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
Delta Air Lines Inc., economic profit calculation
US$ in millions
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
= 1,932 – 11.09% × 47,166 = -3,299
An analysis of the financial performance from 2017 to 2021 reveals a consistent trend of economic value destruction, as economic profit remained negative throughout the entire five-year period. While the company operated near a breakeven point in 2017, subsequent years showed a widening gap between operating returns and the cost of capital, culminating in a severe contraction in 2020 before a partial recovery in 2021.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited relative stability between 2017 and 2019, with values ranging from 6,032 million to 6,651 million US$. A catastrophic decline occurred in 2020, where NOPAT fell to -13,902 million US$. By 2021, a recovery to a positive 1,932 million US$ was observed, although this figure remains significantly below pre-2020 levels.
- Cost of Capital
- The cost of capital experienced a gradual increase from 14.53% in 2017 to a peak of 15.43% in 2019. This trend reversed sharply in 2020, dropping to 11.40%, and continued a slight downward trajectory to 11.09% by the end of 2021.
- Invested Capital
- Invested capital remained relatively stable, oscillating within a range of 43,326 million to 47,580 million US$. A peak was reached in 2019, followed by a contraction in 2020 and a subsequent increase to 47,166 million US$ in 2021, indicating that the capital base remained large despite extreme fluctuations in profitability.
- Economic Profit Trend
- Economic profit transitioned from a near-zero negative value of -7 million US$ in 2017 to -692 million US$ by 2019, indicating that the business was failing to cover its cost of capital even during stable periods. The loss expanded drastically to -18,941 million US$ in 2020, coinciding with the collapse of NOPAT. Although economic profit improved to -3,299 million US$ in 2021, the result remains negative, confirming that the company did not generate positive economic value added during the analyzed period.
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Net Operating Profit after Taxes (NOPAT)
Delta Air Lines Inc., NOPAT calculation
US$ in millions
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
= 7,759 × 3.81% = 296
6 2021 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 1,575 × 21.00% = 331
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
= 56 × 21.00% = 12
9 Elimination of after taxes investment income.
The financial performance between 2017 and 2021 is characterized by a period of relative stability and growth, followed by a severe systemic contraction and a subsequent initial recovery phase.
- Net Income Trends
- A consistent upward trajectory is observed from 2017 to 2019, with values increasing from 3,577 million to 4,767 million. This growth was abruptly reversed in 2020, resulting in a substantial loss of 12,385 million. By 2021, a return to positive territory was achieved, although the net income of 280 million remained significantly below pre-2020 levels.
- Net Operating Profit After Taxes (NOPAT) Analysis
- NOPAT exhibited stability between 2017 and 2019, fluctuating within a range of 6,032 million to 6,651 million. Similar to net income, NOPAT suffered a precipitous decline in 2020, reaching negative 13,902 million. The 2021 recovery to 1,932 million indicates a restoration of positive operating profitability, though it represents only a fraction of the 2019 peak.
- Comparative Operating Performance
- A persistent gap is observed between NOPAT and net income, with NOPAT consistently exceeding net income during profitable years. This divergence suggests that non-operating expenses, such as interest payments on debt, exert a continuous downward pressure on the final net profit. In 2021, the recovery of NOPAT was more robust than that of net income, signaling that core operational efficiency rebounded more quickly than the company's overall bottom line.
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Cash Operating Taxes
Delta Air Lines Inc., cash operating taxes calculation
US$ in millions
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).
The financial data exhibits a pronounced divergence between accrual-based income tax provisions and actual cash operating tax outflows over the five-year period ending December 31, 2021. This disparity is most evident during the 2020 fiscal year, where accounting benefits contrasted sharply with cash requirements.
- Income Tax Provision Trends
- A volatile pattern is observed in the income tax provision, which stood at 2,124 million in 2017 and declined to 1,216 million in 2018. Following a slight increase to 1,431 million in 2019, the provision transitioned into a substantial tax benefit of 3,202 million in 2020. By 2021, the provision returned to a positive but significantly lower value of 118 million.
- Cash Operating Tax Analysis
- Cash operating taxes demonstrate a distinct trajectory, beginning at 381 million in 2017 before shifting to a negative 38 million in 2018. A recovery phase is noted from 2019 onward, with values rising from 44 million in 2019 to 191 million in 2020, and further increasing to 323 million by 2021.
- Comparative Variance and EVA Implications
- A significant disconnect exists between the two metrics in 2020; while a massive non-cash tax benefit of 3,202 million was recognized in the income tax provision, the company recorded a positive cash outflow for operating taxes of 191 million. This indicates that the accounting tax benefits did not result in an immediate cash recovery, highlighting the importance of utilizing cash operating taxes rather than provision figures when calculating the Net Operating Profit After Tax (NOPAT) for Economic Value Added (EVA) purposes.
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Invested Capital
Delta Air Lines Inc., invested capital calculation (financing approach)
US$ in millions
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.
Invested capital exhibited relative stability over the five-year period, fluctuating between a low of 43,326 million USD in 2018 and a high of 47,580 million USD in 2019. Despite this overall stability in the total amount of capital deployed, the underlying composition of the capital base underwent a dramatic transformation, shifting from a balanced mix of debt and equity to a structure heavily reliant on leveraged financing starting in 2020.
- Debt and Lease Obligations
- Total reported debt and leases remained relatively contained between 2017 and 2019, ranging from 16,527 million USD to 21,021 million USD. A significant spike occurred in 2020, with debt increasing to 35,548 million USD, a growth of approximately 106% over the previous year. This level remained elevated through 2021, ending the period at 34,679 million USD.
- Stockholders' Equity Volatility
- Equity levels were stable from 2017 to 2019, peaking at 15,358 million USD. A severe contraction is observed in 2020, where equity plummeted to 1,534 million USD, representing a decline of nearly 90% from the 2019 peak. Although a partial recovery occurred in 2021, with equity rising to 3,887 million USD, the value remained substantially below pre-2020 levels.
- Capital Structure Shift
- The relationship between debt and equity inverted sharply between 2019 and 2020. While invested capital remained within a consistent range (approximately 43 billion to 47 billion USD), the financing mix changed from one where equity provided a significant buffer to one dominated by debt. By 2021, the reliance on debt and leases to sustain the invested capital base became the primary characteristic of the company's financial position.
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Cost of Capital
Delta Air Lines Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 27,088) | 27,088) | ÷ | 63,583) | = | 0.43 | 0.43 | × | 20.88% | = | 8.89% | ||
| Debt and finance leases3 | 28,736) | 28,736) | ÷ | 63,583) | = | 0.45 | 0.45 | × | 5.12% × (1 – 21.00%) | = | 1.83% | ||
| Operating lease liability4 | 7,759) | 7,759) | ÷ | 63,583) | = | 0.12 | 0.12 | × | 3.81% × (1 – 21.00%) | = | 0.37% | ||
| Total: | 63,583) | 1.00 | 11.09% | ||||||||||
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 | 27,625) | 27,625) | ÷ | 64,999) | = | 0.43 | 0.43 | × | 20.88% | = | 8.87% | ||
| Debt and finance leases3 | 30,983) | 30,983) | ÷ | 64,999) | = | 0.48 | 0.48 | × | 5.71% × (1 – 21.00%) | = | 2.15% | ||
| Operating lease liability4 | 6,391) | 6,391) | ÷ | 64,999) | = | 0.10 | 0.10 | × | 4.88% × (1 – 21.00%) | = | 0.38% | ||
| Total: | 64,999) | 1.00 | 11.40% | ||||||||||
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 | 37,849) | 37,849) | ÷ | 55,398) | = | 0.68 | 0.68 | × | 20.88% | = | 14.26% | ||
| Debt and finance leases3 | 11,454) | 11,454) | ÷ | 55,398) | = | 0.21 | 0.21 | × | 5.18% × (1 – 21.00%) | = | 0.85% | ||
| Operating lease liability4 | 6,095) | 6,095) | ÷ | 55,398) | = | 0.11 | 0.11 | × | 3.73% × (1 – 21.00%) | = | 0.32% | ||
| Total: | 55,398) | 1.00 | 15.43% | ||||||||||
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 | 34,681) | 34,681) | ÷ | 51,240) | = | 0.68 | 0.68 | × | 20.88% | = | 14.13% | ||
| Debt and finance leases3 | 9,803) | 9,803) | ÷ | 51,240) | = | 0.19 | 0.19 | × | 5.51% × (1 – 21.00%) | = | 0.83% | ||
| Operating lease liability4 | 6,756) | 6,756) | ÷ | 51,240) | = | 0.13 | 0.13 | × | 3.69% × (1 – 21.00%) | = | 0.38% | ||
| Total: | 51,240) | 1.00 | 15.35% | ||||||||||
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 | 37,792) | 37,792) | ÷ | 59,072) | = | 0.64 | 0.64 | × | 20.88% | = | 13.36% | ||
| Debt and finance leases3 | 9,094) | 9,094) | ÷ | 59,072) | = | 0.15 | 0.15 | × | 5.71% × (1 – 35.00%) | = | 0.57% | ||
| Operating lease liability4 | 12,187) | 12,187) | ÷ | 59,072) | = | 0.21 | 0.21 | × | 4.51% × (1 – 35.00%) | = | 0.60% | ||
| Total: | 59,072) | 1.00 | 14.53% | ||||||||||
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
Delta Air Lines Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (3,299) | (18,941) | (692) | (618) | (7) | |
| Invested capital2 | 47,166) | 44,197) | 47,580) | 43,326) | 44,409) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -6.99% | -42.86% | -1.45% | -1.43% | -0.02% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| FedEx Corp. | -3.58% | — | — | — | — | |
| Uber Technologies Inc. | -22.77% | — | — | — | — | |
| Union Pacific Corp. | -2.30% | — | — | — | — | |
| United Airlines Holdings Inc. | -10.24% | — | — | — | — | |
| United Parcel Service Inc. | 17.57% | — | — | — | — | |
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 × -3,299 ÷ 47,166 = -6.99%
4 Click competitor name to see calculations.
The financial data from 2017 to 2021 indicates a period of sustained negative economic value addition, characterized by a severe volatility peak in 2020 followed by a partial recovery. Throughout the five-year period, the company consistently failed to generate positive economic profit, signaling that the returns on invested capital remained below the required cost of capital.
- Economic Profit Trends
- Economic profit remained marginally negative in 2017 at -7 million USD but shifted to a more pronounced deficit of -618 million USD in 2018 and -692 million USD in 2019. A catastrophic decline occurred in 2020, where economic profit plummeted to -18,941 million USD. By 2021, a significant recovery was observed, with the deficit narrowing to -3,299 million USD, although the figure remained deeply negative.
- Invested Capital Stability
- Invested capital exhibited relative stability despite the extreme volatility in profitability. The capital base fluctuated within a narrow range, starting at 44,409 million USD in 2017, dipping slightly in 2018, and peaking at 47,580 million USD in 2019. The capital position ended the period at 47,166 million USD in 2021, indicating that the scale of operations and asset base remained largely constant regardless of the economic profit swings.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the trajectory of economic profit, reflecting the gap between the actual return on capital and the cost of capital. The ratio moved from a near-break-even position of -0.02% in 2017 to -1.43% and -1.45% in 2018 and 2019, respectively. The ratio reached a critical low of -42.86% in 2020, representing a massive destruction of shareholder value. The 2021 recovery to -6.99% shows a marked improvement, yet the negative percentage confirms that the cost of capital continued to exceed the returns generated.
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Economic Profit Margin
Delta Air Lines Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (3,299) | (18,941) | (692) | (618) | (7) | |
| Operating revenue | 29,899) | 17,095) | 47,007) | 44,438) | 41,244) | |
| Add: Increase (decrease) in loyalty program deferred revenue | 377) | 454) | 87) | 320) | 192) | |
| Adjusted operating revenue | 30,276) | 17,549) | 47,094) | 44,758) | 41,436) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -10.90% | -107.93% | -1.47% | -1.38% | -0.02% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| FedEx Corp. | -2.74% | — | — | — | — | |
| Uber Technologies Inc. | -20.97% | — | — | — | — | |
| Union Pacific Corp. | -6.15% | — | — | — | — | |
| United Airlines Holdings Inc. | -21.56% | — | — | — | — | |
| United Parcel Service Inc. | 8.02% | — | — | — | — | |
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 × -3,299 ÷ 30,276 = -10.90%
3 Click competitor name to see calculations.
The financial performance between 2017 and 2021 is characterized by a period of marginal economic loss, followed by a severe collapse in value and a subsequent partial recovery. Economic profit remained negative throughout the analyzed timeframe, indicating that the returns generated were consistently insufficient to cover the cost of capital.
- Economic Profit Trends
- Economic losses experienced a gradual increase from 2017 to 2019, moving from -7 million USD to -692 million USD. A catastrophic decline occurred in 2020, with economic profit falling to -18,941 million USD. By 2021, a significant recovery was observed as losses narrowed to -3,299 million USD, although the figure remained substantially lower than pre-2020 levels.
- Economic Profit Margin Analysis
- The economic profit margin remained relatively stable but negative from 2017 to 2019, shifting from -0.02% to -1.47%. In 2020, the margin plummeted to -107.93%, reflecting a period where the cost of capital vastly exceeded the operating revenue. The margin improved to -10.90% in 2021, confirming a trend toward stabilization, despite the continued destruction of economic value.
- Revenue and Value Correlation
- Adjusted operating revenue grew steadily from 41,436 million USD in 2017 to a peak of 47,094 million USD in 2019; however, this growth did not result in positive economic profit, as the margin continued to deteriorate during this period. The sharp revenue contraction to 17,549 million USD in 2020 acted as the primary driver for the extreme spike in economic losses. The 2021 recovery in revenue to 30,276 million USD contributed directly to the contraction of the economic profit margin.
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