.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
Danaher Corp., economic profit calculation
USD $ in thousands
| 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 Danaher Corp. 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. | Danaher Corp.'s economic profit declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Net Operating Profit after Taxes (NOPAT)
Danaher Corp., NOPAT calculation
USD $ in thousands
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Net earnings | |||||
| | Deferred income tax expense (benefit)1 | |||||
| | Increase (decrease) in allowance for doubtful accounts2 | |||||
| | Increase (decrease) in LIFO reserve3 | |||||
| | Increase (decrease) in deferred revenue4 | |||||
| | Increase (decrease) in accrued warranty liability5 | |||||
| | Increase (decrease) in accrual balance of restructuring cost6 | |||||
| | Increase (decrease) in equity equivalents7 | |||||
| | Interest expense | |||||
| | Interest expense, operating lease obligations8 | |||||
| | Adjusted interest expense | |||||
| | Tax benefit of interest expense9 | |||||
| | Adjusted interest expense, after taxes10 | |||||
| | (Gain) loss on marketable securities | |||||
| | Interest income | |||||
| | Investment income, before taxes | |||||
| | Tax expense (benefit) of investment income11 | |||||
| | Investment income, after taxes12 | |||||
| | (Income) loss from discontinued operations, net of tax13 | |||||
| | Net operating profit after taxes (NOPAT) |
Source: Based on data from Danaher Corp. Annual Reports
2017 Calculations
1 Elimination of deferred tax expense. See Details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in LIFO reserve. See Details »
4 Addition of increase (decrease) in deferred revenue.
5 Addition of increase (decrease) in accrued warranty liability.
6 Addition of increase (decrease) in accrual balance of restructuring cost.
7 Addition of increase (decrease) in equity equivalents to net earnings.
8 Addition of interest expense on capitalized operating leases. See Details »
9 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35% =
10 Addition of after taxes interest expense to net earnings.
11 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =
12 Elimination of after taxes investment income.
13 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. | Danaher Corp.'s NOPAT declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
Cash Operating Taxes
Danaher Corp., cash operating taxes calculation
USD $ in thousands
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Income tax provision | |||||
| | Less: Deferred income tax expense (benefit) | |||||
| | Add: Tax savings from interest expense | |||||
| | Less: Tax imposed on investment income | |||||
| | Cash operating taxes |
Source: Based on data from Danaher Corp. 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. | Danaher Corp.'s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
Invested Capital
Danaher Corp., invested capital calculation (financing approach)
USD $ in thousands
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Notes payable and current portion of long-term debt | |||||
| | Long-term debt, excluding current portion | |||||
| | PV of operating lease payments1 | |||||
| | Total reported debt & leases | |||||
| | Total Danaher stockholders' equity | |||||
| | Net deferred tax (assets) liabilities2 | |||||
| | Allowance for doubtful accounts3 | |||||
| | LIFO reserve4 | |||||
| | Deferred revenue5 | |||||
| | Accrued warranty liability6 | |||||
| | Accrual balance of restructuring cost7 | |||||
| | Equity equivalents8 | |||||
| | Accumulated other comprehensive (income) loss, net of tax9 | |||||
| | Noncontrolling interests | |||||
| | Adjusted total Danaher stockholders' equity | |||||
| | Available-for-sale securities10 | |||||
| | Invested capital |
Source: Based on data from Danaher Corp. 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 deferred revenue.
6 Addition of accrued warranty liability.
7 Addition of accrual balance of restructuring cost.
8 Addition of equity equivalents to total Danaher stockholders' equity.
9 Removal of accumulated other comprehensive income.
10 Subtraction of available-for-sale 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. | Danaher Corp.'s invested capital declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Cost of Capital
Danaher Corp., cost of capital calculations
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Danaher Corp. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Danaher Corp. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Danaher Corp. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Danaher Corp. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Borrowings3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from Danaher Corp. Annual Reports
1 USD $ in thousands
2 Equity. See Details »
3 Borrowings. See Details »
4 PV of operating lease payments. See Details »
Economic Spread
Danaher Corp., economic spread calculation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | ||||||
| | Economic profit1 | |||||
| | Invested capital2 | |||||
| Ratio | ||||||
| | Economic spread3 | % | % | % | % | % |
Source: Based on data from Danaher Corp. 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. | Danaher Corp.'s economic spread deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017. |
Economic Profit Margin
Danaher Corp., economic profit margin calculation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | ||||||
| | Economic profit1 | |||||
| | Sales | |||||
| | Increase (decrease) in deferred revenue | |||||
| Ratio | ||||||
| | Economic profit margin2 | % | % | % | % | % |
Source: Based on data from Danaher Corp. Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Economic profit margin = 100 × Economic profit ÷ (Sales + Change in deferred revenue)
= 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. | Danaher Corp.'s economic profit margin deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017. |
