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
Caterpillar Inc., economic profit 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 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
= 9,805 – 22.20% × 64,653 = -4,547
The period under review demonstrates a fluctuating financial performance as measured by economic profit. While net operating profit after taxes (NOPAT) generally increased through 2023, the cost of capital and invested capital trends, combined with NOPAT’s performance, resulted in consistently negative economic profit throughout the analyzed timeframe.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited an initial increase from US$6,986 million in 2021 to US$7,348 million in 2022. 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 in 2025 to US$9,805 million, indicating a potential stabilization or slight downturn in operational profitability.
- Cost of Capital
- The cost of capital consistently increased over the period, rising from 18.40% in 2021 to 22.20% in 2025. This upward trend suggests increasing financing costs or perceived risk associated with the company’s operations and investments. The rate of increase was most pronounced between 2024 and 2025.
- Invested Capital
- Invested capital showed a slight decrease from US$55,552 million in 2021 to US$54,801 million in 2022. It then recovered to US$55,518 million in 2023 and continued to grow, reaching US$57,519 million in 2024 and US$64,653 million in 2025. This indicates a growing need for capital to support operations and potentially expansion, or changes in working capital requirements.
- Economic Profit
- Economic profit remained negative throughout the entire period. The deficit widened from US$-3,238 million in 2021 to US$-3,522 million in 2022. While the negative profit decreased to US$-1,395 million in 2023 and US$-1,411 million in 2024, it significantly worsened in 2025 to US$-4,547 million. This suggests that, despite increasing NOPAT, the returns generated were insufficient to cover the cost of capital employed, particularly as the cost of capital and invested capital rose.
The increasing cost of capital and invested capital appear to be offsetting the gains in NOPAT, resulting in a sustained negative economic profit. The substantial decline in economic profit in 2025 warrants further investigation to determine the underlying causes and potential mitigation strategies.
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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
= 728 × 4.00% = 29
6 2025 Calculation
Tax benefit of interest expense excluding Financial Products = Adjusted interest expense excluding Financial Products × Statutory income tax rate
= 531 × 21.00% = 112
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
= 416 × 21.00% = 87
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$8,884 million, a decline of approximately 17.9% from 2024.
The correlation between NOPAT and profit attributable to common stockholders is strong, suggesting that changes in operating profitability directly influence the net income available to shareholders. The decrease observed in both metrics in 2025 warrants further investigation to determine the underlying causes, such as increased costs, decreased sales volume, or changes in the tax environment.
- Relationship between NOPAT and Profit
- While both metrics generally move in the same direction, NOPAT consistently exceeds profit attributable to common stockholders across all observed years. This difference likely reflects items not included in NOPAT, such as financing costs or non-operating income/expenses, which impact the final profit figure reported to common stockholders.
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Cash Operating Taxes
Caterpillar Inc., cash operating taxes calculation
US$ 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$441 million. These variations suggest changes in the timing of recognizing taxable income versus actual cash tax payments, potentially due to items like depreciation methods, tax credits, or changes in tax laws. The substantial decrease in 2025 warrants further investigation to understand the underlying drivers.
Overall, the fluctuations in both the provision for income taxes and cash operating taxes suggest a dynamic tax environment. The divergence between these two figures, particularly the significant decrease in cash operating taxes in 2025, should be examined in greater detail to assess its impact on the company’s economic value added and overall financial health.
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Invested Capital
Caterpillar Inc., invested capital calculation (financing approach)
US$ 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 $64,653 million. This increase in invested capital is attributable to the combined effect of rising debt and increasing equity, with debt contributing more significantly to the growth in the most recent period.
The composition of invested capital shifted over the analyzed period. While equity experienced a notable recovery and growth, the increasing proportion of debt in the capital structure from 2024 onwards warrants further investigation regarding the company’s financial leverage and associated risks.
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Cost of Capital
Caterpillar Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 360,225) | 360,225) | ÷ | 404,034) | = | 0.89 | 0.89 | × | 24.47% | = | 21.81% | ||
| Short-term borrowings and long-term debt3 | 43,081) | 43,081) | ÷ | 404,034) | = | 0.11 | 0.11 | × | 4.50% × (1 – 21.00%) | = | 0.38% | ||
| Operating lease liability4 | 728) | 728) | ÷ | 404,034) | = | 0.00 | 0.00 | × | 4.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 404,034) | 1.00 | 22.20% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | 168,863) | 168,863) | ÷ | 207,142) | = | 0.82 | 0.82 | × | 24.47% | = | 19.95% | ||
| Short-term borrowings and long-term debt3 | 37,677) | 37,677) | ÷ | 207,142) | = | 0.18 | 0.18 | × | 4.68% × (1 – 21.00%) | = | 0.67% | ||
| Operating lease liability4 | 602) | 602) | ÷ | 207,142) | = | 0.00 | 0.00 | × | 3.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 207,142) | 1.00 | 20.62% | ||||||||||
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 | 160,755) | 160,755) | ÷ | 198,821) | = | 0.81 | 0.81 | × | 24.47% | = | 19.78% | ||
| Short-term borrowings and long-term debt3 | 37,492) | 37,492) | ÷ | 198,821) | = | 0.19 | 0.19 | × | 4.96% × (1 – 21.00%) | = | 0.74% | ||
| Operating lease liability4 | 574) | 574) | ÷ | 198,821) | = | 0.00 | 0.00 | × | 3.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 198,821) | 1.00 | 20.53% | ||||||||||
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 | 128,415) | 128,415) | ÷ | 164,877) | = | 0.78 | 0.78 | × | 24.47% | = | 19.06% | ||
| Short-term borrowings and long-term debt3 | 35,883) | 35,883) | ÷ | 164,877) | = | 0.22 | 0.22 | × | 4.50% × (1 – 21.00%) | = | 0.77% | ||
| Operating lease liability4 | 579) | 579) | ÷ | 164,877) | = | 0.00 | 0.00 | × | 2.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 164,877) | 1.00 | 19.84% | ||||||||||
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 | 109,128) | 109,128) | ÷ | 150,391) | = | 0.73 | 0.73 | × | 24.47% | = | 17.75% | ||
| Short-term borrowings and long-term debt3 | 40,621) | 40,621) | ÷ | 150,391) | = | 0.27 | 0.27 | × | 3.02% × (1 – 21.00%) | = | 0.64% | ||
| Operating lease liability4 | 642) | 642) | ÷ | 150,391) | = | 0.00 | 0.00 | × | 2.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 150,391) | 1.00 | 18.40% | ||||||||||
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 | (4,547) | (1,411) | (1,395) | (3,522) | (3,238) | |
| Invested capital2 | 64,653) | 57,519) | 55,518) | 54,801) | 55,552) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.03% | -2.45% | -2.51% | -6.43% | -5.83% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -5.80% | -35.10% | -15.03% | -20.42% | -19.03% | |
| Eaton Corp. plc | -5.06% | -6.24% | -7.82% | -9.72% | -9.33% | |
| GE Aerospace | 3.19% | -0.69% | 1.14% | -13.80% | -18.71% | |
| Honeywell International Inc. | -4.84% | -3.88% | -2.01% | -2.99% | -1.90% | |
| Lockheed Martin Corp. | 13.12% | 12.10% | 18.54% | 14.57% | 15.55% | |
| RTX Corp. | -0.55% | -2.69% | -4.46% | -4.48% | -3.96% | |
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 × -4,547 ÷ 64,653 = -7.03%
4 Click competitor name to see calculations.
The economic spread ratio exhibited a fluctuating pattern over the five-year period. Initially negative, the ratio demonstrated improvement before declining again. Economic profit remained negative throughout the observed timeframe, though its magnitude varied. Invested capital generally increased, with a notable rise in the final year.
- Economic Spread Ratio
- The economic spread ratio began at -5.83% in 2021 and decreased to -6.43% in 2022, indicating a widening gap between the company’s return on invested capital and its cost of capital. A positive shift occurred in 2023, with the ratio improving to -2.51%, suggesting a narrowing of this gap. This improvement was short-lived, as the ratio remained at -2.45% in 2024 and then deteriorated significantly to -7.03% in 2025. This final decline indicates a substantial worsening in the relationship between returns and capital costs.
- Economic Profit
- Economic profit was negative for each year presented. The largest negative value occurred in 2021 at -3,238 US$ million. It worsened to -3,522 US$ million in 2022, then improved considerably to -1,395 US$ million in 2023 and remained relatively stable at -1,411 US$ million in 2024. However, economic profit declined sharply in 2025 to -4,547 US$ million, mirroring the deterioration observed in the economic spread ratio.
- Invested Capital
- Invested capital experienced a slight decrease from 55,552 US$ million in 2021 to 54,801 US$ million in 2022. It then recovered to 55,518 US$ million in 2023 and continued to rise to 57,519 US$ million in 2024. A substantial increase was observed in 2025, with invested capital reaching 64,653 US$ million. This increase occurred concurrently with the most significant decline in the economic spread ratio and the largest negative economic profit.
The increasing invested capital, coupled with consistently negative economic profit and a declining economic spread ratio in the final year, suggests that the company is deploying more capital into ventures that are not generating sufficient returns to cover their cost. The improvement observed in 2023 appears to have been temporary.
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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 | (4,547) | (1,411) | (1,395) | (3,522) | (3,238) | |
| Sales of Machinery, Power & Energy | 63,980) | 61,363) | 63,869) | 56,574) | 48,188) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -7.11% | -2.30% | -2.18% | -6.22% | -6.72% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -3.48% | -26.53% | -8.68% | -15.60% | -15.11% | |
| Eaton Corp. plc | -6.37% | -8.01% | -10.59% | -14.42% | -14.00% | |
| GE Aerospace | 2.91% | -0.74% | 0.88% | -12.51% | -18.89% | |
| Honeywell International Inc. | -7.86% | -6.07% | -2.66% | -3.94% | -2.66% | |
| Lockheed Martin Corp. | 5.31% | 4.90% | 7.53% | 5.88% | 6.64% | |
| RTX Corp. | -0.68% | -3.59% | -7.02% | -7.35% | -6.87% | |
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 × -4,547 ÷ 63,980 = -7.11%
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 significantly in the subsequent two years. A consistent pattern of negative economic profit is also apparent throughout the period.
- Economic Profit
- Economic profit demonstrated a decrease from a loss of US$3,238 million in 2021 to a loss of US$3,522 million in 2022. A substantial improvement occurred in 2023, with the loss reduced to US$1,395 million. However, this positive trend was reversed in 2024 and 2025, with losses increasing to US$1,411 million and US$4,547 million, respectively. The 2025 loss represents the largest recorded during the analyzed timeframe.
- Sales of Machinery, Power & Energy
- Sales increased from US$48,188 million in 2021 to US$56,574 million in 2022, representing a significant growth period. This upward trend continued in 2023, reaching US$63,869 million. A slight decrease was observed in 2024, with sales falling to US$61,363 million, but sales recovered somewhat in 2025, reaching US$63,980 million. Despite these sales figures, the company consistently reported negative economic profit.
- Economic Profit Margin
- The economic profit margin began at -6.72% in 2021 and further deteriorated to -6.22% in 2022. A notable improvement was seen in 2023, with the margin increasing to -2.18%. This improvement did not persist, as the margin decreased to -2.30% in 2024 and experienced a substantial decline to -7.11% in 2025. The 2025 margin represents the lowest value observed during the period, indicating a significant erosion of economic profitability relative to sales.
The divergence between increasing sales and declining economic profit margin, particularly in 2025, suggests potential issues with cost management, capital efficiency, or pricing strategies. Further investigation into the underlying drivers of economic profit is warranted.
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