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.
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Colgate-Palmolive Co. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Price to FCFE (P/FCFE)
- Net Profit Margin since 2005
- Debt to Equity since 2005
- Analysis of Revenues
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Economic Profit
Colgate-Palmolive Co., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
Over the five-year period, net operating profit after taxes exhibited fluctuations. Beginning at US$2,711 million in 2018, it decreased to US$2,572 million in 2019 before increasing to US$2,814 million in 2020. A subsequent decline was observed in 2021, falling to US$2,361 million, and continued in 2022 to reach US$2,048 million. The cost of capital remained relatively stable throughout the period, ranging between 8.94% and 9.11%. Invested capital generally increased, moving from US$11,791 million in 2018 to US$14,460 million in 2022, with a slight decrease noted in 2021. Consequently, economic profit followed a similar pattern to NOPAT, demonstrating a decreasing trend overall.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT peaked in 2018 and 2020, with a noticeable decrease in 2021 and 2022. This suggests potential challenges in maintaining profitability during those later years, possibly due to increased costs or decreased revenue. The decline in NOPAT directly impacts the economic profit generated.
- Cost of Capital
- The cost of capital remained consistently near 9%, indicating a stable financing environment for the company. The minimal variation suggests that the company’s risk profile and market conditions did not significantly change over the observed period. This stability allows for a clearer assessment of performance based on NOPAT and invested capital.
- Invested Capital
- Invested capital showed an overall upward trend, indicating continued investment in the business. The slight dip in 2021 could be attributed to asset sales, reduced capital expenditures, or changes in working capital. Despite this temporary decrease, the overall growth in invested capital suggests a commitment to expansion and long-term growth.
- Economic Profit
- Economic profit, representing value creation, decreased consistently from US$1,637 million in 2018 to US$753 million in 2022. This decline, driven by the decreasing NOPAT, indicates a diminishing ability to generate returns exceeding the cost of capital. While the company continues to generate positive economic profit, the downward trend warrants attention and further investigation into the underlying causes.
The combined trends suggest that while the company continues to invest in its operations, its ability to translate those investments into economic profit is diminishing. Further analysis is recommended to understand the factors contributing to the decline in NOPAT and to identify strategies for improving value creation.
Net Operating Profit after Taxes (NOPAT)
Colgate-Palmolive Co., NOPAT calculation
US$ 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
= × =
7 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
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
= × 21.00% =
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.
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.
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 $14,460 million in 2022. Although minor fluctuations occurred between 2020 and 2021, the trend reflects continued growth in the capital invested in the company's operations, which could be related to expansions, acquisitions, or reinvestment into company assets.
Overall, the company appears to have increased its financial leverage, as evidenced by rising debt levels coupled with relatively stagnant or decreasing equity values. The growth in invested capital suggests ongoing investment in operations despite the fluctuating equity position.
Cost of Capital
Colgate-Palmolive Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ 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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Procter & Gamble Co. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited a consistent decline over the five-year period. While economic profit fluctuated, the invested capital generally increased, contributing to the observed trend in the economic spread ratio.
- Economic Spread Ratio
- The economic spread ratio decreased from 13.88% in 2018 to 5.21% in 2022. This represents a substantial reduction, indicating a diminishing ability to generate returns exceeding the cost of capital. The most significant decline occurred between 2021 and 2022, with a decrease of 3.27 percentage points.
- Economic Profit and Invested Capital Relationship
- Economic profit peaked in 2018 at US$1,637 million and experienced a low in 2022 at US$753 million. Despite this decline, invested capital increased from US$11,791 million in 2018 to US$14,460 million in 2022. The combination of decreasing economic profit and increasing invested capital directly contributed to the downward trend in the economic spread ratio.
The period between 2019 and 2020 saw a recovery in both economic profit and the economic spread ratio, although the ratio did not return to its 2018 level. The subsequent years, 2021 and 2022, demonstrate a clear weakening in the relationship between profit generated and capital employed.
- Overall Trend
- The consistent decrease in the economic spread ratio suggests a potential erosion of competitive advantage or an increasing cost of capital relative to the returns generated by the invested capital. Further investigation into the drivers of both economic profit and invested capital would be necessary to fully understand the underlying causes of this trend.
Economic Profit Margin
Colgate-Palmolive Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Procter & Gamble Co. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited a declining trend over the five-year period. While economic profit fluctuated, the margin consistently decreased, indicating a diminishing ability to generate profit relative to net sales.
- Economic Profit Margin Trend
- In 2018, the economic profit margin stood at 10.53%. This decreased to 8.48% in 2019, representing a contraction of approximately 2.05 percentage points. A slight recovery was observed in 2020, with the margin increasing to 9.51%. However, this was followed by a further decline to 6.57% in 2021 and a more substantial decrease to 4.19% in 2022.
Net sales demonstrated a consistent upward trend throughout the period, increasing from US$15,544 million in 2018 to US$17,967 million in 2022. Despite this growth in sales, the economic profit margin’s decline suggests that the increase in sales was not sufficient to offset rising costs or declining profitability on a relative basis.
- Relationship between Economic Profit and Net Sales
- Economic profit itself decreased from US$1,637 million in 2018 to US$753 million in 2022. The decreasing margin, coupled with the increasing net sales, indicates that the company’s economic profit is growing at a slower rate than its revenue. This divergence warrants further investigation into the underlying factors affecting profitability.
The most significant decrease in economic profit margin occurred between 2021 and 2022, falling by 2.38 percentage points. This recent decline suggests a potential acceleration of negative trends impacting the company’s ability to generate economic profit from its sales.
- Recent Performance
- The 4.19% economic profit margin in 2022 represents the lowest value observed during the analyzed period. This level of margin may indicate increasing competitive pressures, rising input costs, or inefficiencies in operations that require attention.