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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Economic Profit
Caterpillar Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2025 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The period under review demonstrates a fluctuating relationship between net operating profit after taxes, cost of capital, and invested capital, resulting in consistently negative economic profit. While NOPAT generally increased from 2021 to 2023, it has not been sufficient to offset the increasing cost of capital and, particularly in 2025, the substantial growth in invested capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT increased from US$6,986 million in 2021 to US$7,348 million in 2022, representing a modest increase. A significant jump occurred in 2023, reaching US$10,002 million, followed by a further increase to US$10,452 million in 2024. However, NOPAT decreased to US$9,805 million in 2025, indicating a potential reversal of the prior positive trend.
- Cost of Capital
- The cost of capital exhibited a consistent upward trend throughout the period. Starting at 18.54% in 2021, it rose to 19.98% in 2022, 20.67% in 2023, and 20.77% in 2024. The most substantial increase was observed in 2025, reaching 22.36%. This increasing cost of capital places greater pressure on generating sufficient returns from invested capital.
- Invested Capital
- Invested capital remained relatively stable between 2021 and 2023, fluctuating around US$55 billion. A noticeable increase occurred in 2024, reaching US$57,519 million, and a more substantial increase was observed in 2025, with invested capital reaching US$64,653 million. This significant expansion in invested capital, coupled with the rising cost of capital, contributes to the negative economic profit.
- Economic Profit
- Economic profit remained negative throughout the entire period. It started at -US$3,311 million in 2021 and deteriorated to -US$3,599 million in 2022. While it improved to -US$1,476 million in 2023 and remained similar at -US$1,496 million in 2024, it significantly worsened to -US$4,651 million in 2025. This indicates that the company’s returns are consistently failing to cover the cost of capital employed.
The widening negative economic profit in 2025 is particularly concerning, driven by both a decrease in NOPAT and a substantial increase in invested capital alongside a higher cost of capital. This suggests a potential need to re-evaluate investment strategies and capital allocation decisions.
Net Operating Profit after Taxes (NOPAT)
Caterpillar Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in LIFO reserve. See details »
3 Addition of increase (decrease) in product warranty liability.
4 Addition of increase (decrease) in equity equivalents to profit attributable to common stockholders.
5 2025 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2025 Calculation
Tax benefit of interest expense excluding Financial Products = Adjusted interest expense excluding Financial Products × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to profit attributable to common stockholders.
8 2025 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
Net operating profit after taxes (NOPAT) and profit attributable to common stockholders both demonstrate a general upward trajectory over the observed period, though with some fluctuation. NOPAT increased from 2021 to 2023, experienced a slight increase from 2023 to 2024, and then decreased in 2025. Profit attributable to common stockholders follows a similar pattern.
- NOPAT Trend
- NOPAT increased from US$6,986 million in 2021 to US$7,348 million in 2022, representing a growth of approximately 5.2%. This growth continued into 2023, with NOPAT reaching US$10,002 million, a substantial increase of roughly 36.2% from the prior year. A further, albeit smaller, increase was observed in 2024, with NOPAT reaching US$10,452 million. However, NOPAT decreased to US$9,805 million in 2025, representing a decline of approximately 6.2% from 2024.
- Profit Attributable to Common Stockholders Trend
- Profit attributable to common stockholders increased from US$6,489 million in 2021 to US$6,705 million in 2022, a growth of approximately 3.3%. A significant increase was then recorded in 2023, reaching US$10,335 million, representing a growth of approximately 54.1% from 2022. This upward trend continued into 2024, with profit attributable to common stockholders reaching US$10,792 million. In 2025, profit attributable to common stockholders decreased to US$8,884 million, a decline of approximately 17.9% from 2024.
The correlation between NOPAT and profit attributable to common stockholders is strong, suggesting that changes in operating profitability directly influence the net income available to shareholders. The decrease observed in both metrics in 2025 warrants further investigation to determine the underlying causes, such as increased costs, decreased sales volume, or changes in the tax environment.
- Relationship between NOPAT and Profit
- While both metrics generally move in the same direction, NOPAT consistently exceeds profit attributable to common stockholders across all observed years. This difference likely reflects items not included in NOPAT, such as financing costs or non-operating income/expenses, which impact the final profit figure reported to common stockholders.
Cash Operating Taxes
Caterpillar Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
The provision for income taxes and cash operating taxes both exhibited increasing trends from 2021 to 2023, followed by fluctuations in subsequent years. A detailed examination of these items reveals distinct patterns and potential areas for further investigation.
- Provision for Income Taxes
- The provision for income taxes increased steadily from US$1,742 million in 2021 to US$2,781 million in 2023, representing a growth of approximately 60%. In 2024, this figure decreased slightly to US$2,629 million before rising again to US$2,768 million in 2025. This suggests a correlation with overall profitability, though further analysis is needed to confirm this relationship.
- Cash Operating Taxes
- Cash operating taxes mirrored the increasing trend observed in the provision for income taxes, rising from US$2,213 million in 2021 to US$3,380 million in 2023, an increase of over 52%. A decrease was then noted in 2024 to US$3,260 million, followed by a more substantial decline to US$2,327 million in 2025. This decrease in 2025 is more pronounced than the decrease in the provision for income taxes, potentially indicating changes in deferred tax assets or liabilities, or timing differences in tax payments.
- Relationship between Provision and Cash Taxes
- In 2021 and 2022, the difference between cash operating taxes and the provision for income taxes was relatively consistent, around US$471 million and US$437 million respectively. However, this difference widened in 2023 to US$600 million, and further increased to US$631 million in 2024. The difference narrowed significantly in 2025 to US$441 million. These variations suggest changes in the timing of recognizing taxable income versus actual cash tax payments, potentially due to items like depreciation methods, tax credits, or changes in tax laws. The substantial decrease in 2025 warrants further investigation to understand the underlying drivers.
Overall, the fluctuations in both the provision for income taxes and cash operating taxes suggest a dynamic tax environment. The divergence between these two figures, particularly the significant decrease in cash operating taxes in 2025, should be examined in greater detail to assess its impact on the company’s economic value added and overall financial health.
Invested Capital
Caterpillar Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of LIFO reserve. See details »
4 Addition of product warranty liability.
5 Addition of equity equivalents to equity attributable to common shareholders.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction-in-process.
8 Subtraction of investments in debt and equity securities.
The invested capital of the company exhibited relative stability between 2021 and 2023, followed by increases in 2024 and 2025. A closer examination of the components reveals trends in both debt and equity financing.
- Total Debt & Leases
- Total reported debt and leases decreased from $38,431 million in 2021 to $37,572 million in 2022. A slight increase was observed in 2023, reaching $38,452 million, before continuing to rise to $39,011 million in 2024. The most significant increase occurred between 2024 and 2025, with debt and leases reaching $44,058 million. This indicates a growing reliance on debt financing in the latter period.
- Equity Attributable to Common Shareholders
- Equity attributable to common shareholders decreased from $16,484 million in 2021 to $15,869 million in 2022. A substantial increase was then recorded in 2023, reaching $19,494 million. Equity remained relatively stable in 2024 at $19,491 million, and continued to grow to $21,318 million in 2025. This suggests a strengthening of the equity base, particularly between 2022 and 2025.
- Invested Capital
- Invested capital, calculated as the sum of total debt & leases and equity attributable to common shareholders, remained relatively consistent between 2021 and 2023, fluctuating around $55.5 billion. An upward trend began in 2024, with invested capital reaching $57,519 million, and accelerated in 2025, culminating in $64,653 million. This increase in invested capital is attributable to the combined effect of rising debt and increasing equity, with debt contributing more significantly to the growth in the most recent period.
The composition of invested capital shifted over the analyzed period. While equity experienced a notable recovery and growth, the increasing proportion of debt in the capital structure from 2024 onwards warrants further investigation regarding the company’s financial leverage and associated risks.
Cost of Capital
Caterpillar Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short-term borrowings and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short-term borrowings and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short-term borrowings and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short-term borrowings and long-term debt3 | ÷ | = | × | × (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 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short-term borrowings and long-term debt3 | ÷ | = | × | × (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 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Caterpillar Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2025 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The period under review demonstrates a fluctuating financial performance as indicated by the economic profit and economic spread ratio. Economic profit exhibits volatility, moving from a loss of US$3,311 million in 2021 to a loss of US$3,599 million in 2022, then improving to a loss of US$1,476 million in 2023, followed by a slight increase in the loss to US$1,496 million in 2024, and finally a substantial increase in the loss to US$4,651 million in 2025.
- Invested Capital
- Invested capital generally increased over the period. It decreased slightly from US$55,552 million in 2021 to US$54,801 million in 2022, then recovered to US$55,518 million in 2023. Further increases were observed in 2024 (US$57,519 million) and 2025 (US$64,653 million), indicating a growing capital base.
- Economic Spread Ratio
- The economic spread ratio reflects the relationship between economic profit and invested capital. The ratio began at -5.96% in 2021 and deteriorated to -6.57% in 2022. An improvement was noted in 2023, reaching -2.66%, followed by a slight worsening to -2.60% in 2024. However, the ratio significantly declined to -7.19% in 2025. This suggests a weakening ability to generate returns exceeding the cost of capital, particularly in the final year of the period.
The divergence between the increasing invested capital and the fluctuating, ultimately worsening, economic spread ratio suggests that while the company is investing more capital, it is not translating into proportionally higher economic profits. The substantial decline in the economic spread ratio in 2025, coupled with the increased economic loss, warrants further investigation into the factors driving this performance.
Economic Profit Margin
Caterpillar Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Sales of Machinery, Power & Energy | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Economic profit. See details »
2 2025 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales of Machinery, Power & Energy
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited fluctuations over the five-year period. Initially negative, the margin improved through 2023 before declining again in subsequent years. A review of the underlying figures reveals a complex relationship between economic profit and sales revenue.
- Economic Profit Margin
- The economic profit margin began at -6.87% in 2021 and improved to -2.31% in 2023, indicating a lessening of economic loss relative to sales. However, this positive trend reversed, with the margin worsening to -2.44% in 2024 and further declining to -7.27% in 2025. This suggests a deterioration in the company’s ability to generate returns exceeding its cost of capital in the later years of the observed period.
- Economic Profit
- Economic profit itself was consistently negative throughout the period. While the magnitude of the loss decreased from US$3,311 million in 2021 to US$1,476 million in 2023, it increased substantially to US$4,651 million in 2025. This increase in absolute loss, coupled with a relatively stable sales figure in 2025, contributed to the significant decline in the economic profit margin.
- Sales of Machinery, Power & Energy
- Sales demonstrated an overall upward trend, increasing from US$48,188 million in 2021 to US$63,869 million in 2023. Sales experienced a slight decrease in 2024 to US$61,363 million, before recovering to US$63,980 million in 2025. The improvement in the economic profit margin in 2023 coincided with the highest level of sales during the period, suggesting a potential correlation between revenue growth and profitability, although this relationship was not sustained.
The observed pattern suggests that while revenue growth can contribute to improved economic profit margins, it does not guarantee it. The substantial increase in economic loss in 2025, despite relatively stable sales, indicates that factors beyond revenue, such as cost of capital or operational efficiency, may be significantly impacting the company’s economic profitability.