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 – 10.57% × 14,460 = 521
Between 2018 and 2022, a consistent deterioration in economic profit is observed, reflecting a narrowing gap between operational returns and the cost of the capital employed.
- Net Operating Profit After Taxes (NOPAT)
- Operational profitability exhibited significant volatility during the period. After reaching a five-year peak of 2,814 million USD in 2020, NOPAT entered a steady decline, falling to 2,048 million USD by 2022. This represents a contraction of approximately 27% from the 2020 high.
- Cost of Capital
- The cost of capital remained highly stable, fluctuating minimally between a high of 10.74% in 2018 and a low of 10.56% in 2020. The consistency of this percentage indicates that the erosion of economic profit was not driven by changes in the required rate of return or the cost of financing.
- Invested Capital
- The capital base showed a general upward trajectory, increasing from 11,791 million USD in 2018 to 14,460 million USD in 2022. The expansion of invested capital, particularly the increase observed between 2021 and 2022, occurred during a period of declining operational performance.
- Economic Profit
- Economic profit experienced a severe downward trend, falling from 1,444 million USD in 2018 to 521 million USD in 2022. The most significant decline occurred after 2020, where value creation above the cost of capital dropped by over 60%. This trend is attributed to the simultaneous decrease in NOPAT and the increase in invested capital, which combined to reduce the overall economic value added.
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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 financial performance between 2018 and 2022 is characterized by an initial period of relative stability and a peak in 2020, followed by a consistent contraction in both net profitability and operating performance.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited a peak of US$ 2,814 million in 2020, having risen from US$ 2,711 million in 2018. However, a clear downward trend emerged post-2020, with values falling to US$ 2,361 million in 2021 and further decreasing to US$ 2,048 million by December 31, 2022. This represents a decline of approximately 27.2% from the 2020 peak.
- Net Income Performance
- Net income attributable to the company followed a trajectory mirrored by NOPAT, peaking at US$ 2,695 million in 2020. A subsequent and more acute decline is observed, with net income dropping to US$ 1,785 million by 2022. The reduction from the 2020 peak to 2022 constitutes a decrease of approximately 33.8%, indicating a more significant erosion of bottom-line earnings than operating profit.
- Comparative Analysis of NOPAT and Net Income
- NOPAT consistently remained higher than net income throughout the five-year period. This divergence indicates that core operating profitability was stronger than the final net earnings, suggesting that non-operating factors, such as interest expenses or other financial obligations, consistently reduced the net income relative to the operating profit generated by the business.
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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).
An examination of the tax figures from 2018 to 2022 reveals a divergence between accounting tax provisions and actual cash tax outflows.
- Provision for Income Taxes
- A general downward trajectory is evident, with the provision decreasing from 906 million US dollars in 2018 to 693 million US dollars in 2022. This represents an overall reduction of approximately 23.5% over the five-year period, despite a marginal increase observed in 2020.
- Cash Operating Taxes
- Cash tax payments exhibit greater volatility than the tax provision. After starting at 887 million US dollars in 2018 and dipping in 2019, cash taxes peaked at 970 million US dollars in 2020. A subsequent decline to 812 million US dollars in 2021 was followed by a recovery to 892 million US dollars in 2022.
- Variance Analysis and EVA Implications
- Significant variances are observed between accrual-based tax provisions and actual cash operating taxes. In 2020 and 2022, cash operating taxes exceeded the tax provision by 183 million and 199 million US dollars, respectively. This indicates periods where the actual cash outflow for taxes was substantially higher than the reported accounting expense, a distinction that is critical for the accurate determination of cash-based operating profit in Economic Value Added (EVA) calculations.
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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.
The analysis of the capital structure from 2018 to 2022 reveals a general expansion of invested capital, characterized by significant fluctuations in shareholders' equity and a consistent reliance on debt financing.
- Invested Capital Trends
- Total invested capital increased from 11,791 million US dollars in 2018 to 14,460 million US dollars in 2022. The most pronounced growth occurred between 2018 and 2019, followed by a period of relative stabilization with a marginal decline in 2021, before reaching its five-year peak in 2022.
- Debt and Lease Obligations
- Total reported debt and leases exhibited an overall upward trajectory, rising from 6,986 million US dollars in 2018 to 9,271 million US dollars in 2022. Although a moderate downward trend was observed between 2019 and 2021, the sharp increase in 2022 underscores debt as a primary driver of the increase in total invested capital.
- Shareholders' Equity Dynamics
- Shareholders' equity showed high volatility over the period. After starting with a deficit of 102 million US dollars in 2018, equity transitioned to positive territory and peaked at 743 million US dollars in 2020. A subsequent decline was observed through 2022, with the balance ending at 401 million US dollars. The relatively low level of equity compared to total invested capital indicates a highly leveraged financial 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 | × | 11.79% | = | 10.31% | ||
| 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 | 10.57% | ||||||||||
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 | × | 11.79% | = | 10.49% | ||
| 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 | 10.64% | ||||||||||
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 | × | 11.79% | = | 10.39% | ||
| 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 | 10.56% | ||||||||||
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 | × | 11.79% | = | 10.37% | ||
| 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 | 10.57% | ||||||||||
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 | × | 11.79% | = | 10.50% | ||
| 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 | 10.74% | ||||||||||
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 | 521) | 924) | 1,342) | 1,107) | 1,444) | |
| Invested capital2 | 14,460) | 13,505) | 13,943) | 13,859) | 11,791) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 3.60% | 6.84% | 9.62% | 7.99% | 12.25% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Procter & Gamble Co. | 6.09% | 5.67% | — | — | — | |
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 × 521 ÷ 14,460 = 3.60%
4 Click competitor name to see calculations.
Between 2018 and 2022, a consistent deterioration in the capacity to generate economic value is observed. While the company remained economic-profit positive throughout the period, both the absolute economic profit and the economic spread ratio exhibited a significant overall decline, indicating a reduction in the efficiency of capital utilization.
- Economic Profit Trend
- Economic profit decreased from US$ 1,444 million in 2018 to US$ 521 million in 2022. Although a temporary recovery occurred in 2020, reaching US$ 1,342 million, the subsequent two years saw a sharp contraction. The value in 2022 represents a substantial decrease compared to the 2018 baseline, signaling a diminished ability to generate returns above the cost of capital.
- Invested Capital Evolution
- Invested capital grew from US$ 11,791 million in 2018 to US$ 14,460 million in 2022. This expansion of the capital base, particularly the increase observed between 2018 and 2019, suggests an increase in the total resources deployed in the business. However, this growth in invested capital has not been matched by a corresponding increase in economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio demonstrates a marked downward trajectory, falling from 12.25% in 2018 to 3.60% in 2022. The compression of this ratio indicates a narrowing gap between the return on invested capital and the cost of that capital. The trend highlights a progressive decline in value creation efficiency, as the return generated per unit of invested capital has fallen significantly over the five-year period.
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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 | 521) | 924) | 1,342) | 1,107) | 1,444) | |
| Net sales | 17,967) | 17,421) | 16,471) | 15,693) | 15,544) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 2.90% | 5.31% | 8.14% | 7.05% | 9.29% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Procter & Gamble Co. | 7.13% | 7.09% | — | — | — | |
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 × 521 ÷ 17,967 = 2.90%
3 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a divergence between top-line growth and value creation. While net sales exhibited a consistent upward trajectory, economic profit and the resulting economic profit margin experienced a significant overall decline, indicating a reduction in the efficiency of capital utilization relative to revenue growth.
- Net Sales Performance
- A steady increase in net sales is observed over the five-year period, rising from 15,544 million US$ in 2018 to 17,967 million US$ by 2022. This represents a consistent expansion of market reach or pricing power, with uninterrupted year-over-year growth throughout the analyzed timeframe.
- Economic Profit Trends
- Economic profit demonstrated high volatility and a general downward trend. After reaching a peak of 1,444 million US$ in 2018, values fluctuated, including a partial recovery to 1,342 million US$ in 2020. However, a sharp contraction occurred in the final two years, with economic profit falling to 924 million US$ in 2021 and further decreasing to 521 million US$ in 2022, representing a substantial erosion of absolute economic value added.
- Economic Profit Margin Analysis
- The economic profit margin reflects a severe compression. The margin started at 9.29% in 2018 and, despite a brief increase to 8.14% in 2020, plummeted to 2.90% by 2022. This decline is particularly notable because it occurred simultaneously with increasing net sales, suggesting that the cost of capital or operating expenses grew at a rate that significantly outpaced revenue gains, thereby diminishing the company's ability to generate surplus value over its capital charge.
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