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
DuPont de Nemours Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= -572 – 24.80% × 62,770 = -16,139
An analysis of the economic profit from 2015 to 2019 reveals a transition from marginal value creation to significant value destruction. While the period began with a positive economic profit, a sustained downward trend emerged, characterized by a substantial increase in invested capital and a volatile, generally declining net operating profit after taxes (NOPAT).
- Net Operating Profit After Taxes (NOPAT)
- A significant deterioration in operating profitability is observed over the five-year period. NOPAT decreased from 8,206 million USD in 2015 to a deficit of 572 million USD by 2019. Although a temporary recovery occurred in 2018, the overall trajectory indicates a diminished capacity to generate operating returns.
- Invested Capital Dynamics
- The capital base experienced extreme volatility. Invested capital rose from 46,288 million USD in 2015 to a peak of 153,164 million USD in 2018, representing a more than threefold increase. This expansion was followed by a sharp contraction to 62,770 million USD in 2019, suggesting a period of massive capital deployment followed by significant divestitures or write-downs.
- Cost of Capital Trends
- The cost of capital exhibited an upward trend, rising from 17.19% in 2015 to 24.80% in 2019. The increase in the hurdle rate, particularly the peak in 2019, heightened the financial burden on the company, requiring higher operating returns to achieve a positive economic profit.
- Economic Profit and Value Creation
- Economic profit shifted from a positive 250 million USD in 2015 to deep negative territory, reaching a nadir of -30,303 million USD in 2017. This decline correlates directly with the surge in invested capital and the simultaneous drop in NOPAT. Although the economic loss narrowed to -16,139 million USD by 2019, the result remained heavily negative, indicating that the returns generated were insufficient to cover the cost of the capital employed.
The convergence of rising capital costs, a massive expansion of the asset base without commensurate operating gains, and a final collapse in NOPAT resulted in a prolonged period of economic value destruction. The reduction in invested capital in 2019 appears to be a corrective measure to mitigate the scale of economic losses.
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Net Operating Profit after Taxes (NOPAT)
DuPont de Nemours Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 554 × 4.07% = 23
8 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 691 × 21.00% = 145
9 Addition of after taxes interest expense to net income attributable to DuPont.
10 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 56 × 21.00% = 12
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
The financial performance between 2015 and 2019 is characterized by significant volatility in both operational profitability and bottom-line earnings. A general downward trajectory is observed over the five-year period, interrupted by a temporary recovery in 2018.
- Net Operating Profit After Taxes (NOPAT) Trends
- A sharp contraction in operational profitability occurred between 2015 and 2017, with NOPAT declining from 8,206 million US$ to 2,498 million US$. Although a partial recovery was recorded in 2018, with NOPAT rising to 4,932 million US$, the trend reversed severely in 2019, resulting in a negative value of -572 million US$. This transition into negative territory indicates that the core operations failed to generate a positive return after taxes in the final year of the period.
- Net Income Attributable to DuPont
- Net income exhibited a pattern of volatility mirroring the operational trends. Earnings fell from a high of 7,685 million US$ in 2015 to 1,460 million US$ in 2017. A rebound to 3,844 million US$ was observed in 2018, followed by a steep decline to 498 million US$ by the end of 2019.
- Correlation and Operational Divergence
- While NOPAT and net income generally moved in tandem, a notable divergence appeared in 2019. During this year, net income remained positive (498 million US$) despite NOPAT falling into negative figures (-572 million US$). This discrepancy suggests that the positive net income was not derived from core operating activities, but rather supported by non-operating income, tax adjustments, or other non-operational financial gains.
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Cash Operating Taxes
DuPont de Nemours Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The financial data reveals a significant divergence between the provision for income taxes on continuing operations and the actual cash operating taxes paid between 2015 and 2019. While the tax provision exhibited extreme volatility, including periods of tax benefits, the cash operating taxes remained substantially higher and more consistent throughout the majority of the period.
- Provision for Income Taxes Volatility
- The provision for income taxes demonstrated substantial fluctuations, dropping from US$ 2,147 million in 2015 to US$ 9 million in 2016, and shifting to a tax benefit of US$ -476 million in 2017. Following a recovery to US$ 1,489 million in 2018, the provision declined again to US$ 140 million in 2019. This pattern suggests significant non-cash tax adjustments or accounting entries that decoupled the reported tax expense from actual liquidity outflows.
- Cash Operating Tax Trends
- Cash operating taxes remained relatively elevated and more stable compared to the provision from 2015 through 2018. Payments peaked in 2018 at US$ 2,222 million, having maintained a range between US$ 1,544 million and US$ 2,222 million during the 2016-2018 interval. A sharp contraction occurred in 2019, with cash operating taxes falling to US$ 751 million.
- Analysis of Accrual versus Cash Divergence
- A notable discrepancy is observed specifically in 2016 and 2017. In 2016, despite a nominal provision of US$ 9 million, the company incurred cash tax outflows of US$ 1,544 million. Similarly, in 2017, a reported tax benefit of US$ -476 million coincided with a cash tax payment of US$ 2,017 million. This indicates the presence of significant deferred tax reversals or timing differences that required cash settlements despite the accounting tax position.
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Invested Capital
DuPont de Nemours Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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 LIFO reserve. See details »
5 Addition of deferred revenue.
6 Addition of restructuring reserve.
7 Addition of equity equivalents to total DuPont stockholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of construction in progress.
10 Subtraction of marketable securities.
The trajectory of invested capital between 2015 and 2019 is characterized by a period of rapid expansion followed by a sharp contraction. Invested capital grew steadily from 2015 to 2016, experienced an exponential increase in 2017, peaked in 2018 at 153,164 million USD, and subsequently declined by approximately 59% in 2019.
- Total Reported Debt and Leases
- A consistent upward trend is observed from 2015 through 2018, with debt rising from 19,250 million USD to a peak of 43,241 million USD. This period of accumulation ended abruptly in 2019, when debt levels fell to 18,001 million USD, representing a return to levels slightly below those recorded in 2015.
- Total Stockholders' Equity
- Equity remained relatively stable between 2015 and 2016 before surging to 100,330 million USD in 2017. Following a slight decline in 2018, equity decreased significantly to 40,987 million USD by the end of 2019, indicating a substantial reduction in the equity base.
- Invested Capital Dynamics
- The dramatic expansion of invested capital in 2017 and 2018 was driven by simultaneous increases in both debt and equity. The sharp reduction in 2019 suggests a large-scale corporate restructuring or divestiture, as both primary funding sources decreased markedly, resulting in a consolidated invested capital figure of 62,770 million USD.
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Cost of Capital
DuPont de Nemours Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 39,262) | 39,262) | ÷ | 58,866) | = | 0.67 | 0.67 | × | 35.58% | = | 23.73% | ||
| Preferred stock, series A, $1.00 par (book value) | —) | —) | ÷ | 58,866) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Short-term borrowings and long-term debt3 | 19,050) | 19,050) | ÷ | 58,866) | = | 0.32 | 0.32 | × | 4.07% × (1 – 21.00%) | = | 1.04% | ||
| Operating lease liability4 | 554) | 554) | ÷ | 58,866) | = | 0.01 | 0.01 | × | 4.07% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 58,866) | 1.00 | 24.80% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 39,083) | 39,083) | ÷ | 83,391) | = | 0.47 | 0.47 | × | 35.58% | = | 16.67% | ||
| Preferred stock, series A, $1.00 par (book value) | —) | —) | ÷ | 83,391) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Short-term borrowings and long-term debt3 | 41,531) | 41,531) | ÷ | 83,391) | = | 0.50 | 0.50 | × | 4.34% × (1 – 21.00%) | = | 1.71% | ||
| Operating lease liability4 | 2,777) | 2,777) | ÷ | 83,391) | = | 0.03 | 0.03 | × | 4.34% × (1 – 21.00%) | = | 0.11% | ||
| Total: | 83,391) | 1.00 | 18.50% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 55,780) | 55,780) | ÷ | 94,739) | = | 0.59 | 0.59 | × | 35.58% | = | 20.95% | ||
| Preferred stock, series A, $1.00 par (book value) | —) | —) | ÷ | 94,739) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Short-term borrowings and long-term debt3 | 36,123) | 36,123) | ÷ | 94,739) | = | 0.38 | 0.38 | × | 3.88% × (1 – 35.00%) | = | 0.96% | ||
| Operating lease liability4 | 2,836) | 2,836) | ÷ | 94,739) | = | 0.03 | 0.03 | × | 3.88% × (1 – 35.00%) | = | 0.08% | ||
| Total: | 94,739) | 1.00 | 21.99% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 24,371) | 24,371) | ÷ | 49,418) | = | 0.49 | 0.49 | × | 35.58% | = | 17.55% | ||
| Preferred stock, series A, $1.00 par (book value) | —) | —) | ÷ | 49,418) | = | 0.00 | 0.00 | × | 8.50% | = | 0.00% | ||
| Short-term borrowings and long-term debt3 | 23,079) | 23,079) | ÷ | 49,418) | = | 0.47 | 0.47 | × | 4.70% × (1 – 35.00%) | = | 1.43% | ||
| Operating lease liability4 | 1,967) | 1,967) | ÷ | 49,418) | = | 0.04 | 0.04 | × | 4.70% × (1 – 35.00%) | = | 0.12% | ||
| Total: | 49,418) | 1.00 | 19.10% | ||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 17,133) | 17,133) | ÷ | 41,627) | = | 0.41 | 0.41 | × | 35.58% | = | 14.64% | ||
| Preferred stock, series A, $1.00 par (book value) | 4,000) | 4,000) | ÷ | 41,627) | = | 0.10 | 0.10 | × | 8.50% | = | 0.82% | ||
| Short-term borrowings and long-term debt3 | 18,454) | 18,454) | ÷ | 41,627) | = | 0.44 | 0.44 | × | 5.40% × (1 – 35.00%) | = | 1.56% | ||
| Operating lease liability4 | 2,040) | 2,040) | ÷ | 41,627) | = | 0.05 | 0.05 | × | 5.40% × (1 – 35.00%) | = | 0.17% | ||
| Total: | 41,627) | 1.00 | 17.19% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Short-term borrowings and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
DuPont de Nemours Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (16,139) | (23,399) | (30,303) | (5,818) | 250) | |
| Invested capital2 | 62,770) | 153,164) | 149,192) | 50,610) | 46,288) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -25.71% | -15.28% | -20.31% | -11.50% | 0.54% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Linde plc | — | — | — | — | — | |
| Sherwin-Williams Co. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -16,139 ÷ 62,770 = -25.71%
4 Click competitor name to see calculations.
The financial performance from 2015 to 2019 is characterized by a transition from positive economic value creation to a sustained period of economic value destruction. A significant volatility in invested capital and a consistent decline in the economic spread ratio indicate systemic challenges in generating returns that exceed the cost of capital.
- Economic Profit Trends
- Economic profit shifted from a positive 250 million USD in 2015 to substantial losses over the subsequent four years. The most severe contraction occurred in 2017, with economic profit dropping to -30,303 million USD. Although a recovery trend emerged between 2017 and 2019, with losses narrowing to -16,139 million USD, the values remained significantly negative throughout the remainder of the period.
- Invested Capital Fluctuations
- Invested capital exhibited extreme volatility during the analyzed period. Following a period of relative stability between 2015 and 2016, capital surged in 2017 and peaked at 153,164 million USD in 2018. This peak was followed by a sharp reduction to 62,770 million USD by the end of 2019, suggesting a substantial restructuring or divestiture of assets.
- Economic Spread Ratio Analysis
- The economic spread ratio, which measures the return on invested capital relative to its cost, transitioned from a positive 0.54% in 2015 to negative territory in 2016. While the ratio showed a marginal improvement in 2018, it reached its lowest point of -25.71% in 2019. The divergence between the narrowing economic losses and the widening negative spread in 2019 indicates that the reduction in the invested capital base occurred more rapidly than the improvement in economic profit, resulting in a further decline in value creation efficiency.
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Economic Profit Margin
DuPont de Nemours Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (16,139) | (23,399) | (30,303) | (5,818) | 250) | |
| Net sales | 21,512) | 85,977) | 62,484) | 48,158) | 48,778) | |
| Add: Increase (decrease) in deferred revenue | —) | (41) | 2,332) | —) | —) | |
| Adjusted net sales | 21,512) | 85,936) | 64,816) | 48,158) | 48,778) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -75.03% | -27.23% | -46.75% | -12.08% | 0.51% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Linde plc | — | — | — | — | — | |
| Sherwin-Williams Co. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -16,139 ÷ 21,512 = -75.03%
3 Click competitor name to see calculations.
The period between 2015 and 2019 is characterized by a transition from marginal value creation to significant economic value destruction. While 2015 showed a slight positive economic profit, the subsequent four years were marked by substantial negative figures, indicating that the company's returns failed to cover its cost of capital.
- Economic Profit Trajectory
- A sharp decline in economic profit occurred starting in 2016, with losses accelerating to a peak of negative 30,303 million USD in 2017. Although absolute losses narrowed in 2018 and 2019, the figures remained deeply negative, reflecting a sustained inability to generate economic value above the required threshold.
- Revenue Volatility and Structural Shifts
- Adjusted net sales exhibited extreme volatility, rising from 48,778 million USD in 2015 to a peak of 85,936 million USD in 2018, before declining sharply to 21,512 million USD in 2019. This pattern indicates significant corporate restructuring, likely involving major acquisitions followed by large-scale divestitures.
- Economic Profit Margin Analysis
- The economic profit margin shifted from a positive 0.51% in 2015 to increasingly negative territory. Despite the reduction in absolute economic losses during 2019, the margin deteriorated to its lowest point of -75.03%. This divergence is primarily attributed to the drastic reduction in adjusted net sales, which amplified the impact of the remaining economic losses relative to the reduced size of the revenue base.
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