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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

Delta Air Lines Inc., 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 Delta Air Lines Inc. 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. Delta Air Lines Inc.'s economic profit declined from 2015 to 2016 and from 2016 to 2017.

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Net Operating Profit after Taxes (NOPAT)

Delta Air Lines Inc., 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
Deferred income tax expense (benefit)1
Increase (decrease) in allowance for uncollectible accounts2
Increase (decrease) in frequent flyer deferred revenue3
Increase (decrease) in restructuring liability4
Increase (decrease) in equity equivalents5
Interest expense, net
Interest expense, operating lease obligations6
Adjusted interest expense, net
Tax benefit of interest expense, net7
Adjusted interest expense, net, after taxes8
(Gain) loss on marketable securities
Investment income, before taxes
Tax expense (benefit) of investment income9
Investment income, after taxes10
Net operating profit after taxes (NOPAT)

Source: Based on data from Delta Air Lines Inc. Annual Reports

2017 Calculations

1 Elimination of deferred tax expense. See Details »

2 Addition of increase (decrease) in allowance for uncollectible accounts.

3 Addition of increase (decrease) in frequent flyer deferred revenue.

4 Addition of increase (decrease) in restructuring liability.

5 Addition of increase (decrease) in equity equivalents to net income.

6 Addition of interest expense on capitalized operating leases. See Details »

7 Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 35% =

8 Addition of after taxes interest expense to net income.

9 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =

10 Elimination of after taxes investment income.

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. Delta Air Lines Inc.'s NOPAT declined from 2015 to 2016 and from 2016 to 2017.

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Cash Operating Taxes

Delta Air Lines Inc., 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 expense, net
Less: Tax imposed on investment income
Cash operating taxes

Source: Based on data from Delta Air Lines Inc. 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. Delta Air Lines Inc.'s cash operating taxes declined from 2015 to 2016 and from 2016 to 2017.

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Invested Capital

Delta Air Lines Inc., invested capital calculation (financing approach)

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current maturities of long-term debt and capital leases
Long-term debt and capital leases, excluding current maturities
PV of operating lease payments1
Total reported debt & leases
Stockholders' equity
Net deferred tax (assets) liabilities2
Allowance for uncollectible accounts3
Frequent flyer deferred revenue4
Restructuring liability5
Equity equivalents6
Accumulated other comprehensive (income) loss, net of tax7
Adjusted stockholders' equity
Investments8
Invested capital

Source: Based on data from Delta Air Lines Inc. 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 frequent flyer deferred revenue.

5 Addition of restructuring liability.

6 Addition of equity equivalents to stockholders' equity.

7 Removal of accumulated other comprehensive income.

8 Subtraction of investments.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Delta Air Lines Inc.'s invested capital increased from 2015 to 2016 and from 2016 to 2017.

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Cost of Capital

Delta Air Lines Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital leases3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Delta Air Lines Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt and capital leases. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital leases3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Delta Air Lines Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt and capital leases. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital leases3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Delta Air Lines Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt and capital leases. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital leases3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Delta Air Lines Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt and capital leases. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt and capital leases3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Delta Air Lines Inc. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt and capital leases. See Details »

4 PV of operating lease payments. See Details »

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Economic Spread

Delta Air Lines Inc., 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 Delta Air Lines Inc. 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. Delta Air Lines Inc.'s economic spread deteriorated from 2015 to 2016 and from 2016 to 2017.

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Economic Profit Margin

Delta Air Lines Inc., 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
Operating revenue
Increase (decrease) in frequent flyer deferred revenue
Ratio
Economic profit margin2 % % % % %

Source: Based on data from Delta Air Lines Inc. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ (Operating revenue + Change in frequent flyer 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. Delta Air Lines Inc.'s economic profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

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