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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

Coca-Cola Co., 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	9,018	6,482	(18)	5,782	7,572
Cost of capital²	5.06%	4.95%	4.75%	4.71%	4.77%
Invested capital³	73,687	68,598	72,598	79,169	77,538

Economic profit⁴	5,287	3,083	(3,463)	2,053	3,870

Based on: 10-K (filing date: 2020-02-24), 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).

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
= 9,018 – 5.06% × 73,687 = 5,287

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 increased from 2017 to 2018 and from 2018 to 2019.

Coca-Cola Co., 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 attributable to shareowners of The Coca-Cola Company	8,920	6,434	1,248	6,527	7,351
Deferred income tax expense (benefit)¹	(280)	(450)	(1,256)	(856)	73
Increase (decrease) in allowances²	23	12	11	114	21
Increase (decrease) in equity equivalents³	(257)	(438)	(1,245)	(742)	94
Interest expense	946	919	841	733	856
Interest expense, operating lease liability⁴	42	10	9	9	9
Adjusted interest expense	988	929	850	742	865
Tax benefit of interest expense⁵	(207)	(195)	(297)	(260)	(303)
Adjusted interest expense, after taxes⁶	780	734	552	483	562
(Gain) loss on marketable securities	(58)	(3)	(103)	(140)	(80)
Interest income	(563)	(682)	(677)	(642)	(613)
Investment income, before taxes	(621)	(685)	(780)	(782)	(693)
Tax expense (benefit) of investment income⁷	130	144	273	274	243
Investment income, after taxes⁸	(491)	(541)	(507)	(508)	(450)
(Income) loss from discontinued operations, net of tax⁹	—	251	(101)	—	—
Net income (loss) attributable to noncontrolling interest	65	42	35	23	15
Net operating profit after taxes (NOPAT)	9,018	6,482	(18)	5,782	7,572

Based on: 10-K (filing date: 2020-02-24), 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).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowances.

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

⁴ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,392 × 3.00% = 42

⁵ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 988 × 21.00% = 207

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

⁷ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 621 × 21.00% = 130

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 increased from 2017 to 2018 and from 2018 to 2019.

Coca-Cola Co., 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 taxes from continuing operations	1,801	1,623	5,560	1,586	2,239
Less: Deferred income tax expense (benefit)	(280)	(450)	(1,256)	(856)	73
Add: Tax savings from interest expense	207	195	297	260	303
Less: Tax imposed on investment income	130	144	273	274	243
Cash operating taxes	2,158	2,124	6,840	2,428	2,226

Based on: 10-K (filing date: 2020-02-24), 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).

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 decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

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

US$ in millions

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Loans and notes payable	10,994	13,194	13,205	12,498	13,129
Current maturities of long-term debt	4,253	4,997	3,298	3,527	2,677
Long-term debt, excluding current maturities	27,516	25,364	31,182	29,684	28,407
Operating lease liability¹	1,392	467	510	645	679
Total reported debt & leases	44,155	44,022	48,195	46,354	44,892
Equity attributable to shareowners of The Coca-Cola Company	18,981	16,981	17,072	23,062	25,554
Net deferred tax (assets) liabilities²	(128)	(734)	2,191	4,039	4,923
Allowances³	524	489	477	466	352
Equity equivalents⁴	396	(245)	2,668	4,505	5,275
Accumulated other comprehensive (income) loss, net of tax⁵	13,544	12,814	10,305	11,205	10,174
Equity attributable to noncontrolling interests	2,117	2,077	1,905	158	210
Adjusted equity attributable to shareowners of The Coca-Cola Company	35,038	31,627	31,950	38,930	41,213
Marketable securities⁶	(5,506)	(7,051)	(7,547)	(6,115)	(8,567)
Invested capital	73,687	68,598	72,598	79,169	77,538

Based on: 10-K (filing date: 2020-02-24), 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).

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 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 decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Coca-Cola Co., cost of capital calculations

	Capital (fair value)¹	Weights					Cost of capital
Equity²	251,625	251,625	÷	296,736	=	0.85	0.85	×	5.69%	=	4.83%
Debt³	43,719	43,719	÷	296,736	=	0.15	0.15	×	1.92% × (1 – 21.00%)	=	0.22%
Operating lease liability⁴	1,392	1,392	÷	296,736	=	0.00	0.00	×	3.00% × (1 – 21.00%)	=	0.01%
Total:	296,736					1.00					5.06%

Based on: 10-K (filing date: 2020-02-24).

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	196,067	196,067	÷	240,166	=	0.82	0.82	×	5.69%	=	4.65%
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:	240,166					1.00					4.95%

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	×	5.69%	=	4.52%
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:	236,754					1.00					4.75%

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	×	5.69%	=	4.51%
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:	226,276					1.00					4.71%

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	×	5.69%	=	4.61%
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:	236,307					1.00					4.77%

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 »

Coca-Cola Co., 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	5,287	3,083	(3,463)	2,053	3,870
Invested capital²	73,687	68,598	72,598	79,169	77,538
Performance Ratio
Economic spread ratio³	7.17%	4.49%	-4.77%	2.59%	4.99%
Benchmarks
Economic Spread Ratio, Competitors⁴
PepsiCo Inc.	8.13%	9.57%	2.23%	6.48%	4.23%

Based on: 10-K (filing date: 2020-02-24), 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).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 5,287 ÷ 73,687 = 7.17%

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.	Coca-Cola Co.’s economic spread ratio improved from 2017 to 2018 and from 2018 to 2019.

Coca-Cola Co., 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	5,287	3,083	(3,463)	2,053	3,870
Net operating revenues	37,266	31,856	35,410	41,863	44,294
Performance Ratio
Economic profit margin²	14.19%	9.68%	-9.78%	4.90%	8.74%
Benchmarks
Economic Profit Margin, Competitors³
PepsiCo Inc.	7.18%	8.95%	2.02%	6.12%	4.04%

Based on: 10-K (filing date: 2020-02-24), 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).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Net operating revenues
= 100 × 5,287 ÷ 37,266 = 14.19%

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.	Coca-Cola Co.’s economic profit margin improved from 2017 to 2018 and from 2018 to 2019.

Coca-Cola Co. (NYSE:KO)

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