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
Constellation Brands Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
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
= 498,399 – 16.06% × 20,491,900 = -2,793,570
The financial performance from February 2017 to February 2022 is characterized by significant volatility in operating profitability and a persistent failure to generate positive economic profit in most observed periods. Value destruction is the dominant trend, as the returns on invested capital generally failed to exceed the company's cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme fluctuations throughout the period. An initial upward trajectory peaked in February 2019 at 4,189,068 thousand US$, followed by a severe reversal in February 2020, where the figure dropped to a negative 778,137 thousand US$. Although a partial recovery occurred in February 2021 with NOPAT rising to 2,686,552 thousand US$, this gain was short-lived, with a sharp decline to 498,399 thousand US$ by February 2022.
- Invested Capital and Cost of Capital
- Invested capital increased steadily from 17,413,511 thousand US$ in 2017 to a peak of 24,890,124 thousand US$ in 2019. Following this peak, a consistent contraction in the capital base is observed, ending at 20,491,900 thousand US$ in 2022. Concurrently, the cost of capital remained relatively stable, fluctuating within a narrow band between 13.98% and 16.06%, which placed a consistent high hurdle for value creation.
- Economic Profit Trends
- Economic profit remained negative for five of the six years analyzed. Value destruction was evident in 2017 and 2018, followed by a singular instance of value creation in February 2019, where economic profit reached 474,656 thousand US$. The most significant erosion of value occurred in February 2020, with an economic profit of negative 3,824,133 thousand US$, coinciding with the negative NOPAT. Despite a reduction in the magnitude of losses in 2021, the period closed with a substantial deficit of 2,793,570 thousand US$ in February 2022.
The synthesis of these metrics indicates that the company's operational earnings were insufficient to cover the opportunity cost of the capital employed. The correlation between the volatility of NOPAT and the swings in economic profit suggests that external shocks or internal operational instabilities heavily influenced the company's ability to create economic value, while the steady cost of capital acted as a persistent drag on financial performance.
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Net Operating Profit after Taxes (NOPAT)
Constellation Brands Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in deferred revenue.
3 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to CBI.
4 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 537,700 × 3.00% = 16,131
5 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 372,531 × 21.00% = 78,232
6 Addition of after taxes interest expense to net income (loss) attributable to CBI.
An analysis of profitability metrics from 2017 to 2022 reveals a period of significant volatility, characterized by an initial growth phase followed by abrupt contractions and inconsistent recoveries.
- Net Operating Profit After Taxes (NOPAT) Performance
- A steady upward trajectory is observed from February 2017 through February 2019, with NOPAT peaking at 4,189,068 thousand USD. This growth phase was followed by a sharp reversal in February 2020, where NOPAT fell to a deficit of 778,137 thousand USD. While a substantial recovery occurred by February 2021, reaching 2,686,552 thousand USD, the metric experienced another significant decline by February 2022, settling at 498,399 thousand USD.
- Net Income Trends and Correlations
- Net income followed a similar growth pattern through 2019, reaching 3,435,900 thousand USD. However, the subsequent years were marked by instability, with losses recorded in February 2020 and February 2022. A notable divergence is observed in February 2022, where NOPAT remained positive despite net income attributable to the company falling to -40,400 thousand USD. This suggests that while operating activities remained profitable, non-operating costs or financial charges impacted the final bottom line.
- Comparative Volatility Analysis
- The data indicates that NOPAT exhibits more extreme fluctuations than net income during period troughs, particularly in 2020. The transition from the 2019 peak to the 2020 deficit represents a severe disruption in operating profitability, which was not fully sustained in the subsequent years, as evidenced by the sharp decline in NOPAT between 2021 and 2022.
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Cash Operating Taxes
Constellation Brands Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
The financial data reveals a significant divergence between accrual-based income tax provisions and actual cash operating taxes paid over the six-year period ending February 28, 2022. While the provision fluctuates drastically, the cash outflows remain relatively more stable, suggesting a heavy reliance on non-cash tax adjustments and deferred tax accounting.
- Income Tax Provision Volatility
- The income tax provision exhibited extreme volatility, characterized by sharp reversals. After a high of 554.2 million US dollars in 2017, the provision dropped precipitously to 11.9 million US dollars in 2018, before spiking to 685.9 million US dollars in 2019. The most significant variance occurred in 2020, with a recorded tax benefit of 966.6 million US dollars, indicating a substantial non-cash credit or reversal. This was followed by a return to positive expenses in 2021 and 2022.
- Cash Operating Taxes Trend
- Cash operating taxes demonstrated a more consistent, though generally downward, trajectory. Payments were stable between 2017 and 2018, exceeding 547 million US dollars. A downward trend followed, with payments declining each year from 2019 through 2021, reaching a period low of 259.3 million US dollars. A slight reversal of this trend is observed in 2022, as cash taxes increased to 302.8 million US dollars.
- Analysis of Divergence
- A pronounced gap exists between the reported tax provision and actual cash payments. This is most evident in 2020, where a tax benefit of 966.6 million US dollars was recognized on a provision basis, yet the company still incurred a cash outflow of 281.2 million US dollars for operating taxes. This discrepancy highlights that the tax benefits impacting the income statement did not result in corresponding cash inflows or a total elimination of cash tax obligations during that fiscal year.
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Invested Capital
Constellation Brands Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of deferred revenue.
4 Addition of equity equivalents to total CBI stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progres.
The total invested capital exhibited a volatile trend over the six-year period, peaking significantly in February 2019 before entering a period of gradual contraction. Between February 2017 and February 2019, invested capital rose from approximately $17.4 billion to $24.9 billion, representing a substantial expansion of the capital base. This growth was driven by simultaneous increases in both debt obligations and stockholders' equity.
- Debt and Lease Obligations
- A marked increase in total reported debt and leases is observed from February 2017 to February 2019, where obligations rose from $9.6 billion to a peak of $14.1 billion. Subsequent years show a consistent deleveraging trend, with debt levels receding to approximately $11.0 billion by February 2022.
- Stockholders' Equity
- Stockholders' equity demonstrated a general growth pattern, increasing from $6.9 billion in 2017 to a peak of $13.6 billion in February 2021. A significant jump is noted between 2018 and 2019, correlating with the overall peak in invested capital, followed by a moderate decline to $11.7 billion in the final reported year.
- Invested Capital Trends
- The peak of $24.9 billion in February 2019 marks the height of the capital investment cycle within the analyzed period. From February 2020 through February 2022, invested capital declined steadily to $20.5 billion. This contraction is primarily attributed to the reduction in total debt and the subsequent correction in stockholders' equity after 2021, suggesting a shift toward capital optimization and liability reduction.
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Cost of Capital
Constellation Brands Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 47,846,762) | 47,846,762) | ÷ | 59,052,762) | = | 0.81 | 0.81 | × | 19.17% | = | 15.53% | ||
| Total borrowings3 | 10,668,300) | 10,668,300) | ÷ | 59,052,762) | = | 0.18 | 0.18 | × | 3.60% × (1 – 21.00%) | = | 0.51% | ||
| Operating lease liability4 | 537,700) | 537,700) | ÷ | 59,052,762) | = | 0.01 | 0.01 | × | 3.00% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 59,052,762) | 1.00 | 16.06% | ||||||||||
Based on: 10-K (reporting date: 2022-02-28).
1 US$ in thousands
2 Equity. See details »
3 Total borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 46,238,745) | 46,238,745) | ÷ | 58,359,545) | = | 0.79 | 0.79 | × | 19.17% | = | 15.19% | ||
| Total borrowings3 | 11,580,900) | 11,580,900) | ÷ | 58,359,545) | = | 0.20 | 0.20 | × | 3.68% × (1 – 21.00%) | = | 0.58% | ||
| Operating lease liability4 | 539,900) | 539,900) | ÷ | 58,359,545) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 58,359,545) | 1.00 | 15.79% | ||||||||||
Based on: 10-K (reporting date: 2021-02-28).
1 US$ in thousands
2 Equity. See details »
3 Total borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 29,508,508) | 29,508,508) | ÷ | 43,243,508) | = | 0.68 | 0.68 | × | 19.17% | = | 13.08% | ||
| Total borrowings3 | 13,174,800) | 13,174,800) | ÷ | 43,243,508) | = | 0.30 | 0.30 | × | 3.59% × (1 – 21.00%) | = | 0.86% | ||
| Operating lease liability4 | 560,200) | 560,200) | ÷ | 43,243,508) | = | 0.01 | 0.01 | × | 3.50% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 43,243,508) | 1.00 | 13.98% | ||||||||||
Based on: 10-K (reporting date: 2020-02-29).
1 US$ in thousands
2 Equity. See details »
3 Total borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 39,701,259) | 39,701,259) | ÷ | 53,711,683) | = | 0.74 | 0.74 | × | 19.17% | = | 14.17% | ||
| Total borrowings3 | 13,560,000) | 13,560,000) | ÷ | 53,711,683) | = | 0.25 | 0.25 | × | 3.67% × (1 – 21.00%) | = | 0.73% | ||
| Operating lease liability4 | 450,424) | 450,424) | ÷ | 53,711,683) | = | 0.01 | 0.01 | × | 3.67% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 53,711,683) | 1.00 | 14.92% | ||||||||||
Based on: 10-K (reporting date: 2019-02-28).
1 US$ in thousands
2 Equity. See details »
3 Total borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 43,687,019) | 43,687,019) | ÷ | 54,284,486) | = | 0.80 | 0.80 | × | 19.17% | = | 15.42% | ||
| Total borrowings3 | 10,145,200) | 10,145,200) | ÷ | 54,284,486) | = | 0.19 | 0.19 | × | 3.43% × (1 – 32.70%) | = | 0.43% | ||
| Operating lease liability4 | 452,267) | 452,267) | ÷ | 54,284,486) | = | 0.01 | 0.01 | × | 3.43% × (1 – 32.70%) | = | 0.02% | ||
| Total: | 54,284,486) | 1.00 | 15.88% | ||||||||||
Based on: 10-K (reporting date: 2018-02-28).
1 US$ in thousands
2 Equity. See details »
3 Total borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 33,322,598) | 33,322,598) | ÷ | 43,169,910) | = | 0.77 | 0.77 | × | 19.17% | = | 14.79% | ||
| Total borrowings3 | 9,452,000) | 9,452,000) | ÷ | 43,169,910) | = | 0.22 | 0.22 | × | 3.63% × (1 – 35.00%) | = | 0.52% | ||
| Operating lease liability4 | 395,311) | 395,311) | ÷ | 43,169,910) | = | 0.01 | 0.01 | × | 3.63% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 43,169,910) | 1.00 | 15.33% | ||||||||||
Based on: 10-K (reporting date: 2017-02-28).
1 US$ in thousands
2 Equity. See details »
3 Total borrowings. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Constellation Brands Inc., economic spread ratio calculation, comparison to benchmarks
| Feb 28, 2022 | Feb 28, 2021 | Feb 29, 2020 | Feb 28, 2019 | Feb 28, 2018 | Feb 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Economic profit1 | (2,793,570) | (666,367) | (3,824,133) | 474,656) | (808,368) | (776,085) | |
| Invested capital2 | 20,491,900) | 21,239,800) | 21,790,300) | 24,890,124) | 18,550,367) | 17,413,511) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -13.63% | -3.14% | -17.55% | 1.91% | -4.36% | -4.46% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Coca-Cola Co. | 3.85% | 5.38% | — | — | — | — | |
| Mondelēz International Inc. | -3.76% | -0.75% | — | — | — | — | |
| PepsiCo Inc. | 4.37% | 4.92% | — | — | — | — | |
| Philip Morris International Inc. | 11.92% | 26.25% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,793,570 ÷ 20,491,900 = -13.63%
4 Click competitor name to see calculations.
The analysis of economic value creation indicates a period of significant volatility and a consistent struggle to generate returns exceeding the cost of capital. Economic profit remained negative in five of the six fiscal years analyzed, suggesting that the company frequently failed to create shareholder value during this timeframe.
- Economic Profit Trends
- Economic profit exhibited extreme fluctuations, characterized by a singular year of value creation in 2019, where profit reached 474.6 million USD. This positive result was preceded by moderate losses in 2017 and 2018 and followed by a severe decline in 2020, with losses peaking at 3.8 billion USD. Despite a recovery in 2021, losses widened significantly again by February 2022 to 2.7 billion USD.
- Invested Capital Dynamics
- Invested capital followed a growth phase from 2017 to 2019, rising from 17.4 billion USD to a peak of 24.8 billion USD. Following this peak, a consistent downward trend is observed, with the capital base contracting to 20.4 billion USD by 2022. This reduction in invested capital occurred despite the continuing volatility in economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio demonstrates a pattern of substantial value erosion. The ratio remained negative for the majority of the period, with the only positive exception occurring in 2019 at 1.91%. Significant troughs are evident in 2020 and 2022, where the ratio fell to -17.55% and -13.63%, respectively. These figures indicate that the return on invested capital fell sharply below the required cost of capital during these periods, reflecting poor economic efficiency.
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Economic Profit Margin
Constellation Brands Inc., economic profit margin calculation, comparison to benchmarks
| Feb 28, 2022 | Feb 28, 2021 | Feb 29, 2020 | Feb 28, 2019 | Feb 28, 2018 | Feb 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Economic profit1 | (2,793,570) | (666,367) | (3,824,133) | 474,656) | (808,368) | (776,085) | |
| Net sales | 8,820,700) | 8,614,900) | 8,343,500) | 8,116,000) | 7,585,000) | 7,331,500) | |
| Add: Increase (decrease) in deferred revenue | 118,300) | —) | —) | —) | —) | —) | |
| Adjusted net sales | 8,939,000) | 8,614,900) | 8,343,500) | 8,116,000) | 7,585,000) | 7,331,500) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -31.25% | -7.74% | -45.83% | 5.85% | -10.66% | -10.59% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Coca-Cola Co. | 7.16% | 11.18% | — | — | — | — | |
| Mondelēz International Inc. | -7.62% | -1.61% | — | — | — | — | |
| PepsiCo Inc. | 3.51% | 4.32% | — | — | — | — | |
| Philip Morris International Inc. | 17.77% | 24.37% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-02-28), 10-K (reporting date: 2021-02-28), 10-K (reporting date: 2020-02-29), 10-K (reporting date: 2019-02-28), 10-K (reporting date: 2018-02-28), 10-K (reporting date: 2017-02-28).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -2,793,570 ÷ 8,939,000 = -31.25%
3 Click competitor name to see calculations.
The financial performance from February 2017 to February 2022 is characterized by a consistent growth in top-line revenue contrasted with high volatility and a general deficiency in economic value creation. While adjusted net sales increased steadily throughout the period, economic profit remained negative in five of the six analyzed years, indicating that the returns generated were frequently insufficient to cover the company's cost of capital.
- Adjusted Net Sales Trend
- A consistent upward trajectory in adjusted net sales is observed, rising from 7,331,500 thousand US dollars in February 2017 to 8,939,000 thousand US dollars by February 2022. This represents a steady growth pattern with no annual contractions during the six-year window.
- Economic Profit Volatility
- Economic profit exhibited significant fluctuations. After remaining negative in 2017 and 2018, a positive peak was reached in February 2019 at 474,656 thousand US dollars. However, this was followed by a severe decline in February 2020, where economic profit fell to its lowest point of -3,824,133 thousand US dollars. Despite a partial recovery in 2021, the figure declined again to -2,793,570 thousand US dollars by February 2022.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit. The margin transitioned from approximately -10.6% in 2017 and 2018 to a positive 5.85% in 2019. A sharp deterioration occurred in 2020, with the margin dropping to -45.83%. While the margin improved to -7.74% in 2021, it experienced another substantial decrease to -31.25% in February 2022.
The divergence between the steady increase in adjusted net sales and the erratic, predominantly negative economic profit margins suggests that revenue growth has not translated into sustainable economic value. The significant margin contractions in 2020 and 2022 indicate periods of substantial value erosion that outweigh the gains achieved through sales expansion.
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