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 – 22.10% × 64,653 = -4,480
The financial performance from 2021 to 2025 is characterized by a persistent inability to generate positive economic value added, as economic profit remained negative throughout the entire period. While there were intermittent improvements in operating profitability, these gains were offset by a rising cost of capital and an expanding capital base.
- Net Operating Profit After Taxes (NOPAT)
- A general growth trajectory was observed in NOPAT from 2021 to 2024, rising from US$ 6,986 million to a peak of US$ 10,452 million. The most significant increase occurred between 2022 and 2023, representing a substantial improvement in operating efficiency. However, this trend reversed in 2025, with NOPAT declining to US$ 9,805 million.
- Cost of Capital and Invested Capital
- The cost of capital demonstrated a consistent upward trend, increasing annually from 18.32% in 2021 to 22.10% in 2025. Invested capital remained relatively stable between 2021 and 2023, fluctuating around US$ 55 billion, before increasing to US$ 57,519 million in 2024 and surging to US$ 64,653 million by the end of 2025. The simultaneous rise in both the cost of capital and the total capital employed significantly increased the financial hurdle required to achieve value creation.
- Economic Profit Synthesis
- Economic profit remained in negative territory for the duration of the analyzed period, indicating that the return on invested capital was consistently lower than the cost of capital. A period of relative improvement was noted in 2023 and 2024, where losses narrowed to approximately -US$ 1.3 billion, driven primarily by the surge in NOPAT. This recovery was erased in 2025, as economic profit deteriorated sharply to -US$ 4,480 million. This decline was the result of a convergence of three negative factors: falling operating profits, a higher cost of capital, and a significant increase in invested capital.
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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 $64,653 million. This increase in invested capital is attributable to the combined effect of rising debt and increasing equity, with debt contributing more significantly to the growth in the most recent period.
The composition of invested capital shifted over the analyzed period. While equity experienced a notable recovery and growth, the increasing proportion of debt in the capital structure from 2024 onwards warrants further investigation regarding the company’s financial leverage and associated risks.
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Cost of Capital
Caterpillar Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 360,225) | 360,225) | ÷ | 404,034) | = | 0.89 | 0.89 | × | 24.35% | = | 21.71% | ||
| Short-term borrowings and long-term debt3 | 43,081) | 43,081) | ÷ | 404,034) | = | 0.11 | 0.11 | × | 4.50% × (1 – 21.00%) | = | 0.38% | ||
| Operating lease liability4 | 728) | 728) | ÷ | 404,034) | = | 0.00 | 0.00 | × | 4.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 404,034) | 1.00 | 22.10% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | × | 24.35% | = | 19.85% | ||
| 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 | 20.53% | ||||||||||
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 | × | 24.35% | = | 19.69% | ||
| 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 | 20.43% | ||||||||||
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 | × | 24.35% | = | 18.97% | ||
| 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 | 19.74% | ||||||||||
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 | × | 24.35% | = | 17.67% | ||
| 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 | 18.32% | ||||||||||
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 | (4,480) | (1,357) | (1,343) | (3,472) | (3,191) | |
| Invested capital2 | 64,653) | 57,519) | 55,518) | 54,801) | 55,552) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -6.93% | -2.36% | -2.42% | -6.34% | -5.74% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -5.82% | -35.12% | -15.06% | -20.44% | -19.05% | |
| Eaton Corp. plc | -5.09% | -6.26% | -7.84% | -9.74% | -9.35% | |
| GE Aerospace | 3.24% | -0.64% | 1.18% | -13.77% | -18.68% | |
| Honeywell International Inc. | -4.94% | -3.97% | -2.12% | -3.10% | -2.01% | |
| Lockheed Martin Corp. | 12.79% | 11.78% | 18.22% | 14.24% | 15.22% | |
| RTX Corp. | -0.82% | -2.94% | -4.69% | -4.74% | -4.20% | |
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 × -4,480 ÷ 64,653 = -6.93%
4 Click competitor name to see calculations.
The analysis of economic value added reveals a persistent inability to generate positive economic profit over the five-year period ending December 31, 2025. Despite a notable recovery in performance during 2023 and 2024, the period concludes with a significant decline in value creation and a widening deficit in economic profit.
- Economic Profit Trajectory
- Economic profit remained negative throughout the analyzed period. A decline was observed between 2021 and 2022, with losses increasing from -3,191 million US$ to -3,472 million US$. A period of improvement followed, where losses were narrowed to -1,343 million US$ in 2023 and -1,357 million US$ in 2024. However, this recovery was reversed in 2025, as economic profit fell to its lowest point in the series at -4,480 million US$.
- Invested Capital Dynamics
- Invested capital remained relatively stable between 2021 and 2023, fluctuating within a narrow range between 54,801 million US$ and 55,552 million US$. A growth trend emerged in 2024, reaching 57,519 million US$, which accelerated sharply in 2025 to 64,653 million US$. This substantial increase in the capital base in the final year coincided with the most significant drop in economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the volatility of economic profit, remaining negative for all five years. The ratio deteriorated from -5.74% in 2021 to -6.34% in 2022 before improving significantly to -2.42% in 2023 and -2.36% in 2024. The most critical decline occurred in 2025, where the ratio dropped to -6.93%, indicating that the return on invested capital fell further below the cost of capital than at any other point in the analyzed period.
The correlation between the surge in invested capital and the deepening negative economic spread in 2025 suggests that the additional capital deployed failed to generate returns sufficient to cover the cost of capital, resulting in a substantial erosion of economic value.
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Economic Profit Margin
Caterpillar Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (4,480) | (1,357) | (1,343) | (3,472) | (3,191) | |
| Sales of Machinery, Power & Energy | 63,980) | 61,363) | 63,869) | 56,574) | 48,188) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -7.00% | -2.21% | -2.10% | -6.14% | -6.62% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -3.49% | -26.54% | -8.69% | -15.61% | -15.13% | |
| Eaton Corp. plc | -6.40% | -8.04% | -10.62% | -14.45% | -14.04% | |
| GE Aerospace | 2.96% | -0.69% | 0.92% | -12.48% | -18.85% | |
| Honeywell International Inc. | -8.03% | -6.23% | -2.80% | -4.09% | -2.80% | |
| Lockheed Martin Corp. | 5.17% | 4.77% | 7.40% | 5.74% | 6.50% | |
| RTX Corp. | -1.01% | -3.92% | -7.38% | -7.77% | -7.30% | |
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 × -4,480 ÷ 63,980 = -7.00%
3 Click competitor name to see calculations.
The financial performance from 2021 to 2025 is characterized by a consistent inability to generate positive economic profit, indicating that the returns on invested capital remained below the company's cost of capital throughout the analyzed period.
- Economic Profit Trends
- Absolute economic profit exhibited significant volatility. Following a decline from -3,191 million USD in 2021 to -3,472 million USD in 2022, a substantial recovery was observed in 2023, where the deficit narrowed to -1,343 million USD. This relative stability continued into 2024 with a value of -1,357 million USD, before a sharp deterioration occurred in 2025, resulting in a period-low economic profit of -4,480 million USD.
- Revenue Performance of Machinery, Power & Energy
- Sales experienced an overall growth trend for the first three years, increasing from 48,188 million USD in 2021 to 63,869 million USD in 2023. A slight contraction was noted in 2024, with sales dipping to 61,363 million USD, followed by a recovery to 63,980 million USD in 2025. Notably, the increase in sales volume did not facilitate a transition into positive economic value creation.
- Economic Profit Margin Analysis
- The economic profit margin shows a pattern of initial improvement followed by a severe decline. The margin improved from -6.62% in 2021 to its peak efficiency of -2.10% in 2023, suggesting that the company was narrowing the gap between its actual returns and its cost of capital. However, this progress was erased by 2025, as the margin fell to -7.00%. This indicates that despite stable sales levels in the final year, there was a significant increase in the economic loss relative to revenue, pointing to either diminished operational profitability or a heightened cost of capital.
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