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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread
Economic Profit Margin

Caterpillar Inc., economic profit calculation

USD $ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

¹ NOPAT. See Details »

² Cost of capital. See Details »

³ Invested capital. See Details »

⁴ Economic profit = NOPAT – Cost of capital × Invested capital
= hidden – hidden × hidden = hidden

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Caterpillar Inc.’s economic profit increased from 2016 to 2017 and from 2017 to 2018.

Caterpillar Inc., NOPAT calculation

USD $ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Profit (loss) attributable to common stockholders
	Deferred income tax expense (benefit)¹
	Increase (decrease) in LIFO reserve²
	Increase (decrease) in product warranty liability³
	Increase (decrease) in employee separation liability⁴
	Increase (decrease) in equity equivalents⁵
	Interest expense excluding Financial Products
	Interest expense, operating lease obligations⁶
	Adjusted interest expense excluding Financial Products
	Tax benefit of interest expense excluding Financial Products⁷
	Adjusted interest expense excluding Financial Products, after taxes⁸
	(Gain) loss on marketable securities
	Investment income, before taxes
	Tax expense (benefit) of investment income⁹
	Investment income, after taxes¹⁰
	Net income (loss) attributable to noncontrolling interest
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

2018 Calculations

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 employee separation liability.

⁵ Addition of increase (decrease) in equity equivalents to profit (loss) attributable to common stockholders.

⁶ Addition of interest expense on capitalized operating leases. See Details »

⁷ Tax benefit of interest expense excluding Financial Products = Adjusted interest expense excluding Financial Products × Statutory income tax rate
= hidden × 21.00% = hidden

⁸ Addition of after taxes interest expense to profit (loss) attributable to common stockholders.

⁹ Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 21.00% = hidden

¹⁰ Elimination of after taxes investment income.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Caterpillar Inc.’s NOPAT increased from 2016 to 2017 and from 2017 to 2018.

Caterpillar Inc., cash operating taxes calculation

USD $ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Provision for income taxes
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense excluding Financial Products
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Caterpillar Inc.’s cash operating taxes increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Caterpillar Inc., invested capital calculation (financing approach)

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Short-term borrowings
	Long-term debt due within one year
	Long-term debt due after one year
	PV of operating lease payments¹
	Total reported debt & leases
	Equity attributable to common stockholders
	Net deferred tax (assets) liabilities²
	LIFO reserve³
	Product warranty liability⁴
	Employee separation liability⁵
	Equity equivalents⁶
	Accumulated other comprehensive (income) loss, net of tax⁷
	Noncontrolling interests
	Adjusted equity attributable to common stockholders
	Construction-in-process⁸
	Available-for-sale securities⁹
	Invested capital

Based on: 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17).

¹ Addition of capitalized operating leases. See Details »

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 employee separation liability.

⁶ Addition of equity equivalents to equity attributable to common stockholders.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction-in-process.

⁹ Subtraction of available-for-sale securities.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Caterpillar Inc.’s invested capital declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Caterpillar Inc., cost of capital calculations


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 21.00%)	=
PV of operating lease payments⁴	÷	=	×	× (1 – 21.00%)	=
Total:

Based on: 10-K (filing date: 2019-02-14).

¹ USD $ in millions

² Equity. See Details »

³ Debt. See Details »