. However, beginning in 2020 and continuing through 2022, cash operating taxes consistently exceeded the income tax expense, indicating that cash outflows for taxes have outpaced the accrual-based expenses reported in the financial statements.
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Invested Capital
Builders FirstSource Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of equity equivalents to stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
Invested capital exhibited a period of relative stability from 2018 through 2020, followed by a substantial surge in 2021. The total invested capital grew from 2,393,541 thousand USD in 2018 to 8,565,898 thousand USD by the end of 2022, indicating a significant expansion of the capital base used to generate economic value.
- Invested Capital Trends
- A moderate increase is observed between 2018 and 2020, with capital rising from 2,393,541 thousand USD to 3,091,935 thousand USD. This was followed by a sharp escalation in 2021, where invested capital increased by approximately 175% to reach 8,507,614 thousand USD. The growth rate stabilized in 2022, ending the period at 8,565,898 thousand USD.
- Debt and Lease Obligations
- Total reported debt and leases showed a fluctuating trend in the early period, decreasing from 1,834,584 thousand USD in 2018 to 1,589,874 thousand USD in 2019, before rising to 1,905,104 thousand USD in 2020. A significant increase occurred in 2021, with debt nearly doubling to 3,401,751 thousand USD, remaining relatively flat through 2022 at 3,489,418 thousand USD.
- Stockholders' Equity Evolution
- Equity demonstrated consistent growth from 2018 to 2020, increasing from 596,338 thousand USD to 1,152,783 thousand USD. A profound expansion occurred in 2021, with equity rising to 4,802,481 thousand USD, a growth of over 316% in a single year. This trend continued slightly into 2022, reaching 4,962,566 thousand USD.
The composition of invested capital shifted fundamentally between 2018 and 2022. In 2018, debt and leases constituted the primary component of the invested capital base. However, by 2021 and 2022, stockholders' equity became the dominant funding source, suggesting a strategic shift in the capital structure or a significant equity-based financing event during the 2021 fiscal year.
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Cost of Capital
Builders FirstSource Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,700,683) | 11,700,683) | ÷ | 14,880,090) | = | 0.79 | 0.79 | × | 29.36% | = | 23.09% | ||
| Long-term debt, including current maturities3 | 2,674,186) | 2,674,186) | ÷ | 14,880,090) | = | 0.18 | 0.18 | × | 4.87% × (1 – 21.00%) | = | 0.69% | ||
| Operating lease liability4 | 505,221) | 505,221) | ÷ | 14,880,090) | = | 0.03 | 0.03 | × | 5.60% × (1 – 21.00%) | = | 0.15% | ||
| Total: | 14,880,090) | 1.00 | 23.93% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 12,913,234) | 12,913,234) | ÷ | 16,462,085) | = | 0.78 | 0.78 | × | 29.36% | = | 23.03% | ||
| Long-term debt, including current maturities3 | 3,076,882) | 3,076,882) | ÷ | 16,462,085) | = | 0.19 | 0.19 | × | 4.65% × (1 – 21.00%) | = | 0.69% | ||
| Operating lease liability4 | 471,969) | 471,969) | ÷ | 16,462,085) | = | 0.03 | 0.03 | × | 5.30% × (1 – 21.00%) | = | 0.12% | ||
| Total: | 16,462,085) | 1.00 | 23.84% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 8,932,299) | 8,932,299) | ÷ | 10,965,908) | = | 0.81 | 0.81 | × | 29.36% | = | 23.91% | ||
| Long-term debt, including current maturities3 | 1,752,745) | 1,752,745) | ÷ | 10,965,908) | = | 0.16 | 0.16 | × | 5.91% × (1 – 21.00%) | = | 0.75% | ||
| Operating lease liability4 | 280,864) | 280,864) | ÷ | 10,965,908) | = | 0.03 | 0.03 | × | 6.30% × (1 – 21.00%) | = | 0.13% | ||
| Total: | 10,965,908) | 1.00 | 24.79% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 3,099,517) | 3,099,517) | ÷ | 4,766,977) | = | 0.65 | 0.65 | × | 29.36% | = | 19.09% | ||
| Long-term debt, including current maturities3 | 1,368,859) | 1,368,859) | ÷ | 4,766,977) | = | 0.29 | 0.29 | × | 6.10% × (1 – 21.00%) | = | 1.38% | ||
| Operating lease liability4 | 298,601) | 298,601) | ÷ | 4,766,977) | = | 0.06 | 0.06 | × | 6.60% × (1 – 21.00%) | = | 0.33% | ||
| Total: | 4,766,977) | 1.00 | 20.80% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 1,618,495) | 1,618,495) | ÷ | 3,394,302) | = | 0.48 | 0.48 | × | 29.36% | = | 14.00% | ||
| Long-term debt, including current maturities3 | 1,502,516) | 1,502,516) | ÷ | 3,394,302) | = | 0.44 | 0.44 | × | 5.23% × (1 – 21.00%) | = | 1.83% | ||
| Operating lease liability4 | 273,290) | 273,290) | ÷ | 3,394,302) | = | 0.08 | 0.08 | × | 4.06% × (1 – 21.00%) | = | 0.26% | ||
| Total: | 3,394,302) | 1.00 | 16.09% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt, including current maturities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Builders FirstSource Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 815,017) | (193,955) | (315,261) | (128,652) | (32,538) | |
| Invested capital2 | 8,565,898) | 8,507,614) | 3,091,935) | 2,419,816) | 2,393,541) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 9.51% | -2.28% | -10.20% | -5.32% | -1.36% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -20.44% | -19.05% | — | — | — | |
| Caterpillar Inc. | -6.34% | -5.74% | — | — | — | |
| Eaton Corp. plc | -9.74% | -9.35% | — | — | — | |
| GE Aerospace | -13.77% | -18.68% | — | — | — | |
| Honeywell International Inc. | -3.10% | -2.01% | — | — | — | |
| Lockheed Martin Corp. | 14.24% | 15.22% | — | — | — | |
| RTX Corp. | -4.74% | -4.20% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 815,017 ÷ 8,565,898 = 9.51%
4 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by an initial period of value erosion followed by a significant strategic pivot and a subsequent transition to value creation. A consistent downward trend in economic profitability was observed between 2018 and 2020, culminating in a substantial reversal of this trend by 2022.
- Economic Profit Trends
- Economic profit remained negative for four consecutive years, with losses widening from -32,538 thousand dollars in 2018 to a peak deficit of -315,261 thousand dollars in 2020. A recovery phase began in 2021, followed by a sharp transition to a positive economic profit of 815,017 thousand dollars in 2022, indicating that the company began generating returns in excess of its cost of capital.
- Invested Capital Expansion
- Invested capital exhibited modest growth between 2018 and 2020, moving from 2,393,541 thousand dollars to 3,091,935 thousand dollars. A significant escalation occurred in 2021, where invested capital surged to 8,507,614 thousand dollars, representing a nearly three-fold increase. This capital base remained relatively stable through 2022, ending at 8,565,898 thousand dollars.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the trajectory of economic profit, deteriorating from -1.36% in 2018 to a low of -10.20% in 2020. Despite the massive increase in invested capital in 2021, the spread ratio improved to -2.28%, suggesting an increase in the efficiency of the newly deployed capital. The cycle concluded in 2022 with a positive spread of 9.51%, confirming a successful shift toward sustainable economic value added.
The correlation between the surge in invested capital in 2021 and the positive economic spread in 2022 suggests that the expansion of the capital base was a primary driver in reversing the prior trend of value destruction. The transition from a -10.20% spread to a 9.51% spread over two years reflects a comprehensive recovery in operational efficiency and capital productivity.
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Economic Profit Margin
Builders FirstSource Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 815,017) | (193,955) | (315,261) | (128,652) | (32,538) | |
| Net sales | 22,726,418) | 19,893,856) | 8,558,874) | 7,280,431) | 7,724,771) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 3.59% | -0.97% | -3.68% | -1.77% | -0.42% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.61% | -15.13% | — | — | — | |
| Caterpillar Inc. | -6.14% | -6.62% | — | — | — | |
| Eaton Corp. plc | -14.45% | -14.04% | — | — | — | |
| GE Aerospace | -12.48% | -18.85% | — | — | — | |
| Honeywell International Inc. | -4.09% | -2.80% | — | — | — | |
| Lockheed Martin Corp. | 5.74% | 6.50% | — | — | — | |
| RTX Corp. | -7.77% | -7.30% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 815,017 ÷ 22,726,418 = 3.59%
3 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a significant transition from value destruction to value creation. A prolonged period of negative economic profit culminated in a substantial turnaround by the end of the analyzed period, coinciding with a massive expansion in scale.
- Economic Profit Trends
- A deepening deficit in economic profit is observed from 2018 to 2020, where losses expanded from -32.5 million to a peak deficit of -315.3 million. This downward trend reversed in 2021 and culminated in a positive economic profit of 815.0 million by December 31, 2022, signaling that the entity began generating returns in excess of its cost of capital.
- Net Sales Expansion
- Revenue exhibited a relatively stable trajectory between 2018 and 2020, followed by an exponential increase starting in 2021. Net sales grew from approximately 8.6 billion in 2020 to 22.7 billion by 2022. This rapid scale-up in top-line performance serves as a primary driver for the eventual shift into positive economic profit territory.
- Economic Profit Margin Analysis
- The economic profit margin followed a volatile U-shaped trajectory, reaching its lowest point of -3.68% in 2020. A recovery phase began in 2021, narrowing the margin deficit to -0.97%, before shifting to a positive 3.59% in 2022. This progression indicates a marked improvement in the entity's ability to generate economic value relative to its sales volume.
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