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.
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Carrier Global Corp. pages available for free this week:
- Balance Sheet: Assets
- Common-Size Income Statement
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Dividend Discount Model (DDM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Price to Earnings (P/E) since 2020
- Aggregate Accruals
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Economic Profit
Carrier Global Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||
| Cost of capital2 | ||||
| Invested capital3 | ||||
| Economic profit4 | ||||
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT shows a decline from 2,367 million USD in 2020 to 1,932 million USD in 2021, followed by a significant increase to 3,800 million USD in 2022. This pattern indicates an initial downturn in operating profitability, which was then substantially reversed in the latest period, reflecting improved operational efficiency or increased revenues.
- Cost of Capital
- The cost of capital demonstrates a steady upward trend over the three years, rising from 12.63% in 2020 to 13.42% in 2021, and further to 13.96% in 2022. This increase suggests either a rise in perceived risk or changes in the financial structure, leading to higher required returns by investors.
- Invested Capital
- Invested capital remained relatively stable between 2020 and 2021, with a slight decrease from 19,032 million USD to 18,835 million USD, before increasing to 19,880 million USD in 2022. This indicates a modest contraction in capital employed initially, followed by a moderate expansion in the most recent year.
- Economic Profit
- The economic profit moved from a slight negative of -37 million USD in 2020 to a larger negative of -597 million USD in 2021, reflecting increased underperformance relative to the cost of capital. However, it markedly turned positive to 1,026 million USD in 2022, indicating that the company generated value exceeding its capital costs in that year.
- Overall Analysis
- The data reveals a recovery phase beginning in 2022, with profitability (NOPAT) and economic profit showing significant improvements after declines in 2021. Despite the consistently rising cost of capital, which generally acts as a financial pressure, the company's ability to generate increased returns on invested capital is evident. The incremental rise in invested capital suggests strategic investments or asset growth supporting the improved earnings. The turnaround in economic profit highlights effective value creation after a challenging prior year.
Net Operating Profit after Taxes (NOPAT)
Carrier Global Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for expected credit losses.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in product warranty provisions.
5 Addition of increase (decrease) in restructuring reserve.
6 Addition of increase (decrease) in equity equivalents to net income attributable to common shareowners.
7 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
9 Addition of after taxes interest expense to net income attributable to common shareowners.
The analysis of the financial data over the three reported years reveals notable fluctuations in key profitability metrics, specifically net income attributable to common shareowners and net operating profit after taxes (NOPAT).
- Net income attributable to common shareowners
- This measure shows a decrease from 1982 million US dollars in 2020 to 1664 million US dollars in 2021, indicating a reduction of approximately 16%. However, in 2022, there is a significant recovery and growth, with net income rising sharply to 3534 million US dollars. This represents more than a doubling from the prior year and an overall increase compared to 2020. The pattern suggests that while 2021 experienced a dip in profitability, 2022 saw a robust improvement and strong earnings performance.
- Net operating profit after taxes (NOPAT)
- Like net income, NOPAT declined from 2367 million US dollars in 2020 to 1932 million US dollars in 2021, reflecting a decrease of approximately 18%. In 2022, NOPAT rebounded substantially to 3800 million US dollars, surpassing both previous years. This improvement in NOPAT illustrates enhanced operational efficiency and a stronger bottom-line operating profit after accounting for taxes during the most recent year.
Overall, the data presents a trend of initial earnings contraction in 2021, potentially due to external or internal challenges affecting profitability, followed by a marked recovery and growth in 2022. The increase in both net income and NOPAT in 2022 underscores a positive shift in financial performance and operational results. This recovery phase suggests successful strategic or operational adjustments leading to substantial value creation for shareholders.
Cash Operating Taxes
Carrier Global Corp., cash operating taxes calculation
US$ in millions
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|
| Income tax expense | ||||
| Less: Deferred income tax expense (benefit) | ||||
| Add: Tax savings from interest expense | ||||
| Cash operating taxes |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
The financial data for the periods ending December 31, 2020, 2021, and 2022 reveal the following trends in tax-related expenses.
- Income Tax Expense
- The income tax expense shows a decline from US$ 849 million in 2020 to US$ 699 million in 2021, representing a significant decrease. However, in 2022, income tax expense exhibited a slight increase to US$ 708 million. Overall, the expense decreased year-over-year from 2020 to 2022, but the change from 2021 to 2022 indicates a modest upward adjustment.
- Cash Operating Taxes
- The cash operating taxes consistently increased over the three years. Starting from US$ 820 million in 2020, it rose to US$ 844 million in 2021, and further increased to US$ 900 million in 2022. This steady upward trend may indicate higher cash tax obligations or changes in operating taxable income over the observed period.
In summary, while reported income tax expenses decreased initially and then slightly increased, cash taxes paid showed a consistent rise. This divergence may suggest timing differences between recognized tax expense and actual cash tax payments, or changes in tax planning, credits, or provisions affecting the income tax expense recognition.
Invested Capital
Carrier Global Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 LIFO reserve. See details »
5 Addition of product warranty provisions.
6 Addition of restructuring reserve.
7 Addition of equity equivalents to equity attributable to common shareowners.
8 Removal of accumulated other comprehensive income.
- Total reported debt & leases
- There is a clear downward trend in total reported debt and leases over the three-year period. The value decreased from $11,030 million at the end of 2020 to $10,353 million in 2021, and further declined to $9,503 million by the end of 2022. This indicates a consistent reduction in the company's leverage or obligations related to debt and leases.
- Equity attributable to common shareowners
- Equity attributable to common shareowners shows a steady increase each year. Starting at $6,252 million in 2020, it rose to $6,767 million in 2021 and further increased to $7,758 million in 2022. This growth suggests improvements in the company's net worth and possibly retained earnings or capital infusion over the period.
- Invested capital
- Invested capital remained relatively stable in 2020 and 2021, with a slight decrease from $19,032 million to $18,835 million. However, there was a notable increase to $19,880 million in 2022. This indicates a modest growth in the total capital deployed in the company’s operations by the end of the third year.
Cost of Capital
Carrier Global Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Carrier Global Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Economic profit1 | ||||
| Invested capital2 | ||||
| Performance Ratio | ||||
| Economic spread ratio3 | ||||
| Benchmarks | ||||
| Economic Spread Ratio, Competitors4 | ||||
| Boeing Co. | ||||
| Caterpillar Inc. | ||||
| Eaton Corp. plc | ||||
| GE Aerospace | ||||
| Honeywell International Inc. | ||||
| Lockheed Martin Corp. | ||||
| RTX Corp. | ||||
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial data reveals significant changes across the three-year period under review. The economic profit experienced a notable reversal in trend. Initially, there was a slight negative economic profit of -37 million USD at the end of 2020, which deteriorated sharply to -597 million USD by the end of 2021. However, by the end of 2022, this trend reversed dramatically, resulting in a positive economic profit of 1,026 million USD. This shift indicates a substantial improvement in the company's ability to generate returns above its cost of capital.
The invested capital remained relatively stable with a slight downward adjustment from 19,032 million USD in 2020 to 18,835 million USD in 2021, followed by a moderate increase to 19,880 million USD in 2022. This suggests that the company maintained a consistent base of invested assets with some expansion occurring in the most recent year.
The economic spread ratio, which measures the difference between return on invested capital and cost of capital, corroborates the economic profit trends. It was negative at -0.2% in 2020, indicating a return slightly below cost. The negative spread deepened significantly to -3.17% in 2021, aligning with the considerable economic loss recorded. By 2022, the economic spread ratio turned positive and increased substantially to 5.16%, reflecting the company's improved profitability and effective capital utilization.
Overall, the data indicates a period of underperformance in 2021 marked by negative returns and economic losses, followed by a strong recovery in 2022 when economic profitability and spreads both improved markedly. The invested capital levels remained largely steady, suggesting that improvements in profit were driven more by operational efficiency or market conditions than by changes in investment scale.
Economic Profit Margin
Carrier Global Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Economic profit1 | ||||
| Net sales | ||||
| Performance Ratio | ||||
| Economic profit margin2 | ||||
| Benchmarks | ||||
| Economic Profit Margin, Competitors3 | ||||
| Boeing Co. | ||||
| Caterpillar Inc. | ||||
| Eaton Corp. plc | ||||
| GE Aerospace | ||||
| Honeywell International Inc. | ||||
| Lockheed Martin Corp. | ||||
| RTX Corp. | ||||
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit shows a significant shift over the observed three-year period. In 2020, the economic profit was negative at -37 million US dollars, indicating a slight economic loss. This negative trend deepened considerably in 2021 with a substantial decline to -597 million US dollars, reflecting heightened economic challenges or increased costs relative to returns during that year. However, in 2022, a remarkable turnaround occurred, with the economic profit rising sharply to a positive 1,026 million US dollars, demonstrating a strong recovery and an effective generation of economic value.
- Net Sales
- Net sales exhibited growth from 2020 to 2021, increasing from 17,456 million US dollars to 20,613 million US dollars, representing an approximate 18% increase. This growth indicates an expansion in revenue generation or demand during that period. In 2022, net sales slightly decreased to 20,421 million US dollars, a minor decline from the previous year but still maintaining a higher level than in 2020. This trend indicates relative stability in sales after a period of growth, suggesting market conditions or pricing strategies stabilized.
- Economic Profit Margin
- The economic profit margin parallels the trend observed in economic profit. It was slightly negative at -0.21% in 2020, worsened considerably to -2.9% in 2021, suggesting declining profitability relative to sales. In 2022, the margin reversed to a positive 5.02%, indicating improved operational efficiency and profitability. This positive margin in 2022 highlights a favorable shift in how effectively the company converts sales into economic profit.