Microsoft Excel LibreOffice Calc

DuPont de Nemours Inc. (DD)

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

DuPont de Nemours Inc., economic profit calculation

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net operating profit after taxes (NOPAT)1 4,932  2,498  3,846  8,206  4,467 
Cost of capital2 12.56% 13.46% 12.70% 12.24% 12.06%
Invested capital3 153,164  149,192  50,610  46,288  45,600 
Economic profit4 (14,302) (17,584) (2,583) 2,542  (1,033)

Based on: 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 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
= 4,932 – 12.56% × 153,164 = -14,302

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. DuPont de Nemours Inc.’s economic profit declined from 2016 to 2017 but then slightly increased from 2017 to 2018.

Net Operating Profit after Taxes (NOPAT)

DuPont de Nemours Inc., NOPAT calculation

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income attributable to DuPont 3,844  1,460  4,318  7,685  3,772 
Deferred income tax expense (benefit)1 (434) (2,166) (1,259) 305  466 
Increase (decrease) in allowance for doubtful receivables2 64  17  16  (16) (38)
Increase (decrease) in LIFO reserve3 118  (269) 45  (561) (285)
Increase (decrease) in deferred revenue4 (41) 2,332  —  —  — 
Increase (decrease) in restructuring reserve5 96  307  128  108  (132)
Increase (decrease) in equity equivalents6 (197) 221  (1,070) (164) 11 
Interest expense and amortization of debt discount 1,504  1,082  858  946  983 
Interest expense, operating lease liability7 121  110  92  110  109 
Adjusted interest expense and amortization of debt discount 1,625  1,192  950  1,056  1,092 
Tax benefit of interest expense and amortization of debt discount8 (341) (417) (333) (370) (382)
Adjusted interest expense and amortization of debt discount, after taxes9 1,283  775  618  687  710 
(Gain) loss on marketable securities 9  (110) (56) (82) (93)
Interest income (210) (147) (107) (71) (51)
Investment income, before taxes (201) (257) (163) (153) (144)
Tax expense (benefit) of investment income10 42  90  57  54  50 
Investment income, after taxes11 (159) (167) (106) (99) (94)
(Income) loss from discontinued operations, net of tax12 5  77  —  —  — 
Net income (loss) attributable to noncontrolling interest 155  132  86  98  67 
Net operating profit after taxes (NOPAT) 4,932  2,498  3,846  8,206  4,467 

Based on: 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Elimination of deferred tax expense. See Details »

2 Addition of increase (decrease) in allowance for doubtful receivables.

3 Addition of increase (decrease) in LIFO reserve. See Details »

4 Addition of increase (decrease) in deferred revenue.

5 Addition of increase (decrease) in restructuring reserve.

6 Addition of increase (decrease) in equity equivalents to net income attributable to DuPont.

7 Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,777 × 4.34% = 121

8 Tax benefit of interest expense and amortization of debt discount = Adjusted interest expense and amortization of debt discount × Statutory income tax rate
= 1,625 × 21.00% = 341

9 Addition of after taxes interest expense to net income attributable to DuPont.

10 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 201 × 21.00% = 42

11 Elimination of after taxes investment income.

12 Elimination of discontinued operations.

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. DuPont de Nemours Inc.’s NOPAT declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Cash Operating Taxes

DuPont de Nemours Inc., cash operating taxes calculation

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Provision (credit) for income taxes on continuing operations 1,489  (476) 9  2,147  1,426 
Less: Deferred income tax expense (benefit) (434) (2,166) (1,259) 305  466 
Add: Tax savings from interest expense and amortization of debt discount 341  417  333  370  382 
Less: Tax imposed on investment income 42  90  57  54  50 
Cash operating taxes 2,222  2,017  1,544  2,158  1,292 

Based on: 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

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. DuPont de Nemours Inc.’s cash operating taxes increased from 2016 to 2017 and from 2017 to 2018.

Invested Capital

DuPont de Nemours Inc., invested capital calculation (financing approach)

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Notes payable 2,165  1,948  272  454  551 
Long-term debt due within one year 637  2,067  635  541  394 
Long-term debt, excluding debt within one year 37,662  30,056  20,456  16,215  18,838 
Operating lease liability1 2,777  2,836  1,967  2,040  2,155 
Total reported debt & leases 43,241  36,907  23,330  19,250  21,938 
Total DuPont’s stockholders’ equity 94,571  100,330  25,987  25,374  22,423 
Net deferred tax (assets) liabilities2 3,711  4,397  (2,156) (1,846) (2,220)
Allowance for doubtful receivables3 191  127  110  94  110 
LIFO reserve4 (98) (216) 53  8  569 
Deferred revenue5 2,565  2,606  —  —  — 
Restructuring reserve6 684  588  281  153  45 
Equity equivalents7 7,053  7,502  (1,712) (1,591) (1,496)
Accumulated other comprehensive (income) loss, net of tax8 12,394  8,972  9,822  8,667  8,017 
Redeemable noncontrolling interest —  —  —  —  202 
Non-redeemable noncontrolling interests 1,608  1,597  1,242  809  931 
Adjusted total DuPont’s stockholders’ equity 115,626  118,401  35,339  33,259  30,077 
Construction in progress9 (3,870) (4,600) (6,100) (4,355) (4,406)
Marketable securities10 (1,833) (1,516) (1,959) (1,866) (2,009)
Invested capital 153,164  149,192  50,610  46,288  45,600 

Based on: 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

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 LIFO reserve. See Details »

5 Addition of deferred revenue.

6 Addition of restructuring reserve.

7 Addition of equity equivalents to total DuPont’s stockholders’ equity.

8 Removal of accumulated other comprehensive income.

9 Subtraction of construction in progress.

10 Subtraction of marketable securities.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. DuPont de Nemours Inc.’s invested capital increased from 2016 to 2017 and from 2017 to 2018.

Cost of Capital

DuPont de Nemours Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 117,248  117,248  ÷ 161,556  = 0.73 0.73 × 16.01% = 11.62%
Preferred stock, series A, $1.00 par (book value) —  —  ÷ 161,556  = 0.00 0.00 × 0.00% = 0.00%
Debt3 41,531  41,531  ÷ 161,556  = 0.26 0.26 × 4.34% × (1 – 21.00%) = 0.88%
Operating lease liability4 2,777  2,777  ÷ 161,556  = 0.02 0.02 × 4.34% × (1 – 21.00%) = 0.06%
Total: 161,556  1.00 12.56%

Based on: 10-K (filing date: 2019-02-11).

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 167,340  167,340  ÷ 206,299  = 0.81 0.81 × 16.01% = 12.98%
Preferred stock, series A, $1.00 par (book value) —  —  ÷ 206,299  = 0.00 0.00 × 0.00% = 0.00%
Debt3 36,123  36,123  ÷ 206,299  = 0.18 0.18 × 3.88% × (1 – 35.00%) = 0.44%
Operating lease liability4 2,836  2,836  ÷ 206,299  = 0.01 0.01 × 3.88% × (1 – 35.00%) = 0.03%
Total: 206,299  1.00 13.46%

Based on: 10-K (filing date: 2018-02-15).

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 73,114  73,114  ÷ 98,160  = 0.74 0.74 × 16.01% = 11.92%
Preferred stock, series A, $1.00 par (book value) —  —  ÷ 98,160  = 0.00 0.00 × 8.50% = 0.00%
Debt3 23,079  23,079  ÷ 98,160  = 0.24 0.24 × 4.70% × (1 – 35.00%) = 0.72%
Operating lease liability4 1,967  1,967  ÷ 98,160  = 0.02 0.02 × 4.70% × (1 – 35.00%) = 0.06%
Total: 98,160  1.00 12.70%

Based on: 10-K (filing date: 2017-02-09).

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 51,398  51,398  ÷ 75,893  = 0.68 0.68 × 16.01% = 10.84%
Preferred stock, series A, $1.00 par (book value) 4,000  4,000  ÷ 75,893  = 0.05 0.05 × 8.50% = 0.45%
Debt3 18,454  18,454  ÷ 75,893  = 0.24 0.24 × 5.40% × (1 – 35.00%) = 0.85%
Operating lease liability4 2,040  2,040  ÷ 75,893  = 0.03 0.03 × 5.40% × (1 – 35.00%) = 0.09%
Total: 75,893  1.00 12.24%

Based on: 10-K (filing date: 2016-02-12).

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 57,236  57,236  ÷ 85,392  = 0.67 0.67 × 16.01% = 10.73%
Preferred stock, series A, $1.00 par (book value) 4,000  4,000  ÷ 85,392  = 0.05 0.05 × 8.50% = 0.40%
Debt3 22,001  22,001  ÷ 85,392  = 0.26 0.26 × 5.08% × (1 – 35.00%) = 0.85%
Operating lease liability4 2,155  2,155  ÷ 85,392  = 0.03 0.03 × 5.08% × (1 – 35.00%) = 0.08%
Total: 85,392  1.00 12.06%

Based on: 10-K (filing date: 2015-02-13).

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Economic Spread

DuPont de Nemours Inc., economic spread calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD $ in millions)
Economic profit1 (14,302) (17,584) (2,583) 2,542  (1,033)
Invested capital2 153,164  149,192  50,610  46,288  45,600 
Ratio
Economic spread3 -9.34% -11.79% -5.10% 5.49% -2.27%

Based on: 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × -14,302 ÷ 153,164 = -9.34%

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. DuPont de Nemours Inc.’s economic spread deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Economic Profit Margin

DuPont de Nemours Inc., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD $ in millions)
Economic profit1 (14,302) (17,584) (2,583) 2,542  (1,033)
Net sales 85,977  62,484  48,158  48,778  58,167 
Add: Increase (decrease) in deferred revenue (41) 2,332  —  —  — 
Adjusted net sales 85,936  64,816  48,158  48,778  58,167 
Ratio
Economic profit margin2 -16.64% -27.13% -5.36% 5.21% -1.78%

Based on: 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -14,302 ÷ 85,936 = -16.64%

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. DuPont de Nemours Inc.’s economic profit margin deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.