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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 Ratio
Economic Profit Margin

Caterpillar Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Net operating profit after taxes (NOPAT)¹	10,003)	7,326)	6,883)	3,489)	6,495)
Cost of capital²	12.68%	12.28%	11.36%	11.55%	10.61%
Invested capital³	57,458)	54,840)	55,613)	54,190)	54,921)

Economic profit⁴	2,717)	594)	565)	(2,768)	665)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 10,003 – 12.68% × 57,458 = 2,717

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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. economic profit increased from 2021 to 2022 and from 2022 to 2023.

Caterpillar Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Profit attributable to common stockholders	10,335)	6,705)	6,489)	2,998)	6,093)
Deferred income tax expense (benefit)¹	(592)	(377)	(383)	(74)	28)
Increase (decrease) in LIFO reserve²	102)	722)	467)	46)	77)
Increase (decrease) in product warranty liability³	133)	72)	77)	71)	150)
Increase (decrease) in employee separation liability⁴	1)	(22)	(103)	116)	(37)
Increase (decrease) in equity equivalents⁵	(356)	395)	58)	159)	218)
Interest expense excluding Financial Products	511)	443)	488)	514)	421)
Interest expense, operating lease liability⁶	17)	12)	13)	12)	13)
Adjusted interest expense excluding Financial Products	528)	455)	501)	526)	434)
Tax benefit of interest expense excluding Financial Products⁷	(111)	(95)	(105)	(111)	(91)
Adjusted interest expense excluding Financial Products, after taxes⁸	417)	359)	396)	416)	343)
Investment and interest income	(494)	(167)	(80)	(112)	(202)
Investment income, before taxes	(494)	(167)	(80)	(112)	(202)
Tax expense (benefit) of investment income⁹	104)	35)	17)	24)	42)
Investment income, after taxes¹⁰	(390)	(132)	(63)	(88)	(160)
Net income (loss) attributable to noncontrolling interest	(3)	(1)	4)	5)	1)
Net operating profit after taxes (NOPAT)	10,003)	7,326)	6,883)	3,489)	6,495)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

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 employee separation liability.

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

⁶ 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 574 × 3.00% = 17

⁷ 2023 Calculation
Tax benefit of interest expense excluding Financial Products = Adjusted interest expense excluding Financial Products × Statutory income tax rate
= 528 × 21.00% = 111

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

⁹ 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 494 × 21.00% = 104

¹⁰ Elimination of after taxes investment income.

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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. NOPAT increased from 2021 to 2022 and from 2022 to 2023.

Caterpillar Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Provision for income taxes	2,781)	2,067)	1,742)	1,006)	1,746)
Less: Deferred income tax expense (benefit)	(592)	(377)	(383)	(74)	28)
Add: Tax savings from interest expense excluding Financial Products	111)	95)	105)	111)	91)
Less: Tax imposed on investment income	104)	35)	17)	24)	42)
Cash operating taxes	3,380)	2,504)	2,213)	1,167)	1,767)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

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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. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

Caterpillar Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Short-term borrowings	4,643)	5,957)	5,404)	2,015)	5,166)
Long-term debt due within one year	8,763)	5,322)	6,352)	9,149)	6,210)
Long-term debt due after one year	24,472)	25,714)	26,033)	25,999)	26,281)
Operating lease liability¹	574)	579)	642)	620)	634)
Total reported debt & leases	38,452)	37,572)	38,431)	37,783)	38,291)
Equity attributable to common shareholders	19,494)	15,869)	16,484)	15,331)	14,588)
Net deferred tax (assets) liabilities²	(2,180)	(1,576)	(1,257)	(940)	(910)
LIFO reserve³	3,423)	3,321)	2,599)	2,132)	2,086)
Product warranty liability⁴	1,894)	1,761)	1,689)	1,612)	1,541)
Employee separation liability⁵	40)	39)	61)	164)	48)
Equity equivalents⁶	3,177)	3,545)	3,092)	2,968)	2,765)
Accumulated other comprehensive (income) loss, net of tax⁷	1,820)	2,457)	1,553)	888)	1,567)
Noncontrolling interests	9)	22)	32)	47)	41)
Adjusted equity attributable to common shareholders	24,500)	21,893)	21,161)	19,234)	18,961)
Construction-in-process⁸	(1,259)	(1,020)	(812)	(739)	(620)
Investments in debt and equity securities⁹	(4,235)	(3,605)	(3,167)	(2,088)	(1,711)
Invested capital	57,458)	54,840)	55,613)	54,190)	54,921)

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

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 employee separation liability.

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

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction-in-process.

⁹ Subtraction of investments in debt and equity securities.

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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. invested capital decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Caterpillar Inc., cost of capital calculations

Dec 31, 2023

	Capital (fair value)¹	Weights					Cost of capital
Equity²	160,755)	160,755)	÷	198,821)	=	0.81	0.81	×	14.76%	=	11.93%
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					12.68%

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 »

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	128,415)	128,415)	÷	164,877)	=	0.78	0.78	×	14.76%	=	11.50%
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					12.28%

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 »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	109,128)	109,128)	÷	150,391)	=	0.73	0.73	×	14.76%	=	10.71%
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					11.36%

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 »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	110,315)	110,315)	÷	152,113)	=	0.73	0.73	×	14.76%	=	10.70%
Short-term borrowings and long-term debt³	41,178)	41,178)	÷	152,113)	=	0.27	0.27	×	3.91% × (1 – 21.00%)	=	0.84%
Operating lease liability⁴	620)	620)	÷	152,113)	=	0.00	0.00	×	2.00% × (1 – 21.00%)	=	0.01%
Total:	152,113)					1.00					11.55%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in millions

² Equity. See details »

³ Short-term borrowings and long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	75,284)	75,284)	÷	115,955)	=	0.65	0.65	×	14.76%	=	9.58%
Short-term borrowings and long-term debt³	40,037)	40,037)	÷	115,955)	=	0.35	0.35	×	3.75% × (1 – 21.00%)	=	1.02%
Operating lease liability⁴	634)	634)	÷	115,955)	=	0.01	0.01	×	2.00% × (1 – 21.00%)	=	0.01%
Total:	115,955)					1.00					10.61%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in millions

² Equity. See details »

³ Short-term borrowings and long-term debt. See details »

⁴ Operating lease liability. See details »

Caterpillar Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	2,717)	594)	565)	(2,768)	665)
Invested capital²	57,458)	54,840)	55,613)	54,190)	54,921)
Performance Ratio
Economic spread ratio³	4.73%	1.08%	1.02%	-5.11%	1.21%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-14.34%	-19.74%	-18.41%	-29.98%	-19.82%
Cummins Inc.	-7.02%	-1.27%	2.67%	-0.65%	4.73%
Eaton Corp. plc	-2.44%	-4.54%	-4.32%	-6.43%	-3.76%
General Electric Co.	7.43%	-8.79%	-13.78%	-3.93%	-6.48%
Honeywell International Inc.	0.16%	-0.79%	0.26%	-1.18%	3.10%
Lockheed Martin Corp.	17.27%	13.26%	14.26%	17.56%	18.18%
RTX Corp.	-3.29%	-3.16%	-2.69%	-8.21%	0.28%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 2,717 ÷ 57,458 = 4.73%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Caterpillar Inc. economic spread ratio improved from 2021 to 2022 and from 2022 to 2023.

Caterpillar Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit¹	2,717)	594)	565)	(2,768)	665)
Sales of Machinery, Energy & Transportation	63,869)	56,574)	48,188)	39,022)	50,755)
Performance Ratio
Economic profit margin²	4.25%	1.05%	1.17%	-7.09%	1.31%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-8.27%	-15.07%	-14.61%	-24.55%	-9.20%
Cummins Inc.	-4.24%	-1.02%	1.93%	-0.57%	3.03%
Eaton Corp. plc	-3.31%	-6.74%	-6.49%	-9.88%	-5.18%
General Electric Co.	5.78%	-7.97%	-13.91%	-6.28%	-9.64%
Honeywell International Inc.	0.21%	-1.04%	0.36%	-1.75%	3.60%
Lockheed Martin Corp.	7.01%	5.35%	6.09%	7.53%	7.80%
RTX Corp.	-5.34%	-5.34%	-4.78%	-16.78%	0.38%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ Economic profit. See details »

² 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales of Machinery, Energy & Transportation
= 100 × 2,717 ÷ 63,869 = 4.25%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Caterpillar Inc. economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

Caterpillar Inc. (NYSE:CAT)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin