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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Caterpillar Inc. pages available for free this week:
- Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Return on Assets (ROA) since 2005
- Analysis of Revenues
- Analysis of Debt
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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 financial performance from 2021 to 2025 is characterized by a persistent inability to generate positive economic profit, indicating that the returns on invested capital have consistently failed to exceed the cost of capital throughout the analyzed period.
- Net Operating Profit After Taxes (NOPAT)
- An upward trajectory was maintained from 2021 through 2024, with NOPAT increasing from US$ 6,986 million to a peak of US$ 10,452 million. This growth trend reversed in 2025, with profits declining to US$ 9,805 million, suggesting a contraction in operating performance toward the end of the period.
- Cost of Capital
- A continuous year-over-year increase in the cost of capital is observed, rising from 18.36% in 2021 to 22.14% by 2025. This steady escalation indicates a rising hurdle rate, which increases the difficulty of achieving a positive economic profit.
- Invested Capital
- Invested capital remained relatively stable between 2021 and 2023, fluctuating near US$ 55 billion. However, a significant expansion occurred in 2024 and 2025, with the total reaching US$ 64,653 million. The substantial increase in capital employment in 2025 occurred alongside a decrease in NOPAT, exacerbating value destruction.
- Economic Profit
- Economic profit remained negative for all five years. A period of relative improvement was noted between 2023 and 2024, where the deficit narrowed to approximately US$ 1.37 billion. However, 2025 saw a sharp deterioration, with economic profit falling to US$ -4,511 million. This decline is the result of a combined effect: a higher cost of capital, an expanded capital base, and a reduction in operating profits.
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 financial performance from 2021 to 2025 is characterized by a persistent failure to generate positive economic value added, indicating that returns on invested capital consistently remained below the cost of capital. While a period of recovery and stabilization was observed between 2023 and 2024, the final year of the period shows a significant deterioration in value creation metrics.
- Economic Profit Trends
- Negative economic profit was recorded throughout the five-year period. Initial losses expanded from -3,213 million in 2021 to -3,495 million in 2022. A notable improvement occurred in 2023 and 2024, where losses narrowed to -1,367 million and -1,382 million, respectively. However, this trend reversed sharply in 2025, with economic profit falling to its lowest level of -4,511 million.
- Invested Capital Evolution
- Invested capital remained relatively stagnant between 2021 and 2023, fluctuating within a narrow range around 55 billion. A gradual increase began in 2024, reaching 57,519 million, followed by a substantial surge in 2025 to 64,653 million. The increase in the capital base in 2025 coincided with the most significant decline in economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio maintained a negative trajectory for the entire duration, confirming a continuous gap between actual returns and the required rate of return. The ratio dipped to -6.38% in 2022 before recovering to -2.46% in 2023 and -2.40% in 2024. This relative stability was lost in 2025, as the ratio widened to -6.98%, representing the most significant erosion of the spread during the period analyzed.
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 analysis of economic value added indicators reveals a persistent trend of negative economic profit from 2021 through 2025. Despite fluctuations in revenue and a brief period of margin recovery between 2023 and 2024, the organization consistently failed to generate returns exceeding its cost of capital, culminating in a significant deterioration of value creation by the end of the period.
- Economic Profit Trajectory
- Economic profit remained in negative territory throughout the analyzed five-year window. After an initial decline from -3,213 million in 2021 to -3,495 million in 2022, a notable recovery occurred in 2023, with losses narrowing to -1,367 million. This relative stability persisted into 2024; however, 2025 witnessed a sharp reversal, with economic profit dropping to its lowest point of -4,511 million.
- Revenue Growth and Correlation
- Sales of Machinery, Power & Energy exhibited a general upward trajectory, growing from 48,188 million in 2021 to 63,980 million in 2025. While revenue increased by approximately 33% over the period, this growth did not lead to positive economic value. The divergence between increasing sales and negative economic profit suggests that the returns generated from expanded operations were insufficient to cover the associated cost of capital.
- Economic Profit Margin Performance
- The economic profit margin mirrored the volatility of absolute economic profit. The margin improved from -6.67% in 2021 to a peak of -2.14% in 2023, indicating a temporary increase in capital efficiency. This trend reversed sharply in 2025, with the margin falling to -7.05%. This represents the most significant erosion of efficiency in the period, highlighting a substantial gap between the net operating profit and the required return on invested capital.