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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EMC Corp. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Present Value of Free Cash Flow to Equity (FCFE)
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Total Asset Turnover since 2005
- Analysis of Revenues
- Aggregate Accruals
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Economic Profit
EMC Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2015 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
An analysis of the financial performance from 2011 to 2015 reveals a persistent and widening gap between operating profits and the cost of invested capital. The company experienced consistent value destruction throughout the period, characterized by negative economic profit that deteriorated annually.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated modest growth in the early part of the period, peaking at US$ 4,442 million in 2013. Following this peak, a significant downward trend occurred, with profits falling to US$ 3,737 million in 2014 and further declining to US$ 2,862 million by 2015. This represents a substantial reduction in operating efficiency toward the end of the analyzed timeframe.
- Invested Capital
- A consistent upward trajectory is observed in invested capital, which grew steadily from US$ 24,594 million in 2011 to US$ 33,788 million in 2015. The continuous expansion of the capital base suggests ongoing investment, though these investments did not yield corresponding increases in operating profit.
- Cost of Capital and Economic Profit
- The cost of capital remained relatively stable, fluctuating within a narrow range between 20.55% and 22.10%. Because the cost of capital charge—calculated as the product of the cost of capital and invested capital—increased as the capital base grew, while NOPAT simultaneously declined after 2013, the economic profit worsened significantly. The economic profit moved from a deficit of US$ 1,111 million in 2011 to a deficit of US$ 4,080 million in 2015, indicating that the returns generated were insufficient to cover the required cost of the capital employed.
Net Operating Profit after Taxes (NOPAT)
EMC Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in product warranty obligations.
5 Addition of increase (decrease) in restructuring.
6 Addition of increase (decrease) in equity equivalents to net income attributable to EMC Corporation.
7 2015 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2015 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35.00% =
9 Addition of after taxes interest expense to net income attributable to EMC Corporation.
10 2015 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35.00% =
11 Elimination of after taxes investment income.
The financial data over the five-year period reveals notable shifts in profitability metrics for the company.
- Net Income Attributable to EMC Corporation
- This indicator demonstrates an initial upward trajectory from 2011 to 2013, increasing from 2,461 million US dollars to a peak of 2,889 million US dollars. Subsequently, net income declined in the following years, dropping to 2,714 million US dollars in 2014 and falling more sharply to 1,990 million US dollars by the end of 2015. This downward trend in the latter years suggests challenges affecting net profitability.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT shows a relatively stable pattern in the first three years, with a slight increase from 4,267 million US dollars in 2011 to 4,442 million US dollars in 2013. However, in 2014, NOPAT decreased significantly to 3,737 million US dollars and continued to decline to 2,862 million US dollars in 2015. The decline in NOPAT aligns with the reduction in net income, indicating reduced operating efficiency or higher operating expenses.
Overall, the financial trends indicate a strengthening in profitability during the initial years, followed by a period of contraction in both net income and operating profit after taxes. The data suggests the company faced operational or market challenges after 2013 that adversely impacted earnings and operating performance.
Cash Operating Taxes
EMC Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Provision for Income Taxes
- The provision for income taxes demonstrates a fluctuating pattern over the five-year period. It increased notably from US$640 million in 2011 to a peak of US$918 million in 2012. This was followed by a decline to US$772 million in 2013. Subsequently, the provision rose again in 2014 to US$868 million, before decreasing to US$710 million in 2015. Overall, the provision shows variability without a consistent upward or downward trend, suggesting changes in taxable income or tax rates during the analyzed years.
- Cash Operating Taxes
- Cash operating taxes display a general increasing trend from 2011 to 2014, rising from US$739 million to US$1309 million. This represents a significant growth in actual cash payments for income taxes. However, in 2015, cash operating taxes decrease to US$992 million. Despite this drop, the values for 2015 remain considerably higher than the initial amount in 2011. The rising trend through 2014 followed by a decline in 2015 could indicate changes in the timing of tax payments, tax planning strategies, or variations in taxable income.
- Comparison Between Provision for Income Taxes and Cash Operating Taxes
- Throughout the period, cash operating taxes consistently exceed the provision for income taxes each year. The gap between cash taxes and provisions widens in 2012 and remains substantial through 2014, suggesting that actual tax payments were higher than the accounting estimates reflected in the provisions. By 2015, while both items decreased, cash payments still remained well above provisions. This pattern may indicate timing differences between tax accruals and payments, or adjustments in working capital related to tax obligations.
Invested Capital
EMC Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
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 deferred revenue.
5 Addition of product warranty obligations.
6 Addition of restructuring.
7 Addition of equity equivalents to total EMC Corporation’s shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of building construction in progress.
10 Subtraction of short- and long-term investments.
- Total Reported Debt & Leases
- The total reported debt and leases exhibit significant fluctuations over the analyzed periods. There is a notable decrease from 4,450 million USD at the end of 2011 to 2,942 million USD at the end of 2012, indicating a substantial reduction in debt within that year. However, this trend reverses sharply in 2013, with debt increasing to 8,530 million USD. Subsequently, it declines in 2014 to 7,199 million USD before rising again in 2015 to 8,562 million USD. Overall, the company experienced volatile debt levels with an upward tendency in the latter years.
- Total EMC Corporation’s Shareholders’ Equity
- Shareholders’ equity shows a generally stable trend across the five-year period. It increased from 18,959 million USD in 2011 to 22,357 million USD in 2012, followed by minor fluctuations in subsequent years: a slight decrease to 22,301 million USD in 2013, a further small decline to 21,896 million USD in 2014, and another decrease to 21,140 million USD in 2015. This pattern suggests a modest erosion of equity after a strong initial increase.
- Invested Capital
- Invested capital demonstrates consistent growth throughout the period. Starting at 24,594 million USD in 2011, it rises steadily each year, reaching 27,392 million USD in 2012, then moving up to 31,439 million USD in 2013, 32,268 million USD in 2014, and finally peaking at 33,788 million USD in 2015. This continual increase indicates ongoing investment and resource allocation expansion within the company.
- Summary of Financial Trends
- The contrasting movements between debt levels and shareholders’ equity reflect changing financing strategies. The initial reduction in debt was followed by sharp increases, whereas equity experienced a peak early on and then a gradual decline. Invested capital's steady rise suggests active growth or asset acquisition. The data imply that the company may have shifted toward greater leverage in later years to support its investments. These trends highlight a dynamic approach to capital structure management with a balanced focus on growth and financing costs.
Cost of Capital
EMC Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2014-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2013-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2012-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2011-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
EMC Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2015 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial performance between 2011 and 2015 is characterized by a consistent erosion of economic value. Throughout the five-year period, the entity failed to generate positive economic profit, with losses widening progressively each year. This trend occurred alongside a steady increase in invested capital, indicating that the expansion of the capital base did not yield proportional returns sufficient to cover the cost of capital.
- Economic Profit
- A continuous downward trajectory is observed in economic profit, which moved from negative 1,111 million US dollars in 2011 to negative 4,080 million US dollars by 2015. The acceleration of these losses is particularly evident between 2013 and 2015, where the economic profit deficit nearly doubled.
- Invested Capital
- Invested capital demonstrated a consistent year-over-year increase, rising from 24,594 million US dollars in 2011 to 33,788 million US dollars in 2015. This represents a sustained growth in the total capital deployed within the business operations over the analyzed period.
- Economic Spread Ratio
- The economic spread ratio remained negative throughout the period, reflecting a persistent failure to exceed the weighted average cost of capital. After a brief period of relative stability between 2012 and 2013, the ratio declined sharply to -12.07% by 2015. The widening negative spread confirms that the efficiency of capital utilization deteriorated significantly as the invested capital base grew.
Economic Profit Margin
EMC Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Economic profit. See details »
2 2015 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
A sustained deterioration in economic value creation is evident between 2011 and 2015. Despite a general increase in adjusted revenues for the majority of the period, the company consistently failed to generate positive economic profit, with the deficit expanding annually.
- Economic Profit Trends
- Economic profit exhibited a continuous downward trajectory, moving from a deficit of 1,111 million USD in 2011 to 4,080 million USD by 2015. This represents a substantial increase in the amount of value destroyed over the five-year interval, suggesting that returns on invested capital remained consistently below the cost of capital.
- Adjusted Revenue Performance
- Adjusted revenues showed a growth trend from 2011 through 2014, rising from 21,518 million USD to 25,626 million USD. However, this growth trend reversed in 2015, with revenues declining to 25,341 million USD. The divergence between revenue growth and economic profit indicates that scale expansion failed to translate into improved economic efficiency.
- Economic Profit Margin Analysis
- The economic profit margin declined sharply throughout the period, starting at -5.17% in 2011 and reaching -16.10% by 2015. The acceleration of this decline, particularly from 2013 onwards, highlights a widening gap between operational earnings and the required return on capital, signaling a significant erosion in the capacity to generate economic value relative to revenue.