Microsoft Excel LibreOffice Calc

Coca-Cola Co. (KO)

Economic Value Added (EVA)

Difficulty: Advanced

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

Coca-Cola Co., economic profit calculation

US$ in millions

Microsoft Excel LibreOffice Calc
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 6,685  (18) 5,782  7,572  7,253 
Cost of capital2 6.48% 6.23% 6.19% 6.29% 6.28%
Invested capital3 68,598  72,598  79,169  77,538  76,173 
 
Economic profit4 2,240  (4,539) 880  2,697  2,472 

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

<>4 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 6,685 – 6.48% × 68,598 = 2,240

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. Coca-Cola Co.’s economic profit declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Net Operating Profit after Taxes (NOPAT)

Coca-Cola Co., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income attributable to shareowners of The Coca-Cola Company 6,434  1,248  6,527  7,351  7,098 
Deferred income tax expense (benefit)1 (450) (1,256) (856) 73  (40)
Increase (decrease) in allowance for doubtful accounts2 12  11  114  21  270 
Increase (decrease) in equity equivalents3 (438) (1,245) (742) 94  230 
Interest expense 919  841  733  856  483 
Interest expense, operating lease liability4 10  9  9  9  12 
Adjusted interest expense 929  850  742  865  495 
Tax benefit of interest expense5 (195) (297) (260) (303) (173)
Adjusted interest expense, after taxes6 734  552  483  562  322 
(Gain) loss on marketable securities 255  (103) (140) (80) (57)
Interest income (682) (677) (642) (613) (594)
Investment income, before taxes (427) (780) (782) (693) (651)
Tax expense (benefit) of investment income7 90  273  274  243  228 
Investment income, after taxes8 (337) (507) (508) (450) (423)
(Income) loss from discontinued operations, net of tax9 251  (101) —  —  — 
Net income (loss) attributable to noncontrolling interest 42  35  23  15  26 
Net operating profit after taxes (NOPAT) 6,685  (18) 5,782  7,572  7,253 

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

1 Elimination of deferred tax expense. See details »

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

3 Addition of increase (decrease) in equity equivalents to net income attributable to shareowners of The Coca-Cola Company.

4 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 467 × 2.11% = 10

5 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 929 × 21.00% = 195

6 Addition of after taxes interest expense to net income attributable to shareowners of The Coca-Cola Company.

7 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 427 × 21.00% = 90

8 Elimination of after taxes investment income.

9 Elimination of discontinued operations.

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. Coca-Cola Co.’s NOPAT declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Cash Operating Taxes

Coca-Cola Co., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Income taxes from continuing operations 1,623  5,560  1,586  2,239  2,201 
Less: Deferred income tax expense (benefit) (450) (1,256) (856) 73  (40)
Add: Tax savings from interest expense 195  297  260  303  173 
Less: Tax imposed on investment income 90  273  274  243  228 
Cash operating taxes 2,178  6,840  2,428  2,226  2,186 

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

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. Coca-Cola Co.’s cash operating taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Invested Capital

Coca-Cola Co., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Loans and notes payable 13,194  13,205  12,498  13,129  19,130 
Current maturities of long-term debt 4,997  3,298  3,527  2,677  3,552 
Long-term debt, excluding current maturities 25,364  31,182  29,684  28,407  19,063 
Operating lease liability1 467  510  645  679  919 
Total reported debt & leases 44,022  48,195  46,354  44,892  42,664 
Equity attributable to shareowners of The Coca-Cola Company 16,981  17,072  23,062  25,554  30,320 
Net deferred tax (assets) liabilities2 (734) 2,191  4,039  4,923  5,607 
Allowance for doubtful accounts3 489  477  466  352  331 
Equity equivalents4 (245) 2,668  4,505  5,275  5,938 
Accumulated other comprehensive (income) loss, net of tax5 12,814  10,305  11,205  10,174  5,777 
Equity attributable to noncontrolling interests 2,077  1,905  158  210  241 
Adjusted equity attributable to shareowners of The Coca-Cola Company 31,627  31,950  38,930  41,213  42,276 
Construction in progress6 —  —  —  —  (522)
Marketable securities7 (7,051) (7,547) (6,115) (8,567) (8,245)
Invested capital 68,598  72,598  79,169  77,538  76,173 

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

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 equity equivalents to equity attributable to shareowners of The Coca-Cola Company.

5 Removal of accumulated other comprehensive income.

6 Subtraction of construction in progress.

7 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. Coca-Cola Co.’s invested capital declined from 2016 to 2017 and from 2017 to 2018.

Cost of Capital

Coca-Cola Co., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 196,067  196,067  ÷ 240,166  = 0.82 0.82 × 7.56% = 6.17%
Debt3 43,632  43,632  ÷ 240,166  = 0.18 0.18 × 2.11% × (1 – 21.00%) = 0.30%
Operating lease liability4 467  467  ÷ 240,166  = 0.00 0.00 × 2.11% × (1 – 21.00%) = 0.00%
Total capital: 240,166  Total weights: 1.00 Cost of total capital: 6.48%

Based on: 10-K (filing date: 2019-02-21).

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 187,871  187,871  ÷ 236,754  = 0.79 0.79 × 7.56% = 6.00%
Debt3 48,374  48,374  ÷ 236,754  = 0.20 0.20 × 1.69% × (1 – 35.00%) = 0.22%
Operating lease liability4 510  510  ÷ 236,754  = 0.00 0.00 × 1.69% × (1 – 35.00%) = 0.00%
Total capital: 236,754  Total weights: 1.00 Cost of total capital: 6.23%

Based on: 10-K (filing date: 2018-02-23).

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 179,381  179,381  ÷ 226,276  = 0.79 0.79 × 7.56% = 6.00%
Debt3 46,250  46,250  ÷ 226,276  = 0.20 0.20 × 1.46% × (1 – 35.00%) = 0.19%
Operating lease liability4 645  645  ÷ 226,276  = 0.00 0.00 × 1.46% × (1 – 35.00%) = 0.00%
Total capital: 226,276  Total weights: 1.00 Cost of total capital: 6.19%

Based on: 10-K (filing date: 2017-02-24).

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 191,191  191,191  ÷ 236,307  = 0.81 0.81 × 7.56% = 6.12%
Debt3 44,437  44,437  ÷ 236,307  = 0.19 0.19 × 1.35% × (1 – 35.00%) = 0.17%
Operating lease liability4 679  679  ÷ 236,307  = 0.00 0.00 × 1.35% × (1 – 35.00%) = 0.00%
Total capital: 236,307  Total weights: 1.00 Cost of total capital: 6.29%

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 »

Capital (fair value)1 Weights Cost of capital
Equity2 183,601  183,601  ÷ 227,060  = 0.81 0.81 × 7.56% = 6.12%
Debt3 42,541  42,541  ÷ 227,060  = 0.19 0.19 × 1.29% × (1 – 35.00%) = 0.16%
Operating lease liability4 919  919  ÷ 227,060  = 0.00 0.00 × 1.29% × (1 – 35.00%) = 0.00%
Total capital: 227,060  Total weights: 1.00 Cost of total capital: 6.28%

Based on: 10-K (filing date: 2015-02-25).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Economic Spread Ratio

Coca-Cola Co., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Economic profit1 2,240  (4,539) 880  2,697  2,472 
Invested capital2 68,598  72,598  79,169  77,538  76,173 
Performance Ratio
Economic spread ratio3 3.27% -6.25% 1.11% 3.48% 3.25%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

1 Economic profit. See details »

2 Invested capital. See details »

3 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 2,240 ÷ 68,598 = 3.27%

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. Coca-Cola Co.’s economic spread ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Economic Profit Margin

Coca-Cola Co., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Economic profit1 2,240  (4,539) 880  2,697  2,472 
Net operating revenues 31,856  35,410  41,863  44,294  45,998 
Performance Ratio
Economic profit margin2 7.03% -12.82% 2.10% 6.09% 5.37%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

1 Economic profit. See details »

2 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Net operating revenues
= 100 × 2,240 ÷ 31,856 = 7.03%

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. Coca-Cola Co.’s economic profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.