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
Carrier Global Corp., economic profit 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 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
= 3,800 – 16.33% × 19,880 = 553
The economic profit trajectory exhibits a recovery pattern, transitioning from value destruction in 2020 and 2021 to value creation by the end of 2022. This turnaround is primarily driven by a substantial expansion in operational profitability that outweighed a steadily increasing cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- Operational profitability experienced a decline in 2021, dropping to 1,932 million USD from 2,367 million USD in 2020. However, a significant surge occurred in 2022, with NOPAT reaching 3,800 million USD, representing a nearly 97% increase over the previous year.
- Cost of Capital
- A consistent upward trend is observed in the cost of capital, which rose from 14.75% in 2020 to 16.33% by 2022. This incremental increase raised the minimum return required on invested capital, thereby increasing the threshold for achieving positive economic profit.
- Invested Capital
- The capital base remained relatively stable over the three-year period. After a slight contraction to 18,835 million USD in 2021, invested capital increased to 19,880 million USD in 2022, indicating a moderate expansion of the asset base used to generate returns.
- Economic Profit
- Economic profit was negative for two consecutive years, with the deficit deepening from -440 million USD in 2020 to -1,025 million USD in 2021. This trend reversed sharply in 2022, resulting in a positive economic profit of 553 million USD, signifying that the company began generating returns in excess of its weighted average cost of capital.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
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
= 661 × 3.40% = 22
8 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 324 × 21.00% = 68
9 Addition of after taxes interest expense to net income attributable to common shareowners.
A volatility pattern is observed in the company's profitability over the three-year period from 2020 to 2022, characterized by a moderate contraction in 2021 followed by a substantial expansion in 2022.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT declined by approximately 18% between 2020 and 2021, falling from 2,367 million to 1,932 million. A significant recovery occurred in 2022, with NOPAT increasing to 3,800 million, representing a 97% growth over the 2021 figure and a 60% increase compared to 2020 levels.
- Net Income Performance
- Net income attributable to common shareowners mirrored the NOPAT trajectory. A decrease from 1,982 million in 2020 to 1,664 million in 2021 was followed by a sharp rise to 3,534 million in 2022. The 2022 result indicates that net profitability more than doubled relative to the prior year.
- Comparative Analysis of Operating and Net Profitability
- A consistent positive variance is observed between NOPAT and net income across the analyzed period. Because NOPAT excludes the effects of debt financing and interest expenses, the fact that it remains higher than net income underscores the impact of the company's capital structure on the final bottom line. The gap between operating profit and net income was most pronounced in 2020 at 385 million, narrowing slightly to 268 million in 2021 and 266 million in 2022.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Cash Operating Taxes
Carrier Global Corp., cash operating taxes 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).
An analysis of the tax components reveals a divergence between the accrual-based income tax expense and the actual cash operating taxes paid between 2020 and 2022.
- Cash Operating Taxes Trend
- A consistent upward trajectory is observed in cash operating taxes, which rose from 820 million US dollars in 2020 to 844 million US dollars in 2021, and further increased to 900 million US dollars by 2022. This represents a steady increase in the actual cash outflow for tax obligations over the analyzed period.
- Income Tax Expense Trend
- In contrast, the income tax expense exhibited a decrease from 849 million US dollars in 2020 to 699 million US dollars in 2021, followed by a marginal increase to 708 million US dollars in 2022. This indicates that the accounting expense recorded on the income statement does not align with the actual cash disbursements during the 2021 and 2022 fiscal years.
- Analysis of Divergence and EVA Implications
- A widening gap between income tax expense and cash operating taxes is evident, peaking in 2022 when cash taxes exceeded the reported expense by 192 million US dollars. For the purposes of calculating Economic Value Added (EVA), the use of cash operating taxes rather than income tax expense captures the true cash burden on the organization. The observed trend indicates that cash tax outflows are increasing despite the relative stability of the reported tax expense, which negatively impacts the net operating profit after tax (NOPAT) used in EVA calculations.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
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.
The capital structure exhibits a strategic shift toward deleveraging and a stronger equity base between 2020 and 2022, while the total invested capital remains relatively stable with a slight upward trajectory in the final period.
- Debt and Lease Obligations
- A consistent downward trend is observed in total reported debt and leases, which decreased from 11,030 million US$ in 2020 to 9,503 million US$ by 2022. This represents a steady reduction in financial liabilities over the three-year period, indicating a systematic effort to reduce leverage.
- Shareholder Equity
- Equity attributable to common shareowners demonstrates a continuous increase, rising from 6,252 million US$ in 2020 to 7,758 million US$ in 2022. This growth suggests an accumulation of retained earnings or additional capital injections, enhancing the company's solvency and financial stability.
- Invested Capital Trends
- Invested capital experienced a marginal decline between 2020 and 2021, moving from 19,032 million US$ to 18,835 million US$. However, this was reversed in 2022, with a notable increase to 19,880 million US$. The overall movement indicates that the growth in equity has more than offset the reduction in debt, resulting in a slightly higher capital base for generating economic value by the end of the analyzed period.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Cost of Capital
Carrier Global Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 37,030) | 37,030) | ÷ | 45,076) | = | 0.82 | 0.82 | × | 19.38% | = | 15.92% | ||
| Long-term debt, including current portion3 | 7,385) | 7,385) | ÷ | 45,076) | = | 0.16 | 0.16 | × | 2.90% × (1 – 21.00%) | = | 0.38% | ||
| Operating lease liability4 | 661) | 661) | ÷ | 45,076) | = | 0.01 | 0.01 | × | 3.40% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 45,076) | 1.00 | 16.33% | ||||||||||
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 | 39,405) | 39,405) | ÷ | 50,171) | = | 0.79 | 0.79 | × | 19.38% | = | 15.22% | ||
| Long-term debt, including current portion3 | 10,109) | 10,109) | ÷ | 50,171) | = | 0.20 | 0.20 | × | 2.80% × (1 – 21.00%) | = | 0.45% | ||
| Operating lease liability4 | 657) | 657) | ÷ | 50,171) | = | 0.01 | 0.01 | × | 3.00% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 50,171) | 1.00 | 15.70% | ||||||||||
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 | 32,378) | 32,378) | ÷ | 44,300) | = | 0.73 | 0.73 | × | 19.38% | = | 14.16% | ||
| Long-term debt, including current portion3 | 11,119) | 11,119) | ÷ | 44,300) | = | 0.25 | 0.25 | × | 2.70% × (1 – 21.00%) | = | 0.54% | ||
| Operating lease liability4 | 803) | 803) | ÷ | 44,300) | = | 0.02 | 0.02 | × | 3.40% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 44,300) | 1.00 | 14.75% | ||||||||||
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 | 553) | (1,025) | (440) | |
| Invested capital2 | 19,880) | 18,835) | 19,032) | |
| Performance Ratio | ||||
| Economic spread ratio3 | 2.78% | -5.44% | -2.31% | |
| 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 553 ÷ 19,880 = 2.78%
4 Click competitor name to see calculations.
The financial trajectory between 2020 and 2022 demonstrates a significant shift from value destruction to value creation. After a period of widening economic losses, a sharp recovery was achieved by the end of the analyzed period, signaling a transition to positive economic productivity.
- Economic Profit
- A volatile trend is observed in economic profit, which declined from -440 million US dollars in 2020 to -1,025 million US dollars in 2021. This downward movement was reversed in 2022, with the figure shifting to a positive 553 million US dollars, marking a substantial recovery in the ability to generate returns above the cost of capital.
- Invested Capital
- The invested capital base remained relatively stable throughout the period. A marginal decrease occurred between 2020 and 2021, moving from 19,032 million US dollars to 18,835 million US dollars, followed by an increase to 19,880 million US dollars in 2022. This indicates that the growth in economic profit was not driven by a massive expansion of the capital base, but rather by improved efficiency or operational performance.
- Economic Spread Ratio
- The economic spread ratio mirrors the trend of economic profit, falling from -2.31% in 2020 to -5.44% in 2021. The subsequent rise to 2.78% in 2022 confirms that the return on invested capital exceeded the cost of capital for the first time in the three-year window, representing a successful reversal of the negative spread.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
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 | 553) | (1,025) | (440) | |
| Net sales | 20,421) | 20,613) | 17,456) | |
| Performance Ratio | ||||
| Economic profit margin2 | 2.71% | -4.97% | -2.52% | |
| 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).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 553 ÷ 20,421 = 2.71%
3 Click competitor name to see calculations.
The financial performance regarding economic value added demonstrates a significant transition from value destruction to value creation over the three-year period analyzed.
- Economic Profit Trajectory
- A period of volatility is evident, with economic profit decreasing from -440 million USD in 2020 to -1,025 million USD in 2021. However, a sharp reversal occurred by December 31, 2022, as the figure shifted to a positive 553 million USD, indicating that the organization began generating returns in excess of its cost of capital.
- Net Sales Performance
- Revenue experienced an upward trajectory between 2020 and 2021, increasing from 17,456 million USD to 20,613 million USD. This scale was largely maintained into 2022, with net sales remaining stable at 20,421 million USD.
- Economic Profit Margin Analysis
- The economic profit margin reflects the volatility observed in absolute economic profit, deepening from -2.52% in 2020 to -4.97% in 2021. The transition to a positive margin of 2.71% in 2022 marks a critical inflection point, suggesting improved operational efficiency or a reduction in the capital charge relative to the earnings generated.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?