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
Devon Energy Corp., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 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).
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
= 7,447 – 30.17% × 19,717 = 1,498
The financial trajectory from 2018 to 2022 reflects a period of significant volatility, characterized by a transition from persistent value destruction to the generation of positive economic profit. For the majority of the analyzed period, the company failed to generate returns exceeding its cost of capital, though a substantial recovery occurred in the final two years.
- Net Operating Profit After Taxes (NOPAT)
- A highly volatile trend is observed in NOPAT, which plummeted from 1,250 million USD in 2018 to a deficit of 2,522 million USD by 2020. This decline represents a period of severe operational distress. However, a rapid reversal followed, with NOPAT climbing to 3,160 million USD in 2021 and reaching a peak of 7,447 million USD in 2022, indicating a strong recovery in operational profitability.
- Cost of Capital and Invested Capital
- The cost of capital exhibited a general upward trend, rising from 24.83% in 2018 to 30.17% by 2022, which increased the threshold required to achieve positive economic profit. Simultaneously, invested capital followed a U-shaped pattern; it decreased from 15,392 million USD in 2018 to a low of 7,866 million USD in 2020, before expanding sharply to 19,717 million USD by 2022. This suggests a period of capital contraction followed by aggressive reinvestment or acquisition.
- Economic Profit Performance
- Economic profit remained negative from 2018 through 2021, reaching its lowest point in 2020 at -4,590 million USD. This indicates that the operating returns were insufficient to cover the cost of the capital employed during those years. A critical inflection point was reached in 2022, when economic profit shifted to a positive 1,498 million USD. This pivot was driven by the substantial increase in NOPAT, which finally overcame the combined pressure of a rising cost of capital and a larger base of invested capital.
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Net Operating Profit after Taxes (NOPAT)
Devon Energy Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in restructuring liabilities.
4 Addition of increase (decrease) in equity equivalents to net earnings (loss) attributable to Devon.
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 21 × 2.80% = 1
6 2022 Calculation
Tax benefit of interest based on debt outstanding = Adjusted interest based on debt outstanding × Statutory income tax rate
= 371 × 21.00% = 78
7 Addition of after taxes interest expense to net earnings (loss) attributable to Devon.
8 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 38 × 21.00% = 8
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
A period of extreme volatility is observed in the financial performance between 2018 and 2022, characterized by a significant contraction in both net earnings and net operating profit after taxes (NOPAT) followed by a robust recovery. The trajectory reflects a deep trough in 2020, with a subsequent aggressive upward trend peaking in 2022.
- Net Earnings Trend
- Net earnings exhibited a sharp decline from 3,064 million USD in 2018 to a net loss of 355 million USD in 2019, which further deteriorated to a peak loss of 2,680 million USD in 2020. A strong reversal occurred in 2021, with earnings returning to 2,813 million USD, and continuing to rise sharply to 6,015 million USD by the end of 2022.
- NOPAT Performance
- The net operating profit after taxes followed a similar cyclical pattern but demonstrated greater volatility. After starting at 1,250 million USD in 2018, NOPAT fell to 57 million USD in 2019 and reached a deficit of 2,522 million USD in 2020. The recovery phase was marked by an exponential increase, reaching 3,160 million USD in 2021 and climbing to 7,447 million USD in 2022.
- Comparative Analysis and Divergence
- While both metrics moved in tandem, a notable divergence emerged during the recovery period. In 2022, NOPAT significantly exceeded net earnings by approximately 1,432 million USD. This indicates that core operating profitability outperformed the bottom-line net income, suggesting that non-operating expenses, such as interest payments or other non-core costs, reduced the final earnings attributable to the company.
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Cash Operating Taxes
Devon Energy Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 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).
The financial data indicates a period of significant volatility in tax-related obligations from 2018 to 2022, characterized by a transition from tax benefits to substantial tax expenses. A marked increase in both income tax expense and cash operating taxes is evident by the end of the period, reflecting a sharp shift in the fiscal position.
- Income Tax Expense Trends
- Income tax expenses fluctuated between 2018 and 2020, shifting from an expense of 156 million US$ in 2018 to a significant tax benefit of 547 million US$ in 2020. This trend reversed in 2021 with a return to an expense of 65 million US$, followed by a substantial increase to 1,738 million US$ in 2022, the highest value recorded in the observed period.
- Cash Operating Taxes Analysis
- Cash operating taxes exhibited a similar pattern of volatility. After a nominal refund of 4 million US$ in 2018 and a payment of 43 million US$ in 2019, a cash tax benefit of 167 million US$ was realized in 2020. Payments subsequently increased to 97 million US$ in 2021 and escalated sharply to 629 million US$ by 2022.
- Correlation between Accrual and Cash Taxes
- A strong positive correlation is observed between income tax expense and cash operating taxes. Both metrics experienced a synchronized decline into negative territory during 2020 and a simultaneous surge in 2022. The variance between the two figures remained notable, particularly in 2022, where income tax expense exceeded cash operating taxes by over 1.1 billion US$, suggesting a significant difference between accrual-based tax accounting and actual cash outflows.
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Invested Capital
Devon Energy Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 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).
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 restructuring liabilities.
5 Addition of equity equivalents to stockholders’ equity attributable to Devon.
6 Removal of accumulated other comprehensive income.
The capital structure of Devon Energy Corp. experienced significant volatility between 2018 and 2022, characterized by a sharp contraction in the first three years followed by a robust recovery. Invested capital reached a minimum in 2020 before expanding to its period peak by the end of 2022, indicating a substantial shift in the company's financial positioning.
- Invested Capital Trends
- Invested capital declined from US$ 15,392 million in 2018 to a low of US$ 7,866 million in 2020, representing a reduction of approximately 49%. This downward trend was sharply reversed in 2021, with capital increasing to US$ 16,727 million, and continuing upward to US$ 19,717 million by December 31, 2022. The final value represents a 28% increase over the 2018 baseline.
- Stockholders' Equity Dynamics
- Equity demonstrated the highest level of volatility among the analyzed components. A steep decline is observed from US$ 9,186 million in 2018 to US$ 2,885 million in 2020. This was followed by a rapid recovery in 2021, where equity surged to US$ 9,262 million, eventually reaching US$ 11,167 million in 2022. The recovery in equity served as the primary driver for the overall increase in invested capital during the latter part of the period.
- Debt and Lease Obligations
- Total reported debt and leases decreased from US$ 6,285 million in 2018 to a stabilized level of approximately US$ 4,550 million across 2019 and 2020. A notable increase occurred in 2021, with obligations rising to US$ 6,760 million, and remaining relatively flat at US$ 6,718 million in 2022. While debt increased in the final two years, the magnitude of change was less pronounced than the fluctuations observed in stockholders' equity.
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Cost of Capital
Devon Energy Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 37,428) | 37,428) | ÷ | 43,937) | = | 0.85 | 0.85 | × | 34.63% | = | 29.50% | ||
| Debt and finance lease liabilities3 | 6,488) | 6,488) | ÷ | 43,937) | = | 0.15 | 0.15 | × | 5.75% × (1 – 21.00%) | = | 0.67% | ||
| Operating lease liability4 | 21) | 21) | ÷ | 43,937) | = | 0.00 | 0.00 | × | 2.80% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 43,937) | 1.00 | 30.17% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 35,767) | 35,767) | ÷ | 43,689) | = | 0.82 | 0.82 | × | 34.63% | = | 28.35% | ||
| Debt and finance lease liabilities3 | 7,899) | 7,899) | ÷ | 43,689) | = | 0.18 | 0.18 | × | 5.74% × (1 – 21.00%) | = | 0.82% | ||
| Operating lease liability4 | 23) | 23) | ÷ | 43,689) | = | 0.00 | 0.00 | × | 1.30% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 43,689) | 1.00 | 29.17% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 14,626) | 14,626) | ÷ | 20,246) | = | 0.72 | 0.72 | × | 34.63% | = | 25.02% | ||
| Debt and finance lease liabilities3 | 5,617) | 5,617) | ÷ | 20,246) | = | 0.28 | 0.28 | × | 5.85% × (1 – 21.00%) | = | 1.28% | ||
| Operating lease liability4 | 3) | 3) | ÷ | 20,246) | = | 0.00 | 0.00 | × | 2.90% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 20,246) | 1.00 | 26.30% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 8,699) | 8,699) | ÷ | 14,336) | = | 0.61 | 0.61 | × | 34.63% | = | 21.01% | ||
| Debt and finance lease liabilities3 | 5,623) | 5,623) | ÷ | 14,336) | = | 0.39 | 0.39 | × | 5.85% × (1 – 21.00%) | = | 1.81% | ||
| Operating lease liability4 | 14) | 14) | ÷ | 14,336) | = | 0.00 | 0.00 | × | 3.20% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 14,336) | 1.00 | 22.83% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,267) | 13,267) | ÷ | 19,571) | = | 0.68 | 0.68 | × | 34.63% | = | 23.47% | ||
| Debt and finance lease liabilities3 | 5,965) | 5,965) | ÷ | 19,571) | = | 0.30 | 0.30 | × | 5.34% × (1 – 21.00%) | = | 1.29% | ||
| Operating lease liability4 | 338) | 338) | ÷ | 19,571) | = | 0.02 | 0.02 | × | 5.34% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 19,571) | 1.00 | 24.83% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Devon Energy Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 1,498) | (1,719) | (4,590) | (2,446) | (2,573) | |
| Invested capital2 | 19,717) | 16,727) | 7,866) | 10,964) | 15,392) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 7.60% | -10.28% | -58.36% | -22.31% | -16.71% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | 6.72% | -2.40% | — | — | — | |
| ConocoPhillips | 19.29% | 4.98% | — | — | — | |
| ExxonMobil Holdings Corp. | 11.83% | 3.21% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,498 ÷ 19,717 = 7.60%
4 Click competitor name to see calculations.
The financial trajectory from 2018 to 2022 reflects a significant transition from consistent value destruction to positive economic value addition. A period of substantial volatility is evident, characterized by a critical decline in performance during 2020, followed by a robust recovery and a transition to positive economic profitability by the end of the analyzed period.
- Economic Profit Trends
- Economic profit remained negative from 2018 through 2021, indicating that the return on capital was insufficient to cover the cost of capital. The deficit deepened significantly in 2020, reaching a low of negative 4,590 million US dollars. However, a sharp reversal occurred in 2022, where economic profit shifted to a positive 1,498 million US dollars, marking the first instance of economic value creation within the five-year window.
- Invested Capital Dynamics
- Invested capital exhibited a V-shaped trend, decreasing from 15,392 million US dollars in 2018 to a minimum of 7,866 million US dollars in 2020. This contraction was followed by a period of aggressive capital expansion, with invested capital rising to 16,727 million US dollars in 2021 and further increasing to 19,717 million US dollars by December 31, 2022.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility of economic profit, showing a severe contraction in 2020 to negative 58.36%, which represents the point of maximum value erosion. The subsequent recovery in 2021 to negative 10.28% and the eventual shift to a positive 7.60% in 2022 demonstrate a substantial improvement in the efficiency of capital utilization and a successful return to generating returns above the required cost of capital.
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Economic Profit Margin
Devon Energy Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 1,498) | (1,719) | (4,590) | (2,446) | (2,573) | |
| Revenues | 19,169) | 12,206) | 4,828) | 6,220) | 10,734) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 7.82% | -14.08% | -95.08% | -39.33% | -23.97% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | 6.05% | -2.98% | — | — | — | |
| ConocoPhillips | 18.56% | 8.30% | — | — | — | |
| ExxonMobil Holdings Corp. | 8.82% | 3.16% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × 1,498 ÷ 19,169 = 7.82%
3 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a period of significant volatility followed by a substantial recovery. Economic profit remained negative for four consecutive years, reaching a trough in 2020 before transitioning to a positive value in 2022, signaling a shift from value destruction to value creation.
- Revenue Trends
- A sharp contraction in revenues was observed from 2018 to 2020, with values declining from 10,734 million US$ to 4,828 million US$. This downward trajectory was reversed starting in 2021, with revenues surging to 12,206 million US$ and further increasing to 19,169 million US$ by 2022, representing a robust recovery in top-line growth.
- Economic Profit Analysis
- Economic profit exhibited a volatile trend, deepening from -2,573 million US$ in 2018 to a low of -4,590 million US$ in 2020. A recovery phase began in 2021, where losses narrowed to -1,719 million US$, culminating in a positive economic profit of 1,498 million US$ in 2022. This indicates that by the end of the period, the company's net operating profit after tax exceeded its cost of capital.
- Economic Profit Margin Performance
- The economic profit margin mirrored the volatility of the overall financial results. The margin deteriorated from -23.97% in 2018 to a critical low of -95.08% in 2020, coinciding with the lowest revenue point. A significant recovery is evident in 2021 as the margin improved to -14.08%, eventually turning positive at 7.82% in 2022. This progression demonstrates an increasing efficiency in generating returns relative to the capital employed.
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