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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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Delta Air Lines Inc. pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Dividend Discount Model (DDM)
- Price to Operating Profit (P/OP) since 2007
- Price to Book Value (P/BV) since 2007
- Price to Sales (P/S) since 2007
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Economic Profit
12 months ended: | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | |
---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | ||||||
Cost of capital2 | ||||||
Invested capital3 | ||||||
Economic profit4 |
Based on: 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), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT showed a generally positive performance from 2017 to 2019, with values slightly fluctuating but remaining above 6 billion US dollars. However, there was a significant decline in 2020, resulting in a substantial negative value of approximately -13.9 billion US dollars, likely reflecting extraordinary challenges during that period. In 2021, there was a recovery to a positive NOPAT of around 1.9 billion US dollars, though this level remained well below the pre-2020 figures.
- Cost of Capital
- The cost of capital exhibited a gradual upward trend from 2017, starting at approximately 12.41% and rising to a peak of 13.17% in 2019. This was followed by a notable decrease during 2020 and 2021, where the cost of capital fell below 10%, reaching 9.68% by the end of 2021. This decline in the cost of capital may indicate a lower risk perception or changes in market conditions affecting the company’s financing environment.
- Invested Capital
- Invested capital remained relatively stable over the period, with a small decrease from 44.4 billion US dollars in 2017 to 43.3 billion in 2018, followed by an increase to approximately 47.6 billion in 2019. The value declined again in 2020 to roughly 44.2 billion, then rose back to 47.2 billion in 2021. This fluctuation suggests adjustments in capital deployment or asset base, possibly in response to changing operational demands and the economic impact experienced in 2020.
- Economic Profit
- Economic profit peaked at 934 million US dollars in 2017 before sharply declining to 353 million in 2018 and marginally increasing to 385 million in 2019. In 2020, economic profit showed a significant contraction, plunging to a negative 18.3 billion US dollars, reflecting the severe operational and market challenges faced during that year. Although there was some improvement in 2021, with economic profit increasing to a negative 2.6 billion US dollars, the company continued to experience substantial economic losses compared to the pre-2020 era.
- Overall Insights
- The financial data reveal a stable and positive operating performance from 2017 to 2019, followed by a dramatic downturn in 2020, likely due to extraordinary market conditions impacting profitability and economic returns. The subsequent partial recovery in 2021 indicates some resilience, but the results remain significantly below historical levels. The reduction in the cost of capital during 2020 and 2021 may have partially mitigated financial pressures. Invested capital adjustments across the period suggest strategic responses to operational and market challenges. Collectively, these trends point to considerable volatility and a challenging environment, with improvement underway but full recovery not yet realized by the end of 2021.
Net Operating Profit after Taxes (NOPAT)
Based on: 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), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for uncollectible accounts.
3 Addition of increase (decrease) in loyalty program deferred revenue.
4 Addition of increase (decrease) in equity equivalents to net income (loss).
5 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2021 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income (loss).
8 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
The financial data reveals significant fluctuations in key profitability metrics over the analyzed periods. Notably, net income exhibited a positive and steadily increasing trend from 2017 through 2019, rising from 3,577 million US dollars to 4,767 million US dollars. However, 2020 marked a sharp reversal, with net income declining drastically to a loss of 12,385 million US dollars. This adverse outcome was partially mitigated in 2021, which showed a rebound to a positive net income of 280 million US dollars, although this level remains substantially below the pre-2020 figures.
Similarly, net operating profit after taxes (NOPAT) followed a comparable trajectory. The company maintained strong operating profitability between 2017 and 2019, with NOPAT values ranging from 6,032 million to 6,651 million US dollars. In 2020, a pronounced downturn occurred, as NOPAT fell to a negative 13,902 million US dollars, indicating severe operational challenges during this period. The partial recovery in 2021 saw NOPAT increase to 1,932 million US dollars, signaling some restoration of operational profitability, albeit still at a reduced scale relative to the pre-2020 period.
- Profitability Trends
- Up through 2019, both net income and NOPAT demonstrated healthy growth and strong profitability.
- The year 2020 experienced a drastic and abnormal downturn in profitability, reflecting an exceptional negative impact.
- In 2021, there was a modest recovery, though profitability remained significantly below previous peak levels.
- Operational Insights
- The parallel movement between net income and NOPAT suggests that the core operations rather than extraordinary items primarily drove the financial volatility.
- The deep losses in 2020 indicate substantial operational disruptions or extraordinary challenges during that year.
- The recovery in 2021 implies initial success in addressing those challenges, though full recovery to earlier profitability levels was not yet achieved.
Overall, the data suggests a company that encountered a period of severe financial distress in 2020, likely due to external or market-wide factors, followed by an initial phase of recovery with cautious improvement in profitability metrics in the subsequent year.
Cash Operating Taxes
Based on: 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), 10-K (reporting date: 2017-12-31).
- Income Tax Provision (Benefit)
- The income tax provision exhibits a fluctuating trend over the analyzed period. Starting at $2,124 million in 2017, it decreased notably to $1,216 million in 2018, before experiencing a moderate increase to $1,431 million in 2019. In 2020, there is a significant shift to a considerable tax benefit of -$3,202 million, indicating either substantial tax credits or loss carrybacks during this period, potentially related to extraordinary circumstances. In 2021, the tax provision returns to a positive value of $118 million, reflecting a recovery or normalization relative to the previous year.
- Cash Operating Taxes
- Cash operating taxes show a mixed and irregular pattern. In 2017, the amount was $381 million, followed by a negative value of -$38 million in 2018, suggesting a possible tax refund or adjustment. The figure then increases slightly to $44 million in 2019 and rises more substantially to $191 million in 2020. The upward trend continues in 2021, reaching $323 million. This increase in cash operating taxes over the last two years could indicate improving operational profitability or changes in tax payment timing and policies.
Invested Capital
Based on: 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), 10-K (reporting date: 2017-12-31).
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 loyalty program deferred revenue.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of investments.
- Total reported debt & leases
- From 2017 to 2019, the total reported debt and leases showed a declining trend, decreasing from $21,021 million to $17,255 million. However, there was a significant increase in 2020, with the amount rising sharply to $35,548 million. This elevated level was largely maintained in 2021 at $34,679 million, indicating a substantial buildup of debt and lease obligations during the later years.
- Stockholders’ equity
- Stockholders' equity exhibited relative stability from 2017 through 2019, fluctuating moderately around the $13,600 to $15,300 million range. In 2020, equity experienced a dramatic reduction to $1,534 million, reflecting severe erosion likely due to losses or adjustments during that period. In 2021, there was a partial recovery, with equity increasing to $3,887 million, though it remained substantially below pre-2020 levels.
- Invested capital
- Invested capital showed an overall upward trend from 2017 to 2019, rising from $44,409 million to $47,580 million. In 2020, it decreased to $44,197 million, likely driven by changes in debt and equity components as noted. The capital base rebounded in 2021, climbing back to $47,166 million, close to the high point observed in 2019, suggesting efforts to stabilize and restore invested capital after the disruptions of 2020.
Cost of Capital
Delta Air Lines Inc., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance leases3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance leases. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance leases3 | ÷ | = | × | × (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 and finance leases. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance leases3 | ÷ | = | × | × (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 and finance leases. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance leases3 | ÷ | = | × | × (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 and finance leases. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance leases3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance leases. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Invested capital2 | ||||||
Performance Ratio | ||||||
Economic spread ratio3 | ||||||
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
FedEx Corp. | ||||||
Uber Technologies Inc. | ||||||
Union Pacific Corp. | ||||||
United Airlines Holdings Inc. | ||||||
United Parcel Service Inc. |
Based on: 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), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit experienced a substantial decline over the period analyzed. Starting from a positive value of 934 million USD at the end of 2017, it decreased significantly to 353 million USD in 2018 and remained relatively stable around 385 million USD in 2019. A sharp reversal occurred in 2020, where economic profit dropped drastically to a negative value of -18,319 million USD, reflecting significant losses. In 2021, the economic profit slightly improved, yet remained negative at -2,633 million USD, indicating continuing challenges in generating value above the cost of capital.
- Invested Capital
- The invested capital showed moderate fluctuations during the timeframe. Beginning at 44,409 million USD in 2017, it decreased slightly to 43,326 million USD in 2018. Subsequently, it increased to 47,580 million USD in 2019, followed by a reduction to 44,197 million USD in 2020. In 2021, invested capital rose again to 47,166 million USD. Overall, invested capital maintained a range between approximately 43 billion and 48 billion USD, with no significant upward or downward trend.
- Economic Spread Ratio
- The economic spread ratio exhibited a declining trend throughout the period, moving from positive values in earlier years to substantially negative figures later. It started at 2.1% in 2017 and decreased to 0.82% in 2018 and a similar level of 0.81% in 2019. The ratio then plummeted to -41.45% in 2020, coinciding with the large economic loss observed, before improving moderately to -5.58% in 2021. This trend indicates a significant deterioration in the company's return relative to its cost of capital, particularly during the pandemic year of 2020, with partial recovery afterward but still below breakeven.
Economic Profit Margin
Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Operating revenue | ||||||
Add: Increase (decrease) in loyalty program deferred revenue | ||||||
Adjusted operating revenue | ||||||
Performance Ratio | ||||||
Economic profit margin2 | ||||||
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
FedEx Corp. | ||||||
Uber Technologies Inc. | ||||||
Union Pacific Corp. | ||||||
United Airlines Holdings Inc. | ||||||
United Parcel Service Inc. |
Based on: 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), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted operating revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit showed a significant decline over the analyzed period. Starting from a positive value of 934 million US dollars at the end of 2017, it decreased sharply to 353 million in 2018 and slightly increased to 385 million in 2019. However, in 2020, a dramatic drop occurred, with economic profit turning negative to -18,319 million US dollars, reflecting substantial economic losses. In 2021, despite some improvement compared to 2020, the economic profit remained negative at -2,633 million US dollars.
- Adjusted Operating Revenue
- Adjusted operating revenue followed an upward trend from 2017 to 2019, rising from 41,436 million US dollars to 47,094 million US dollars. This growth was interrupted in 2020, where revenue sharply declined to 17,549 million US dollars, likely due to external adverse factors during that year. In 2021, a partial recovery was observed, with revenue increasing to 30,276 million US dollars, though still below the pre-2020 levels.
- Economic Profit Margin
- The economic profit margin percentage mirrored the trend observed in economic profit values. It started at a healthy level of 2.25% in 2017 but diminished significantly to 0.79% in 2018 and slightly increased to 0.82% in 2019. The margin experienced a drastic contraction in 2020, plummeting to -104.39%, indicating severe unprofitability relative to revenue. In 2021, the margin improved but remained negative at -8.7%, signifying ongoing challenges in achieving economic profitability.