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
Colgate-Palmolive Co., economic profit calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,048 – 10.23% × 14,460 = 569
The financial performance from 2018 to 2022 demonstrates a sustained decline in economic profit, reflecting a widening gap between operating returns and the cost of the capital base.
- Net Operating Profit After Taxes (NOPAT)
- A volatile but generally downward trend in NOPAT is evident. After reaching a peak of 2,814 million in 2020, profitability declined steadily to 2,048 million by 2022, representing a 27.2% decrease from the 2020 high.
- Invested Capital
- The capital base expanded from 11,791 million in 2018 to 14,460 million in 2022. This increase in invested capital suggests a higher resource commitment, which has not been matched by corresponding growth in operating profit.
- Cost of Capital
- The cost of capital remained remarkably stable throughout the analyzed period, fluctuating within a narrow range between 10.22% and 10.40%. This indicates that the erosion of economic value was not driven by changes in the required rate of return, but rather by internal operational factors.
- Economic Profit Trends
- Economic profit experienced a significant contraction, falling from 1,484 million in 2018 to 569 million in 2022. This compression is the result of dual pressure: decreasing operational efficiency as seen in the NOPAT decline and an increasing capital charge resulting from the growth in invested capital.
Overall, the data indicates a substantial reduction in the capacity to generate returns above the cost of capital, with economic profit decreasing by approximately 61.6% over the five-year period.
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Net Operating Profit after Taxes (NOPAT)
Colgate-Palmolive Co., NOPAT calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts and estimated returns.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in restructuring accrual.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Colgate-Palmolive Company.
6 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 505 × 3.90% = 20
7 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 187 × 21.00% = 39
8 Addition of after taxes interest expense to net income attributable to Colgate-Palmolive Company.
9 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 14 × 21.00% = 3
10 Elimination of after taxes investment income.
The analysis of financial data over the five-year period reveals several noteworthy trends concerning profitability metrics.
- Net Income Attributable to Colgate-Palmolive Company
- This metric experienced a slight decline from 2018 to 2019, decreasing from 2400 million USD to 2367 million USD. In 2020, there was a significant increase to 2695 million USD, indicating a strong performance during that year. However, the subsequent years showed a downward trend, with net income falling to 2166 million USD in 2021 and further to 1785 million USD in 2022. This decline over the last two years suggests challenges affecting profitability.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures followed a somewhat similar pattern. Initially, NOPAT decreased from 2711 million USD in 2018 to 2572 million USD in 2019. It then rose to 2814 million USD in 2020, reaching its peak in the observed period. Afterward, there was a decline to 2361 million USD in 2021, followed by a further decrease to 2048 million USD in 2022. While the drop in NOPAT is less steep compared to net income, the downward trajectory indicates a reduction in operating profitability post-2020.
Overall, the data suggests that both net income and net operating profit after taxes peaked in 2020 but have since faced a decline, with 2022 figures lower than those in 2018. The trends could imply external or internal factors negatively impacting earnings and operating efficiency in the latter years.
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Cash Operating Taxes
Colgate-Palmolive Co., cash operating taxes calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
The financial data indicates a declining trend in the provision for income taxes over the five-year period. Starting at 906 million US dollars in 2018, there is a consistent decrease each year, reaching 693 million US dollars by the end of 2022. This suggests an overall reduction in the income tax obligations recorded, which could be indicative of changes in profitability, tax planning strategies, or tax rates applicable to the company.
Conversely, cash operating taxes show a more fluctuating pattern. From 887 million US dollars in 2018, the figure increases to a peak of 970 million US dollars in 2020, followed by a decline to 812 million US dollars in 2021. In 2022, cash operating taxes rise again to 892 million US dollars. The variation in cash operating tax payments as compared to the steady decline in provision for income taxes suggests differences in timing, tax payments, or adjustments in deferred tax accounts.
- Provision for Income Taxes:
- Decreased steadily from 906 million in 2018 to 693 million in 2022, indicating a potential decline in taxable income or changes in tax strategy.
- Cash Operating Taxes:
- Show volatility with a peak in 2020 (970 million), followed by a decline and a subsequent increase in 2022 (892 million), reflecting variability in actual cash tax payments.
- Comparison and Implications:
- The contrasting trends between provision and cash operating taxes may suggest the presence of timing differences, deferred tax assets or liabilities adjustments, or shifts in tax planning measures affecting reported versus paid taxes.
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Invested Capital
Colgate-Palmolive Co., invested capital calculation (financing approach)
US$ in millions
Based on: 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), 10-K (reporting date: 2018-12-31).
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 restructuring accrual.
6 Addition of equity equivalents to total Colgate-Palmolive Company shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of marketable securities.
An analysis of the financial data over the five-year period reveals several notable trends in the company's debt, equity, and invested capital.
- Total Reported Debt & Leases
- This metric exhibited an overall increasing trend from 2018 to 2022. The reported debt rose from $6,986 million in 2018 to $9,271 million in 2022. Although there was a slight dip in 2020 and 2021, the general direction is upward, suggesting a growing reliance on debt financing over the period.
- Total Shareholders’ Equity
- This item showed significant volatility with a generally low base and fluctuating values. Starting at a negative value of -$102 million in 2018, equity improved considerably to reach $743 million in 2020, followed by a decline in the subsequent years, falling to $401 million by the end of 2022. This indicates volatility in the company's net assets and potentially some financial or operational challenges affecting retained earnings or other equity components.
- Invested Capital
- The invested capital demonstrated a steady increase from $11,791 million in 2018 to $14,460 million in 2022. Although minor fluctuations occurred between 2020 and 2021, the trend reflects continued growth in the capital invested in the company's operations, which could be related to expansions, acquisitions, or reinvestment into company assets.
Overall, the company appears to have increased its financial leverage, as evidenced by rising debt levels coupled with relatively stagnant or decreasing equity values. The growth in invested capital suggests ongoing investment in operations despite the fluctuating equity position.
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Cost of Capital
Colgate-Palmolive Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 60,427) | 60,427) | ÷ | 69,127) | = | 0.87 | 0.87 | × | 11.41% | = | 9.97% | ||
| Debt3 | 8,195) | 8,195) | ÷ | 69,127) | = | 0.12 | 0.12 | × | 2.50% × (1 – 21.00%) | = | 0.23% | ||
| Operating lease liability4 | 505) | 505) | ÷ | 69,127) | = | 0.01 | 0.01 | × | 3.90% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 69,127) | 1.00 | 10.23% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ 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 | 66,525) | 66,525) | ÷ | 74,803) | = | 0.89 | 0.89 | × | 11.41% | = | 10.15% | ||
| Debt3 | 7,690) | 7,690) | ÷ | 74,803) | = | 0.10 | 0.10 | × | 1.51% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 588) | 588) | ÷ | 74,803) | = | 0.01 | 0.01 | × | 4.00% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 74,803) | 1.00 | 10.29% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
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 | 66,799) | 66,799) | ÷ | 75,845) | = | 0.88 | 0.88 | × | 11.41% | = | 10.05% | ||
| Debt3 | 8,433) | 8,433) | ÷ | 75,845) | = | 0.11 | 0.11 | × | 1.67% × (1 – 21.00%) | = | 0.15% | ||
| Operating lease liability4 | 613) | 613) | ÷ | 75,845) | = | 0.01 | 0.01 | × | 4.20% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 75,845) | 1.00 | 10.22% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
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 | 65,213) | 65,213) | ÷ | 74,165) | = | 0.88 | 0.88 | × | 11.41% | = | 10.03% | ||
| Debt3 | 8,316) | 8,316) | ÷ | 74,165) | = | 0.11 | 0.11 | × | 1.99% × (1 – 21.00%) | = | 0.18% | ||
| Operating lease liability4 | 636) | 636) | ÷ | 74,165) | = | 0.01 | 0.01 | × | 4.10% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 74,165) | 1.00 | 10.24% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
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 | 57,474) | 57,474) | ÷ | 64,540) | = | 0.89 | 0.89 | × | 11.41% | = | 10.16% | ||
| Debt3 | 6,446) | 6,446) | ÷ | 64,540) | = | 0.10 | 0.10 | × | 2.78% × (1 – 21.00%) | = | 0.22% | ||
| Operating lease liability4 | 620) | 620) | ÷ | 64,540) | = | 0.01 | 0.01 | × | 2.78% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 64,540) | 1.00 | 10.40% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Colgate-Palmolive Co., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 569) | 970) | 1,389) | 1,154) | 1,484) | |
| Invested capital2 | 14,460) | 13,505) | 13,943) | 13,859) | 11,791) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 3.94% | 7.19% | 9.96% | 8.32% | 12.59% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Procter & Gamble Co. | 6.05% | 5.64% | 3.35% | — | — | |
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 569 ÷ 14,460 = 3.94%
4 Click competitor name to see calculations.
The analysis of the company's economic value creation from 2018 to 2022 reveals a consistent deterioration in value-generating efficiency. While the capital base expanded over the five-year period, the actual economic value produced declined, resulting in a significant contraction of the economic spread ratio.
- Economic Profit
- Economic profit exhibited a volatile downward trajectory, decreasing from 1,484 million USD in 2018 to 569 million USD in 2022. A temporary recovery was observed in 2020, where profit rose to 1,389 million USD, but this gain was not sustained. The final value in 2022 represents a substantial reduction in the surplus value generated over the required return on capital.
- Invested Capital
- A general upward trend in invested capital is evident, growing from 11,791 million USD in 2018 to 14,460 million USD in 2022. The capital base increased steadily until 2020, experienced a slight contraction in 2021, and peaked in 2022. This indicates a continued allocation of resources into the business despite falling economic returns.
- Economic Spread Ratio
- The economic spread ratio underwent a sharp decline, falling from 12.59% in 2018 to 3.94% in 2022. This ratio mirrored the fluctuations in economic profit, with a brief increase to 9.96% in 2020 before continuing its descent. The persistent drop in the spread ratio indicates a narrowing margin between the return on invested capital and the cost of that capital, signaling a decrease in the efficiency of wealth creation.
Overall, the divergence between increasing invested capital and decreasing economic profit has led to a diminished economic spread. This pattern suggests that the additional capital deployed since 2018 has not yielded proportional increases in economic value, leading to an erosion of the company's overall economic performance.
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Economic Profit Margin
Colgate-Palmolive Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 569) | 970) | 1,389) | 1,154) | 1,484) | |
| Net sales | 17,967) | 17,421) | 16,471) | 15,693) | 15,544) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 3.17% | 5.57% | 8.43% | 7.35% | 9.55% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Procter & Gamble Co. | 7.09% | 7.05% | 4.78% | — | — | |
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 569 ÷ 17,967 = 3.17%
3 Click competitor name to see calculations.
Between 2018 and 2022, a significant divergence is observed between revenue growth and the generation of economic value. While top-line sales experienced consistent expansion, the economic profit and the corresponding profit margin underwent a substantial decline, particularly in the latter half of the period.
- Net Sales Performance
- A steady upward trajectory in net sales is evident, increasing from US$ 15,544 million in 2018 to US$ 17,967 million in 2022. This indicates a consistent growth in the company's scale of operations over the five-year timeframe.
- Economic Profit Trends
- Economic profit exhibited volatility followed by a marked contraction. Starting at US$ 1,484 million in 2018, the figure dipped in 2019 before recovering to US$ 1,389 million in 2020. However, a sharp decline occurred thereafter, with economic profit falling to US$ 970 million in 2021 and reaching a period low of US$ 569 million in 2022.
- Economic Profit Margin Analysis
- The economic profit margin shows a severe downward trend, falling from 9.55% in 2018 to 3.17% in 2022. This compression suggests that the returns generated above the cost of capital have diminished relative to sales. The decline is most pronounced between 2020 and 2022, during which the margin dropped from 8.43% to 3.17%, signaling a reduction in economic efficiency despite the increase in overall sales volume.
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