.Economic Value Added (EVA)
Difficulty: Advanced
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
ConocoPhillips, economic profit calculation
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Net operating profit after taxes (NOPAT)1 | |||||
| | Cost of capital2 | % | % | % | % | % |
| | Invested capital3 | |||||
| | Economic profit4 | |||||
Source: Based on data from ConocoPhillips Annual Reports
2017 Calculations
1 NOPAT. See Details »
2 Cost of capital. See Details »
3 Invested capital. See Details »
4 Economic profit = NOPAT – Cost of capital × Invested capital
= – % × =
| 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. | ConocoPhillips's economic profit increased from 2015 to 2016 and from 2016 to 2017. |
Net Operating Profit after Taxes (NOPAT)
ConocoPhillips, NOPAT calculation
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Net income (loss) attributable to ConocoPhillips | |||||
| | Deferred income tax expense (benefit)1 | |||||
| | Increase (decrease) in allowance for doubtful accounts and notes receivable2 | |||||
| | Increase (decrease) in LIFO reserve3 | |||||
| | Increase (decrease) in restructuring accruals4 | |||||
| | Increase (decrease) in equity equivalents5 | |||||
| | Interest and debt expense | |||||
| | Interest expense, operating lease obligations6 | |||||
| | Adjusted interest and debt expense | |||||
| | Tax benefit of interest and debt expense7 | |||||
| | Adjusted interest and debt expense, after taxes8 | |||||
| | Interest income | |||||
| | Investment income, before taxes | |||||
| | Tax expense (benefit) of investment income9 | |||||
| | Investment income, after taxes10 | |||||
| | (Income) loss from discontinued operations, net of tax11 | |||||
| | Net income (loss) attributable to noncontrolling interest | |||||
| | Net operating profit after taxes (NOPAT) |
Source: Based on data from ConocoPhillips Annual Reports
2017 Calculations
1 Elimination of deferred tax expense. See Details »
2 Addition of increase (decrease) in allowance for doubtful accounts and notes receivable.
3 Addition of increase (decrease) in LIFO reserve. See Details »
4 Addition of increase (decrease) in restructuring accruals.
5 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to ConocoPhillips.
6 Addition of interest expense on capitalized operating leases. See Details »
7 Tax benefit of interest and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= × 35% =
8 Addition of after taxes interest expense to net income (loss) attributable to ConocoPhillips.
9 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =
10 Elimination of after taxes investment income.
11 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. | ConocoPhillips's NOPAT increased from 2015 to 2016 and from 2016 to 2017. |
Cash Operating Taxes
ConocoPhillips, cash operating taxes calculation
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Income tax provision (benefit) | |||||
| | Less: Deferred income tax expense (benefit) | |||||
| | Add: Tax savings from interest and debt expense | |||||
| | Less: Tax imposed on investment income | |||||
| | Cash operating taxes |
Source: Based on data from ConocoPhillips Annual Reports
| 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. | ConocoPhillips's cash operating taxes increased from 2015 to 2016 and from 2016 to 2017. |
Invested Capital
ConocoPhillips, invested capital calculation (financing approach)
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Short-term debt | |||||
| | Long-term debt | |||||
| | PV of operating lease payments1 | |||||
| | Total reported debt & leases | |||||
| | Common stockholders’ equity | |||||
| | Net deferred tax (assets) liabilities2 | |||||
| | Allowance for doubtful accounts and notes receivable3 | |||||
| | LIFO reserve4 | |||||
| | Restructuring accruals5 | |||||
| | Equity equivalents6 | |||||
| | Accumulated other comprehensive (income) loss, net of tax7 | |||||
| | Noncontrolling interests | |||||
| | Adjusted common stockholders’ equity | |||||
| | Marketable securities8 | |||||
| | Invested capital |
Source: Based on data from ConocoPhillips Annual Reports
1 Addition of capitalized operating leases. See Details »
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 accruals.
6 Addition of equity equivalents to common stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 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. | ConocoPhillips's invested capital declined from 2015 to 2016 and from 2016 to 2017. |
Cost of Capital
ConocoPhillips, cost of capital calculations
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital leases3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from ConocoPhillips Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital leases. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital leases3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from ConocoPhillips Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital leases. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital leases3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from ConocoPhillips Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital leases. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital leases3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from ConocoPhillips Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital leases. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Debt, including capital leases3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from ConocoPhillips Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Debt, including capital leases. See Details »
4 PV of operating lease payments. See Details »
Economic Spread
ConocoPhillips, economic spread calculation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| | Economic profit1 | |||||
| | Invested capital2 | |||||
| Ratio | ||||||
| | Economic spread3 | % | % | % | % | % |
Source: Based on data from ConocoPhillips Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Invested capital. See Details »
3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Economic spread | The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. | ConocoPhillips's economic spread improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Economic Profit Margin
ConocoPhillips, economic profit margin calculation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| | Economic profit1 | |||||
| | Sales and other operating revenues | |||||
| Ratio | ||||||
| | Economic profit margin2 | % | % | % | % | % |
Source: Based on data from ConocoPhillips Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Economic profit margin = 100 × Economic profit ÷ Sales and other operating revenues
= 100 × ÷ = %
| 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. | ConocoPhillips's economic profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level. |
