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.
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Devon Energy Corp. pages available for free this week:
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Aggregate Accruals
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Economic Profit
Devon Energy Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The financial performance between 2018 and 2022 is characterized by a significant transition from prolonged value destruction to value creation. For the majority of the analyzed period, the entity failed to generate returns exceeding its cost of capital, resulting in negative economic profit. However, a decisive reversal occurred in 2022, marking the first instance of positive economic profit within the five-year window.
- Net Operating Profit After Taxes (NOPAT)
- A period of extreme volatility is evident in NOPAT. After a sharp decline from 1,250 million US$ in 2018 to 57 million US$ in 2019, the metric reached a nadir in 2020 with a loss of 2,522 million US$. This was followed by a rapid recovery, with NOPAT climbing to 3,160 million US$ in 2021 and peaking at 7,447 million US$ in 2022, indicating a substantial improvement in operational efficiency and market conditions.
- Invested Capital
- Invested capital followed a U-shaped trajectory. A contraction phase occurred between 2018 and 2020, where capital decreased from 15,392 million US$ to 7,866 million US$. This reduction was followed by an aggressive expansion phase, with invested capital surging to 16,727 million US$ in 2021 and reaching 19,717 million US$ by the end of 2022.
- Cost of Capital
- The cost of capital exhibited a general upward trend following a slight dip in 2019. Starting at 24.98% in 2018, the rate rose consistently to reach 30.36% in 2022. This increasing trend reflects a higher hurdle rate that the company had to overcome to achieve a positive economic profit.
- Economic Profit
- Economic profit remained negative from 2018 through 2021, with the most significant value erosion occurring in 2020 at -4,603 million US$. Despite the rising cost of capital and the expansion of the capital base, the explosive growth in NOPAT eventually offset the capital charges. By 2022, economic profit shifted to a positive 1,461 million US$, signaling that the company began generating returns in excess of its weighted average cost of capital.
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
= × =
6 2022 Calculation
Tax benefit of interest based on debt outstanding = Adjusted interest based on debt outstanding × Statutory income tax rate
= × 21.00% =
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
= × 21.00% =
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
The financial performance over the observed periods demonstrates significant volatility in net earnings attributable to Devon. Starting with a robust net earnings figure of $3,064 million at the end of 2018, the company experienced a notable decline into negative territory in 2019 and 2020, with losses reaching $355 million and $2,680 million, respectively. This indicates a period of financial distress or unfavorable operational conditions during these years. However, there is a strong recovery commencing in 2021, with net earnings rebounding to $2,813 million, and further strengthening in 2022 to $6,015 million, which surpasses the pre-decline level.
Net operating profit after taxes (NOPAT) follows a similar pattern, confirming trends in operational efficiency and profitability. In 2018, NOPAT was $1,250 million, followed by a sharp decline in 2019 to $57 million, and a substantial loss of $2,522 million in 2020. The turnaround is evident in 2021, with NOPAT increasing to $3,160 million and continuing growth in 2022 to $7,447 million, indicating improved operational management and a return to profitability with even greater margins than initially observed.
- Trend Summary
- The period from 2018 to 2020 is characterized by a significant downturn in both net earnings and NOPAT, reflecting operational or market challenges.
- The years 2021 and 2022 mark a strong recovery, culminating in the highest profitability levels within the dataset.
- The recovery phase shows not only a restoration to prior earnings levels but also an enhancement, suggesting enhanced operational performance and/or favorable market conditions.
Cash Operating Taxes
Devon Energy Corp., cash operating taxes calculation
US$ 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 analysis of the data over the period from 2018 to 2022 reveals notable volatility in both income tax expense (benefit) and cash operating taxes.
- Income Tax Expense (Benefit)
- There is a significant fluctuation observed across the years. Starting at an expense of $156 million in 2018, the figure turned to a tax benefit of $30 million in 2019, and this benefit further increased substantially to $547 million in 2020. However, in 2021, the amount reverted to a tax expense of $65 million, followed by a sharp rise to $1738 million in 2022. The pattern indicates a high degree of variability with a strong upward spike in the latest year, suggesting considerable changes in taxable income, tax planning, or adjustments in tax legislation or assessments.
- Cash Operating Taxes
- Cash operating taxes also exhibit considerable variability. Beginning with a negative value of $4 million in 2018, which can indicate a tax refund or credit, the amount increased to $43 million in 2019. Then, a substantial negative amount of $167 million is reported in 2020, again implying a possible tax benefit or refund. The figure shifted to a positive $97 million in 2021 and rose sharply to $629 million in 2022. This variability and the marked increase in 2022 align with the trend in income tax expense, pointing towards a considerable increase in tax payments in the latest year after periods of tax benefits in prior years.
Overall, both measures demonstrate considerable instability, with the most notable changes occurring in 2020, when large tax benefits were recorded, and in 2022, when there was a substantial increase in tax expenses and cash taxes paid. These fluctuations may reflect changing profitability, tax strategies, or external factors affecting taxation.
Invested Capital
Devon Energy Corp., invested capital calculation (financing approach)
US$ 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.
- Total Reported Debt & Leases
- The total reported debt and leases decreased significantly from 6,285 million USD at the end of 2018 to 4,555 million USD in 2019, remaining relatively stable into 2020 at 4,553 million USD. However, in 2021, this figure rose markedly to 6,760 million USD and then showed a slight decrease to 6,718 million USD in 2022. This indicates a period of debt reduction followed by an increase, suggesting a possible strategic increase in leverage or financing activities starting in 2021.
- Stockholders’ Equity Attributable to Devon
- Stockholders’ equity attributable to the company exhibited a downward trend from 9,186 million USD at the end of 2018 to a low of 2,885 million USD in 2020. This was followed by a strong recovery in the subsequent years, with equity rising to 9,262 million USD in 2021 and further increasing to 11,167 million USD by the end of 2022. This pattern reflects significant fluctuations in the company’s net worth over the period, with a notable rebound post-2020.
- Invested Capital
- Invested capital decreased from 15,392 million USD at the end of 2018 down to 7,866 million USD in 2020, mirroring the declines seen in debt and equity during this period. From 2021 onwards, invested capital experienced substantial growth, rising sharply to 16,727 million USD and then continuing upward to 19,717 million USD in 2022. This trend suggests an expansion in the company’s asset base and funding sources during the last two years examined.
Cost of Capital
Devon Energy Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (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 lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (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 lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (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 lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (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 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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a transition from sustained value destruction to value creation. The period is marked by a significant downturn in 2020, followed by a robust recovery in both absolute economic profit and the efficiency of capital utilization by the end of 2022.
- Economic Profit Trends
- Economic profit remained negative for four consecutive years, reaching a trough of -4,603 million USD in 2020. A recovery phase began in 2021, culminating in a shift to a positive economic profit of 1,461 million USD in 2022, signaling that the entity began generating returns in excess of its cost of capital.
- Invested Capital Dynamics
- A U-shaped trend is observed in invested capital. There was a consistent decline from 15,392 million USD in 2018 to a minimum of 7,866 million USD in 2020. This was followed by a period of aggressive capital expansion, with the balance increasing to 16,727 million USD in 2021 and reaching 19,717 million USD by 2022.
- Economic Spread Ratio Analysis
- The economic spread ratio exhibits extreme volatility, declining from -16.86% in 2018 to a severe low of -58.52% in 2020. This indicates a period where the return on invested capital fell substantially below the required rate of return. However, a rapid correction occurred, with the ratio improving to -10.46% in 2021 and achieving a positive 7.41% in 2022, confirming the restoration of economic value added.
The correlation between the increase in invested capital and the reversal of the economic spread ratio suggests that the capital infusions in 2021 and 2022 were successfully deployed to generate returns that outperformed the cost of capital, effectively reversing the trend of economic loss seen in previous years.
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 | ||||||
| Revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by a period of significant value erosion followed by a sharp recovery and a transition to positive economic value creation. A consistent trend of negative economic profit was observed between 2018 and 2021, reaching a peak deficit in 2020 before reversing in 2022.
- Economic Profit Trends
- Economic profit remained negative for four consecutive years, with losses starting at 2,596 million USD in 2018 and deepening to a maximum loss of 4,603 million USD in 2020. A recovery phase began in 2021 as losses narrowed to 1,749 million USD, culminating in a shift to a positive economic profit of 1,461 million USD by the end of 2022. This indicates that the company began generating returns in excess of its cost of capital only in the final year of the period analyzed.
- Revenue Correlation
- A strong correlation is observed between revenue fluctuations and economic profit. Revenues declined steadily from 10,734 million USD in 2018 to a low of 4,828 million USD in 2020, coinciding with the period of maximum economic loss. Subsequently, a rapid increase in revenues to 12,206 million USD in 2021 and 19,169 million USD in 2022 provided the necessary scale to offset the cost of capital and achieve positive economic profit.
- Economic Profit Margin Analysis
- The economic profit margin exhibited extreme volatility, reflecting the instability of value creation during this period. The margin deteriorated from -24.18% in 2018 to a critical low of -95.34% in 2020, suggesting that nearly all operating gains were absorbed by the cost of capital during that year. The subsequent recovery saw the margin improve to -14.33% in 2021 and finally reach a positive 7.62% in 2022, marking a fundamental shift in the company's ability to generate economic value relative to its revenue stream.