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
EMC Corp., economic profit 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 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
= 2,862 – 20.51% × 33,788 = -4,068
A consistent deterioration in economic profit is evident from 2011 to 2015, characterized by a widening gap between operating returns and the cost of the capital employed. The organization experienced a systemic failure to generate value above its required rate of return throughout the five-year period, leading to an accelerating trend of value destruction.
- Economic Profit Trend
- Economic profit moved from -1,102 million USD in 2011 to -4,068 million USD in 2015. This downward trajectory indicates that the economic loss expanded nearly fourfold over the period, signaling a significant decline in the firm's ability to create shareholder value.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT showed modest growth in the early part of the period, peaking at 4,442 million USD in 2013. However, a sharp decline followed, with profits falling to 2,862 million USD by 2015. This reduction in operating profitability occurred simultaneously with an increase in the capital base, exacerbating the economic losses.
- Invested Capital Expansion
- Invested capital increased steadily each year, rising from 24,594 million USD in 2011 to 33,788 million USD in 2015. The continuous growth in invested capital, in the absence of corresponding growth in NOPAT, contributed directly to the increase in the total capital charge.
- Cost of Capital Analysis
- The cost of capital remained relatively stable, fluctuating within a narrow range between 20.51% and 22.06%. Because this rate remained consistent, the deterioration in economic profit is attributable to operational performance and capital intensity rather than changes in the market's required rate of return or the company's risk profile.
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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
= 1,788 × 2.34% = 42
8 2015 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 206 × 35.00% = 72
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
= 70 × 35.00% = 25
11 Elimination of after taxes investment income.
The financial performance from 2011 to 2015 exhibits a pattern of initial growth followed by a significant contraction. Both Net Operating Profit After Taxes (NOPAT) and Net Income reached their peak in 2013 before experiencing a consistent downward trajectory through 2015.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT remained relatively stable between 2011 and 2012, followed by a peak of 4,442 million USD in 2013. A sharp decline occurred thereafter, with values dropping to 3,737 million USD in 2014 and further decreasing to 2,862 million USD by 2015, representing a substantial reduction in core operating profitability.
- Net Income Trajectory
- Net income attributable to the corporation grew steadily from 2,461 million USD in 2011 to a high of 2,889 million USD in 2013. Consistent with the operating profit trend, net income declined in the subsequent years, falling to 2,714 million USD in 2014 and reaching a period low of 1,990 million USD in 2015.
- Comparative Analysis of Operating and Bottom-Line Profitability
- A consistent positive variance exists between NOPAT and Net Income throughout the analyzed period. The fact that NOPAT remains significantly higher than Net Income suggests that non-operating expenses, such as interest obligations, have a meaningful impact on the final earnings. The parallel decline in both metrics starting in 2014 indicates that the deterioration in overall profitability is primarily driven by a decrease in operating performance.
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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).
Analysis of tax expenditures from 2011 to 2015 reveals a consistent discrepancy between the accrual-based provision for income taxes and the actual cash operating taxes paid. Cash operating taxes remained higher than the tax provisions throughout the entire five-year period, indicating that cash outflows for taxes exceeded the expenses recognized in the income statement, which is a critical consideration for determining Economic Value Added (EVA).
- Cash Operating Tax Trends
- Cash operating taxes exhibited a general upward trend from 2011 to 2014, increasing from US$ 739 million to a peak of US$ 1,309 million. This growth was characterized by a slight contraction in 2013 before the 2014 surge, followed by a significant reduction to US$ 992 million in 2015.
- Provision for Income Taxes Patterns
- The provision for income taxes followed a volatile trajectory, starting at US$ 640 million in 2011 and reaching a high of US$ 918 million in 2012. After fluctuations in 2013 and 2014, the provision declined to US$ 710 million by the end of 2015, mirroring the general downward movement seen in cash taxes during the final year of the period.
- Variance Analysis
- A widening gap is observed between the cash taxes paid and the reported tax provisions. The difference grew from US$ 99 million in 2011 to a maximum of US$ 441 million in 2014. This divergence suggests the presence of significant deferred tax liabilities or non-deductible expenses, resulting in a higher cash tax burden than what was recorded as an accounting expense.
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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.
Invested capital exhibited a consistent upward trajectory between 2011 and 2015, growing from US$ 24,594 million to US$ 33,788 million. This steady expansion indicates a significant increase in the total capital base deployed to generate economic value over the five-year period.
- Invested Capital Growth
- A cumulative increase of approximately 37.3% is observed in invested capital from the end of 2011 to the end of 2015. The most substantial year-over-year growth occurred between 2012 and 2013, during which invested capital rose by US$ 4,047 million.
- Debt and Lease Obligations
- Total reported debt and leases displayed significant volatility. Following a decrease in 2012 to US$ 2,942 million, a sharp increase occurred in 2013, reaching US$ 8,530 million. The balance fluctuated over the remaining period, ending at US$ 8,562 million in 2015, which is nearly double the initial 2011 level.
- Shareholders' Equity Trends
- Equity experienced an initial increase from US$ 18,959 million in 2011 to a peak of US$ 22,357 million in 2012. However, a gradual downward trend was observed thereafter, with equity declining steadily to US$ 21,140 million by the end of 2015.
- Capital Structure Relationship
- The sustained growth in total invested capital occurred despite the contraction in shareholders' equity beginning in 2013. This divergence indicates that the expansion of the capital base was primarily driven by increased leverage and debt obligations rather than equity contributions.
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Cost of Capital
EMC Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 50,487) | 50,487) | ÷ | 58,573) | = | 0.86 | 0.86 | × | 23.55% | = | 20.30% | ||
| Debt3 | 6,298) | 6,298) | ÷ | 58,573) | = | 0.11 | 0.11 | × | 2.34% × (1 – 35.00%) | = | 0.16% | ||
| Operating lease liability4 | 1,788) | 1,788) | ÷ | 58,573) | = | 0.03 | 0.03 | × | 2.34% × (1 – 35.00%) | = | 0.05% | ||
| Total: | 58,573) | 1.00 | 20.51% | ||||||||||
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 | 57,535) | 57,535) | ÷ | 64,783) | = | 0.89 | 0.89 | × | 23.55% | = | 20.92% | ||
| Debt3 | 5,544) | 5,544) | ÷ | 64,783) | = | 0.09 | 0.09 | × | 2.54% × (1 – 35.00%) | = | 0.14% | ||
| Operating lease liability4 | 1,704) | 1,704) | ÷ | 64,783) | = | 0.03 | 0.03 | × | 2.54% × (1 – 35.00%) | = | 0.04% | ||
| Total: | 64,783) | 1.00 | 21.10% | ||||||||||
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 | 52,018) | 52,018) | ÷ | 60,474) | = | 0.86 | 0.86 | × | 23.55% | = | 20.26% | ||
| Debt3 | 7,084) | 7,084) | ÷ | 60,474) | = | 0.12 | 0.12 | × | 3.25% × (1 – 35.00%) | = | 0.25% | ||
| Operating lease liability4 | 1,371) | 1,371) | ÷ | 60,474) | = | 0.02 | 0.02 | × | 3.25% × (1 – 35.00%) | = | 0.05% | ||
| Total: | 60,474) | 1.00 | 20.55% | ||||||||||
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 | 48,991) | 48,991) | ÷ | 52,947) | = | 0.93 | 0.93 | × | 23.55% | = | 21.79% | ||
| Debt3 | 2,666) | 2,666) | ÷ | 52,947) | = | 0.05 | 0.05 | × | 5.60% × (1 – 35.00%) | = | 0.18% | ||
| Operating lease liability4 | 1,290) | 1,290) | ÷ | 52,947) | = | 0.02 | 0.02 | × | 5.60% × (1 – 35.00%) | = | 0.09% | ||
| Total: | 52,947) | 1.00 | 22.06% | ||||||||||
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 | 56,501) | 56,501) | ÷ | 61,846) | = | 0.91 | 0.91 | × | 23.55% | = | 21.52% | ||
| Debt3 | 4,200) | 4,200) | ÷ | 61,846) | = | 0.07 | 0.07 | × | 5.60% × (1 – 35.00%) | = | 0.25% | ||
| Operating lease liability4 | 1,145) | 1,145) | ÷ | 61,846) | = | 0.02 | 0.02 | × | 5.60% × (1 – 35.00%) | = | 0.07% | ||
| Total: | 61,846) | 1.00 | 21.83% | ||||||||||
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 | (4,068) | (3,072) | (2,020) | (1,765) | (1,102) | |
| Invested capital2 | 33,788) | 32,268) | 31,439) | 27,392) | 24,594) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -12.04% | -9.52% | -6.42% | -6.44% | -4.48% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | — | — | — | — | — | |
| Analog Devices Inc. | — | — | — | — | — | |
| Applied Materials Inc. | — | — | — | — | — | |
| Broadcom Inc. | — | — | — | — | — | |
| Intel Corp. | — | — | — | — | — | |
| KLA Corp. | — | — | — | — | — | |
| Lam Research Corp. | — | — | — | — | — | |
| Marvell Technology Inc. | — | — | — | — | — | |
| 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 × -4,068 ÷ 33,788 = -12.04%
4 Click competitor name to see calculations.
The financial performance from 2011 to 2015 is characterized by a consistent decline in economic value creation, evidenced by widening negative economic profits and a deteriorating economic spread ratio despite a steady increase in invested capital.
- Economic Profit Trends
- Economic profit remained negative throughout the analyzed period, exhibiting a continuous downward trajectory. The deficit expanded from -1,102 million US dollars in 2011 to -4,068 million US dollars by 2015, indicating a substantial increase in value destruction over the five-year span.
- Invested Capital Growth
- Invested capital grew consistently, rising from 24,594 million US dollars in 2011 to 33,788 million US dollars in 2015. This indicates a sustained expansion of the capital base deployed into the business operations.
- Economic Spread Ratio Analysis
- The economic spread ratio deteriorated significantly, moving from -4.48% in 2011 to -12.04% in 2015. The persistent negative spread confirms that the return on invested capital remained below the weighted average cost of capital. The accelerating decline of this ratio suggests that the inefficiency of capital utilization worsened as the total amount of invested capital increased.
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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 | (4,068) | (3,072) | (2,020) | (1,765) | (1,102) | |
| Revenues | 24,704) | 24,440) | 23,222) | 21,714) | 20,008) | |
| Add: Increase (decrease) in deferred revenue | 637) | 1,186) | 1,428) | 1,377) | 1,510) | |
| Adjusted revenues | 25,341) | 25,626) | 24,650) | 23,091) | 21,518) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -16.05% | -11.99% | -8.19% | -7.64% | -5.12% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Advanced Micro Devices Inc. | — | — | — | — | — | |
| Analog Devices Inc. | — | — | — | — | — | |
| Applied Materials Inc. | — | — | — | — | — | |
| Broadcom Inc. | — | — | — | — | — | |
| Intel Corp. | — | — | — | — | — | |
| KLA Corp. | — | — | — | — | — | |
| Lam Research Corp. | — | — | — | — | — | |
| Marvell Technology Inc. | — | — | — | — | — | |
| 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 × -4,068 ÷ 25,341 = -16.05%
3 Click competitor name to see calculations.
The financial performance from 2011 to 2015 reflects a sustained erosion of economic value, characterized by expanding losses and a deteriorating profit margin despite a general increase in total revenues during the first four years of the period.
- Economic Profit
- A continuous negative trend is observed in economic profit, which widened from negative 1,102 million US dollars in 2011 to negative 4,068 million US dollars in 2015. This consistent year-over-year increase in economic loss indicates that the returns generated were insufficient to cover the company's cost of capital throughout the analyzed period.
- Adjusted Revenues
- Revenues exhibited an upward trajectory from 2011 through 2014, increasing from 21,518 million US dollars to a peak of 25,626 million US dollars. This growth phase was followed by a slight contraction in 2015, where revenues decreased to 25,341 million US dollars.
- Economic Profit Margin
- The economic profit margin demonstrates a significant and accelerating decline, moving from negative 5.12% in 2011 to negative 16.05% by the end of 2015. The divergence between the rising revenue trend and the falling margin suggests that the cost of capital burdens grew at a rate that significantly outpaced operational efficiency and revenue gains.
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