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:
- Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Analysis of Debt
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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
= – × =
The financial data reveals several significant trends and patterns over the five-year period from 2018 to 2022.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT exhibited a fluctuating but overall declining trend. Starting at 2,711 million US dollars in 2018, it decreased to 2,572 million in 2019, then rose to 2,814 million in 2020. However, from 2020 onwards, a downward pattern is evident, with NOPAT dropping to 2,361 million in 2021 and further declining to 2,048 million in 2022. This indicates potential challenges in maintaining profit levels in recent years.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, ranging narrowly between 8.99% and 9.15%. The slight variations suggest consistent financing costs without major fluctuations impacting the company's investment decisions.
- Invested Capital
- Invested capital showed an increasing trend overall. From 11,791 million US dollars in 2018, it rose considerably to 13,859 million in 2019 and continued a slight increase to 13,943 million in 2020. There was a minor reduction in 2021 to 13,505 million, but the upward momentum resumed in 2022, reaching 14,460 million. This suggests ongoing investment in assets or operations over the years.
- Economic Profit
- Economic profit, which measures value creation beyond the cost of capital, displayed a downward trend over the period. Starting at 1,631 million US dollars in 2018, it declined to 1,324 million in 2019, then increased to 1,560 million in 2020. However, after 2020, there was a marked decrease with economic profit dropping to 1,138 million in 2021 and further to 746 million in 2022. This decline suggests diminishing returns relative to capital costs and a potential reduction in shareholder value creation.
In summary, while the company maintained a stable cost of capital and increased its invested capital base, profitability and economic profit trends have been downward since 2020. The declining NOPAT and economic profit indicate challenges in generating returns that exceed the cost of capital, highlighting potential areas for operational improvement or strategic reassessment.
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.
- Economic Profit
- The economic profit demonstrates a declining trend over the five-year period. Starting at $1,631 million in 2018, it decreased to $746 million by 2022. There is a notable drop in 2019 to $1,324 million, followed by a rebound in 2020 to $1,560 million. Subsequently, the economic profit fell sharply in 2021 and 2022, signaling a reduction in value generation in recent years.
- Invested Capital
- Invested capital has generally increased from $11,791 million in 2018 to $14,460 million in 2022, an overall growth indicating increased investment in assets or operations. There was a steady rise from 2018 through 2020, a slight dip in 2021, and an increase again in 2022. This reflects ongoing capital deployment with minor fluctuations.
- Economic Spread Ratio
- The economic spread ratio shows a consistent downward trend, decreasing from 13.83% in 2018 to 5.16% in 2022. This ratio declined annually except for a temporary increase in 2020. The decreasing spread ratio suggests diminishing returns on the invested capital over time, which aligns with the declining economic profit observed.
Economic Profit Margin
Colgate-Palmolive Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 analysis of the financial figures over the five-year period reveals several key trends in performance.
- Net Sales
- Net sales have demonstrated a consistent upward trend from 2018 through 2022, increasing steadily each year. This indicates growth in the company's revenue generation capabilities over the period assessed.
- Economic Profit
- Economic profit exhibited a fluctuating pattern. It started relatively high in 2018, declined somewhat in 2019, increased again in 2020, but then showed a notable decrease in 2021 and further reduction in 2022. This suggests variability in the company’s profitability beyond traditional accounting profits, potentially influenced by changes in capital costs or operational efficiencies.
- Economic Profit Margin
- The economic profit margin followed a declining trajectory throughout the five years, moving from a more robust 10.49% in 2018 to a considerably lower 4.15% in 2022. This downward trend points to diminishing economic returns relative to sales, implying either rising costs, increased capital charges, or less efficient capital utilization.
Overall, while top-line revenues have grown consistently, the company's economic profit and economic profit margin have both deteriorated, suggesting that increased sales have not translated proportionally into economic value added. This divergence highlights potential areas for improving operational efficiency, cost management, or capital deployment strategies to enhance shareholder value.