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.
Paying user area
Try for free
Carrier Global Corp. pages available for free this week:
- Balance Sheet: Assets
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to EBITDA (EV/EBITDA)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2020
- Debt to Equity since 2020
- Price to Earnings (P/E) since 2020
- Price to Operating Profit (P/OP) since 2020
- Price to Book Value (P/BV) since 2020
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Carrier Global Corp. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Economic Profit
Carrier Global Corp., economic profit calculation
US$ 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
= – × =
The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) initially decreased before experiencing substantial growth. Simultaneously, the cost of capital increased steadily, while invested capital remained relatively stable. These factors combined to produce a shift from negative economic profit to positive economic profit over the observed timeframe.
- NOPAT Trend
- Net operating profit after taxes decreased from US$2,367 million in 2020 to US$1,932 million in 2021, representing a decline of approximately 18.4%. However, a significant recovery occurred in 2022, with NOPAT increasing to US$3,800 million, a rise of roughly 96.7% from the prior year.
- Cost of Capital Trend
- The cost of capital exhibited a consistent upward trend, increasing from 14.75% in 2020 to 15.70% in 2021, and further to 16.34% in 2022. This indicates a rising cost of funding for the company’s invested capital throughout the period.
- Invested Capital Trend
- Invested capital remained relatively stable. A slight decrease was observed from US$19,032 million in 2020 to US$18,835 million in 2021. This was followed by a modest increase to US$19,880 million in 2022. The changes in invested capital were minimal compared to the fluctuations in NOPAT.
- Economic Profit Trend
- Economic profit was negative in both 2020 and 2021, at -US$440 million and -US$1,025 million respectively. This indicates that the company’s NOPAT was insufficient to cover the cost of its invested capital during those years. However, economic profit turned positive in 2022, reaching US$553 million, driven by the substantial increase in NOPAT. The magnitude of the improvement in economic profit is notable.
The shift to positive economic profit in 2022 suggests improved capital allocation efficiency or a significant increase in operational performance. The increasing cost of capital, however, warrants continued monitoring to ensure future profitability.
Net Operating Profit after Taxes (NOPAT)
Carrier Global Corp., NOPAT calculation
US$ 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 economic performance of the entity, as measured by economic value added (EVA) metrics, exhibited significant fluctuations between 2020 and 2022. Initially, the entity experienced negative economic profit, which then transitioned to positive economic profit over the observed period. This shift is reflected in the economic spread ratio, which demonstrates a clear progression from negative to positive territory.
- Economic Profit
- Economic profit was negative in both 2020 and 2021, registering at -440 million US dollars and -1,025 million US dollars respectively. This indicates that the entity’s returns were insufficient to cover the cost of capital during these years. However, a substantial improvement occurred in 2022, with economic profit turning positive at 553 million US dollars. This suggests improved profitability and/or more efficient capital utilization.
- Invested Capital
- Invested capital remained relatively stable throughout the period. A slight decrease was observed from 19,032 million US dollars in 2020 to 18,835 million US dollars in 2021. Subsequently, invested capital increased to 19,880 million US dollars in 2022, indicating a modest expansion in the capital base.
- Economic Spread Ratio
- The economic spread ratio mirrored the trend in economic profit. In 2020, the ratio was -2.31%, indicating that the entity’s return on invested capital was 2.31 percentage points below its cost of capital. The ratio deteriorated further in 2021, reaching -5.44%. A significant turnaround occurred in 2022, with the economic spread ratio rising to 2.78%. This signifies that the entity generated returns exceeding its cost of capital by 2.78 percentage points, demonstrating improved value creation.
The progression from negative to positive economic profit and economic spread ratio suggests a successful implementation of strategies aimed at enhancing profitability and/or improving capital efficiency. The increase in invested capital in 2022, coupled with positive economic profit, implies that new investments are contributing to value creation.
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.
The economic profit margin exhibited significant fluctuation between the analyzed periods. Initially negative, it transitioned to a positive value over the course of three years. This shift correlates with changes in economic profit and net sales.
- Economic Profit Margin
- In 2020, the economic profit margin stood at -2.52%. This indicates that the company’s economic profit was 2.52% below the cost of capital employed. A more substantial decline was observed in 2021, with the margin reaching -4.97%, signifying a widening gap between economic profit and the cost of capital. However, a marked improvement occurred in 2022, as the economic profit margin rose to 2.71%. This suggests the company generated economic profit exceeding the cost of capital by 2.71%.
The economic profit margin’s movement mirrors the trend in economic profit. The negative margins in 2020 and 2021 correspond with negative economic profit values, while the positive margin in 2022 aligns with positive economic profit. Net sales increased from 2020 to 2021, but the economic profit margin worsened, indicating that the increase in sales was not sufficient to offset rising costs or a higher cost of capital. The slight decrease in net sales from 2021 to 2022 did not prevent a substantial improvement in the economic profit margin, suggesting improved efficiency or a reduction in the cost of capital.
The substantial swing in economic profit margin highlights a significant change in the company’s ability to generate returns above its cost of capital. Further investigation into the factors driving these changes – including cost of capital, operational efficiency, and revenue generation – would be beneficial.