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 – 30.40% × 19,717 = 1,453
The period between 2018 and 2022 is characterized by a prolonged phase of value destruction followed by a significant recovery in 2022. For the majority of the observed timeframe, economic profit remained negative, indicating that the operating returns were insufficient to cover the cost of the capital employed. A pivotal shift occurred in the final year, where the company transitioned from destroying shareholder value to creating it.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme volatility, falling from 1,250 million in 2018 to a deficit of 2,522 million in 2020. A sharp recovery followed, with NOPAT rising to 3,160 million in 2021 and expanding further to 7,447 million by 2022, representing a substantial increase in operating efficiency and profitability.
- Cost of Capital
- The cost of capital remained high and showed a general upward trend from 2019 onwards. After a dip to 22.99% in 2019, the rate climbed steadily to reach 30.40% in 2022. This rising cost increased the hurdle rate that the company needed to overcome to generate positive economic profit.
- Invested Capital
- Invested capital underwent a period of contraction between 2018 and 2020, decreasing from 15,392 million to 7,866 million. This was followed by a rapid expansion phase, with invested capital surging to 16,727 million in 2021 and reaching 19,717 million in 2022, suggesting significant capital reinvestment during the recovery period.
- Economic Profit
- Economic profit remained negative from 2018 through 2021, reaching a trough of -4,606 million in 2020. Although NOPAT improved in 2021, the economic profit remained negative at -1,756 million due to the coinciding increase in both invested capital and the cost of capital. Value creation was finally realized in 2022, with economic profit turning positive at 1,453 million.
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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.
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 $7,447 million, indicating improved operational management and a return to profitability with even greater margins than initially observed.
- Trend Summary
- The period from 2018 to 2020 is characterized by a significant downturn in both net earnings and NOPAT, reflecting operational or market challenges.
- The years 2021 and 2022 mark a strong recovery, culminating in the highest profitability levels within the dataset.
- The recovery phase shows not only a restoration to prior earnings levels but also an enhancement, suggesting enhanced operational performance and/or favorable market conditions.
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Cash Operating Taxes
Devon Energy Corp., cash operating taxes calculation
US$ 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 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 $629 million in 2022. This variability and the marked increase in 2022 align with the trend in income tax expense, pointing towards a considerable increase in tax payments in the latest year after periods of tax benefits in prior years.
Overall, both measures demonstrate considerable instability, with the most notable changes occurring in 2020, when large tax benefits were recorded, and in 2022, when there was a substantial increase in tax expenses and cash taxes paid. These fluctuations may reflect changing profitability, tax strategies, or external factors affecting taxation.
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Invested Capital
Devon Energy Corp., invested capital calculation (financing approach)
US$ 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.
- 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.
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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 | × | 34.90% | = | 29.73% | ||
| 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 | 30.40% | ||||||||||
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 | × | 34.90% | = | 28.57% | ||
| 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 | 29.39% | ||||||||||
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 | × | 34.90% | = | 25.21% | ||
| 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 | 26.49% | ||||||||||
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 | × | 34.90% | = | 21.18% | ||
| 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 | 22.99% | ||||||||||
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 | × | 34.90% | = | 23.66% | ||
| 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 | 25.02% | ||||||||||
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 | 1,453) | (1,756) | (4,606) | (2,464) | (2,601) | |
| Invested capital2 | 19,717) | 16,727) | 7,866) | 10,964) | 15,392) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 7.37% | -10.50% | -58.55% | -22.48% | -16.90% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | 6.88% | -2.25% | — | — | — | |
| ConocoPhillips | 19.52% | 5.20% | — | — | — | |
| Exxon Mobil Corp. | 12.06% | 3.42% | — | — | — | |
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 × 1,453 ÷ 19,717 = 7.37%
4 Click competitor name to see calculations.
An analysis of the financial performance between 2018 and 2022 reveals a transition from sustained value destruction to value creation. For four consecutive years, the company operated with negative economic profit, indicating that returns were insufficient to cover the cost of invested capital, before achieving a positive turnaround in the final year of the period.
- Economic Profit
- A persistent negative trend is observed from 2018 to 2021, with the most significant deficit occurring in 2020 at -4,606 million US dollars. However, a sharp recovery followed, culminating in a shift to a positive economic profit of 1,453 million US dollars by December 31, 2022.
- Invested Capital
- Invested capital underwent a period of contraction between 2018 and 2020, declining from 15,392 million US dollars to a low of 7,866 million US dollars. This was followed by a substantial increase in capital deployment, with values rising to 16,727 million US dollars in 2021 and further increasing to 19,717 million US dollars in 2022.
- Economic Spread Ratio
- The economic spread ratio shows extreme volatility, mirroring the fluctuations in economic profit. The ratio deteriorated from -16.90% in 2018 to a peak deficit of -58.55% in 2020. A strong corrective trend is observed thereafter, with the ratio improving to -10.50% in 2021 and finally reaching a positive threshold of 7.37% in 2022, signaling that the return on capital finally exceeded the 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 | 1,453) | (1,756) | (4,606) | (2,464) | (2,601) | |
| Revenues | 19,169) | 12,206) | 4,828) | 6,220) | 10,734) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 7.58% | -14.39% | -95.40% | -39.62% | -24.23% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | 6.19% | -2.80% | — | — | — | |
| ConocoPhillips | 18.78% | 8.66% | — | — | — | |
| Exxon Mobil Corp. | 8.99% | 3.37% | — | — | — | |
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 × 1,453 ÷ 19,169 = 7.58%
3 Click competitor name to see calculations.
The financial trajectory between 2018 and 2022 is characterized by a period of sustained economic value destruction followed by a significant recovery and a transition to value creation. The period was marked by extreme volatility in both revenue generation and the ability to exceed the cost of capital.
- Economic Profit Trends
- Negative economic profit was sustained from 2018 through 2021, indicating that the company did not generate sufficient returns to cover its cost of capital during this interval. The deficit peaked in 2020 at -4,606 million USD. A reversal of this trend occurred in 2022, where economic profit turned positive, reaching 1,453 million USD.
- Revenue Volatility
- Revenues experienced a sharp decline from 10,734 million USD in 2018 to a minimum of 4,828 million USD in 2020. This contraction was followed by a rapid acceleration in top-line growth, with revenues climbing to 12,206 million USD in 2021 and further expanding to 19,169 million USD by the end of 2022.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of both revenue and absolute economic profit. The margin deteriorated from -24.23% in 2018 to a critical low of -95.40% in 2020, a result of the simultaneous collapse in revenue and the widening of economic losses. A strong recovery phase followed, with the margin improving to -14.39% in 2021 and finally achieving a positive value of 7.58% in 2022, signaling that the company began generating a surplus over its cost of capital relative to its sales.
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