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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

Chevron Corp., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net operating profit after taxes (NOPAT)¹	864	18,189	7,468	(4,972)	(845)
Cost of capital²	10.70%	10.70%	10.34%	10.05%	9.84%
Invested capital³	195,762	212,825	208,093	214,697	219,665

Economic profit⁴	(20,081)	(4,581)	(14,054)	(26,550)	(22,450)

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 864 – 10.70% × 195,762 = -20,081

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.	Chevron Corp.’s economic profit increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Chevron Corp., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net income (loss) attributable to Chevron Corporation	2,924	14,824	9,195	(497)	4,587
Deferred income tax expense (benefit)¹	(1,966)	1,051	(3,203)	(3,835)	(1,861)
Increase (decrease) in allowance for doubtful accounts²	(123)	379	117	60	254
Increase (decrease) in LIFO reserve³	(621)	1,197	995	(803)	(4,390)
Increase (decrease) in accrued severance liability⁴	—	—	(60)	(233)	293
Increase (decrease) in equity equivalents⁵	(2,710)	2,627	(2,151)	(4,811)	(5,704)
Interest and debt expense	798	748	307	201	—
Interest expense, operating lease liability⁶	124	141	232	214	230
Adjusted interest and debt expense	922	889	539	415	230
Tax benefit of interest and debt expense⁷	(194)	(187)	(189)	(145)	(80)
Adjusted interest and debt expense, after taxes⁸	729	702	350	270	149
Net income (loss) attributable to noncontrolling interest	(79)	36	74	66	123
Net operating profit after taxes (NOPAT)	864	18,189	7,468	(4,972)	(845)

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in accrued severance liability.

⁵ Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Chevron Corporation.

⁶ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 3,885 × 3.20% = 124

⁷ 2019 Calculation
Tax benefit of interest and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= 922 × 21.00% = 194

⁸ Addition of after taxes interest expense to net income (loss) attributable to Chevron Corporation.

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.	Chevron Corp.’s NOPAT increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Chevron Corp., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Income tax expense (benefit)	2,691	5,715	(48)	(1,729)	132
Less: Deferred income tax expense (benefit)	(1,966)	1,051	(3,203)	(3,835)	(1,861)
Add: Tax savings from interest and debt expense	194	187	189	145	80
Cash operating taxes	4,851	4,851	3,344	2,251	2,073

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25).

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.	Chevron Corp.’s cash operating taxes increased from 2017 to 2018 and from 2018 to 2019.

Chevron Corp., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Short-term debt	3,282	5,726	5,192	10,840	4,928
Long-term debt, excluding debt due within one year	23,691	28,733	33,571	35,286	33,664
Operating lease liability¹	3,885	1,708	2,102	1,777	2,599
Total reported debt & leases	30,858	36,167	40,865	47,903	41,191
Total Chevron Corporation stockholders’ equity	144,213	154,554	148,124	145,556	152,716
Net deferred tax (assets) liabilities²	9,510	11,522	9,902	12,867	16,256
Allowance for doubtful accounts³	746	869	490	373	313
LIFO reserve⁴	4,513	5,134	3,937	2,942	3,745
Accrued severance liability⁵	—	—	—	60	293
Equity equivalents⁶	14,769	17,525	14,329	16,242	20,607
Accumulated other comprehensive (income) loss, net of tax⁷	4,990	3,544	3,589	3,843	4,291
Noncontrolling interests	995	1,088	1,195	1,166	1,170
Adjusted total Chevron Corporation stockholders’ equity	164,967	176,711	167,237	166,807	178,784
Marketable securities⁸	(63)	(53)	(9)	(13)	(310)
Invested capital	195,762	212,825	208,093	214,697	219,665

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of allowance for doubtful accounts receivable.

⁴ Addition of LIFO reserve. See details »

⁵ Addition of accrued severance liability.

⁶ Addition of equity equivalents to total Chevron Corporation stockholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of marketable 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.	Chevron Corp.’s invested capital increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Chevron Corp., cost of capital calculations

	Capital (fair value)¹	Weights					Cost of capital
Equity²	204,865	204,865	÷	236,390	=	0.87	0.87	×	12.03%	=	10.42%
Debt³	27,640	27,640	÷	236,390	=	0.12	0.12	×	2.54% × (1 – 21.00%)	=	0.23%
Operating lease liability⁴	3,885	3,885	÷	236,390	=	0.02	0.02	×	3.20% × (1 – 21.00%)	=	0.04%
Total:	236,390					1.00					10.70%

Based on: 10-K (filing date: 2020-02-21).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	226,848	226,848	÷	263,039	=	0.86	0.86	×	12.03%	=	10.37%
Debt³	34,482	34,482	÷	263,039	=	0.13	0.13	×	2.75% × (1 – 21.00%)	=	0.28%
Operating lease liability⁴	1,708	1,708	÷	263,039	=	0.01	0.01	×	8.24% × (1 – 21.00%)	=	0.04%
Total:	263,039					1.00					10.70%

Based on: 10-K (filing date: 2019-02-22).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	209,918	209,918	÷	251,248	=	0.84	0.84	×	12.03%	=	10.05%
Debt³	39,229	39,229	÷	251,248	=	0.16	0.16	×	2.31% × (1 – 35.00%)	=	0.23%
Operating lease liability⁴	2,102	2,102	÷	251,248	=	0.01	0.01	×	11.02% × (1 – 35.00%)	=	0.06%
Total:	251,248					1.00					10.34%

Based on: 10-K (filing date: 2018-02-22).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	210,172	210,172	÷	258,509	=	0.81	0.81	×	12.03%	=	9.78%
Debt³	46,560	46,560	÷	258,509	=	0.18	0.18	×	1.87% × (1 – 35.00%)	=	0.22%
Operating lease liability⁴	1,777	1,777	÷	258,509	=	0.01	0.01	×	12.05% × (1 – 35.00%)	=	0.05%
Total:	258,509					1.00					10.05%

Based on: 10-K (filing date: 2017-02-23).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Capital (fair value)¹	Weights					Cost of capital
Equity²	160,633	160,633	÷	202,124	=	0.79	0.79	×	12.03%	=	9.56%
Debt³	38,892	38,892	÷	202,124	=	0.19	0.19	×	1.63% × (1 – 35.00%)	=	0.20%
Operating lease liability⁴	2,599	2,599	÷	202,124	=	0.01	0.01	×	8.83% × (1 – 35.00%)	=	0.07%
Total:	202,124					1.00					9.84%

Based on: 10-K (filing date: 2016-02-25).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Chevron Corp., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(20,081)	(4,581)	(14,054)	(26,550)	(22,450)
Invested capital²	195,762	212,825	208,093	214,697	219,665
Performance Ratio
Economic spread ratio³	-10.26%	-2.15%	-6.75%	-12.37%	-10.22%
Benchmarks
Economic Spread Ratio, Competitors⁴
Exxon Mobil Corp.	-4.72%	-4.39%	-5.71%	-7.67%	-7.61%

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -20,081 ÷ 195,762 = -10.26%

⁴ Click competitor name to see calculations.

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.	Chevron Corp.’s economic spread ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Chevron Corp., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(20,081)	(4,581)	(14,054)	(26,550)	(22,450)
Sales and other operating revenues	139,865	158,902	134,674	110,215	129,925
Performance Ratio
Economic profit margin²	-14.36%	-2.88%	-10.44%	-24.09%	-17.28%
Benchmarks
Economic Profit Margin, Competitors³
Exxon Mobil Corp.	-5.61%	-4.60%	-7.01%	-9.83%	-8.21%

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-25).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales and other operating revenues
= 100 × -20,081 ÷ 139,865 = -14.36%

³ Click competitor name to see calculations.

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s 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.	Chevron Corp.’s economic profit margin improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Chevron Corp. (NYSE:CVX)

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