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 – 20.61% × 33,788 = -4,102
A persistent and accelerating decline in economic profit is observed from 2011 through 2015. The entity failed to generate positive economic value throughout this period, with economic losses expanding from -1,129 million US dollars in 2011 to -4,102 million US dollars by 2015. This trend indicates a widening gap between the returns generated by operating activities and the cost of the capital employed to produce those returns.
- Net Operating Profit After Taxes (NOPAT)
- Operating profitability exhibited initial stability and slight growth, peaking at 4,442 million US dollars in 2013. However, a significant downward trend followed, with NOPAT falling to 2,862 million US dollars by 2015. This contraction in operating earnings occurred simultaneously with an increase in the capital base, compounding the erosion of economic value.
- Invested Capital
- A consistent upward trajectory in invested capital is noted, rising from 24,594 million US dollars in 2011 to 33,788 million US dollars in 2015. The continuous expansion of the capital base, in the absence of commensurate growth in NOPAT, contributed directly to the deterioration of the economic profit.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating within a narrow range between 20.61% and 22.17%. The consistently high hurdle rate necessitated a substantial level of operating profit to achieve value creation; however, the realized returns remained insufficient to cover these financing costs.
The synthesis of these factors reveals a period of significant value destruction. The combination of declining operating profits and an expanding capital base, coupled with a high and stable cost of capital, resulted in a nearly fourfold increase in economic losses over the five-year duration.
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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 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.
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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).
- 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$992 million. Despite this drop, the values for 2015 remain considerably higher than the initial amount in 2011. The rising trend through 2014 followed by a decline in 2015 could indicate changes in the timing of tax payments, tax planning strategies, or variations in taxable income.
- Comparison Between Provision for Income Taxes and Cash Operating Taxes
- Throughout the period, cash operating taxes consistently exceed the provision for income taxes each year. The gap between cash taxes and provisions widens in 2012 and remains substantial through 2014, suggesting that actual tax payments were higher than the accounting estimates reflected in the provisions. By 2015, while both items decreased, cash payments still remained well above provisions. This pattern may indicate timing differences between tax accruals and payments, or adjustments in working capital related to tax obligations.
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Invested Capital
EMC Corp., invested capital calculation (financing approach)
US$ 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.
- 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.
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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 | × | 23.67% | = | 20.40% | ||
| 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 | 20.61% | ||||||||||
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 | × | 23.67% | = | 21.02% | ||
| 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 | 21.21% | ||||||||||
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 | × | 23.67% | = | 20.36% | ||
| 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 | 20.66% | ||||||||||
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 | × | 23.67% | = | 21.90% | ||
| 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 | 22.17% | ||||||||||
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 | × | 23.67% | = | 21.62% | ||
| 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 | 21.94% | ||||||||||
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 | (4,102) | (3,106) | (2,052) | (1,795) | (1,129) | |
| Invested capital2 | 33,788) | 32,268) | 31,439) | 27,392) | 24,594) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -12.14% | -9.62% | -6.53% | -6.55% | -4.59% | |
| 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 × -4,102 ÷ 33,788 = -12.14%
4 Click competitor name to see calculations.
The financial performance regarding economic value added exhibits a continuous decline from 2011 through 2015. This trend is characterized by widening deficits in economic profit coupled with a steady increase in the total capital invested in the business, resulting in a deteriorating economic spread ratio.
- Economic Profit
- A persistent downward trajectory is observed in economic profit, which transitioned from a deficit of US$ 1,129 million in 2011 to a deficit of US$ 4,102 million by 2015. The magnitude of these losses increased nearly fourfold over the five-year period, indicating an inability to generate returns that exceed the cost of capital.
- Invested Capital
- Invested capital grew consistently throughout the period, rising from US$ 24,594 million in 2011 to US$ 33,788 million in 2015. The expansion of the capital base occurred despite the negative economic profit, suggesting that additional resources were deployed without achieving a corresponding increase in value creation.
- Economic Spread Ratio
- The economic spread ratio shows a significant contraction, moving from -4.59% in 2011 to -12.14% in 2015. This widening negative spread confirms that the return on invested capital is falling further below the cost of capital, reflecting a diminishing efficiency in the utilization of invested resources over time.
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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 | (4,102) | (3,106) | (2,052) | (1,795) | (1,129) | |
| 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 | -16.19% | -12.12% | -8.32% | -7.77% | -5.25% | |
| 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 × -4,102 ÷ 25,341 = -16.19%
3 Click competitor name to see calculations.
The financial performance from 2011 to 2015 is characterized by a consistent deterioration in economic value generation, occurring despite a general increase in adjusted revenues for most of the observed period.
- Economic Profit Trajectory
- A continuous decline in economic profit is observed, with losses widening from US$ 1,129 million in 2011 to US$ 4,102 million by 2015. This represents a significant and accelerating trend of value destruction over the five-year horizon.
- Revenue Performance and Divergence
- Adjusted revenues demonstrated growth for the majority of the period, rising from US$ 21,518 million in 2011 to a peak of US$ 25,626 million in 2014, followed by a slight contraction to US$ 25,341 million in 2015. The divergence between increasing revenues and deepening economic losses indicates that top-line growth was insufficient to cover the cost of capital.
- Economic Profit Margin Erosion
- The economic profit margin shows a steady downward trend, moving from -5.25% in 2011 to -16.19% in 2015. The acceleration of this decline, particularly between 2013 and 2015, suggests a substantial decrease in capital efficiency and an inability to convert increased revenue into economic surplus.
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