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
Eaton Corp. plc, economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 3,854 – 14.37% × 31,924 = -734
- Net operating profit after taxes (NOPAT)
- The net operating profit after taxes has demonstrated a consistent upward trend over the five-year period. Starting at 1,541 million US dollars in 2020, it increased notably each year, reaching 3,854 million US dollars by 2024. This steady growth indicates improving operational efficiency and profitability over time.
- Cost of capital
- The cost of capital has shown a gradual increase from 13.36% in 2020 to 14.37% in 2024. The increase, although moderate, suggests rising financing or risk costs, which could impact investment decisions and valuation assessments.
- Invested capital
- Invested capital experienced a steady increase from 27,450 million US dollars in 2020 to 31,924 million US dollars in 2024. This growth in invested capital signifies continued investment in the company’s assets and business operations, suggesting a commitment to expansion or capacity enhancement.
- Economic profit
- Economic profit, which measures the value created over the cost of capital, has remained negative throughout the period but shows a trend toward improvement. The negative values decreased in magnitude from -2,127 million US dollars in 2020 to -734 million US dollars in 2024. This narrowing deficit reflects that while the company has not yet surpassed its cost of capital, it is progressively closing the gap, indicating improving value generation relative to the invested capital and associated costs.
- Summary
- Overall, the company has displayed strong growth in operating profit and investments, with a modest rise in the cost of capital. Despite sustained economic losses, the trend towards reducing these losses suggests improving operational performance and value creation efficiency. The financial data imply positive momentum, although further progress is needed to achieve positive economic profit.
Net Operating Profit after Taxes (NOPAT)
Eaton Corp. plc, NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in deferred revenue liabilities.
4 Addition of increase (decrease) in product warranty accruals.
5 Addition of increase (decrease) in liabilities related to workforce reductions, plant closing and other associated costs.
6 Addition of increase (decrease) in equity equivalents to net income attributable to Eaton ordinary shareholders.
7 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 832 × 4.40% = 37
8 2024 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 167 × 25.00% = 42
9 Addition of after taxes interest expense to net income attributable to Eaton ordinary shareholders.
- Net Income Attributable to Eaton Ordinary Shareholders
- The net income shows a consistent upward trend over the five-year period. Starting at $1,410 million in 2020, it increased to $2,144 million in 2021, representing a significant growth of approximately 52%. This positive momentum continued with a more moderate increase to $2,462 million in 2022. Subsequently, the growth accelerated again, reaching $3,218 million in 2023 and further increasing to $3,794 million by the end of 2024. Overall, the net income more than doubled during the period, reflecting strong profitability improvements.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT also exhibits a steady rise through the reporting years. Beginning at $1,541 million in 2020, it increased substantially to $2,328 million in 2021, an increase of around 51%. The upward trajectory continued at a slower pace in 2022 with $2,473 million. Growth accelerated significantly thereafter, reaching $3,310 million in 2023 and $3,854 million in 2024. The pattern closely mirrors that of net income, indicating improved operating efficiency and successful management of expenses and taxes.
- General Observations
- Both net income and NOPAT exhibit strong and consistent growth over the five years, highlighting an overall enhancement in the company's profitability and operational performance. The most substantial percentage increases occur between 2020 and 2021, followed by steady gains each subsequent year. The continuous upward trend suggests successful execution of business strategies leading to improved financial results.
Cash Operating Taxes
Eaton Corp. plc, cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Income Tax Expense
- The income tax expense showed significant fluctuations over the five-year period. Starting at $331 million in 2020, it more than doubled in 2021, reaching $750 million. This was followed by a decrease to $445 million in 2022. However, the tax expense increased again in the subsequent years, rising to $604 million in 2023 and further to $768 million in 2024. Overall, despite variability, the trend indicates a general increase over the period, with a notable peak in 2021.
- Cash Operating Taxes
- Cash operating taxes exhibited a consistent upward trend from 2020 to 2024. Starting at $497 million in 2020, the figure rose substantially to $819 million in 2021. Though there was a slight decline in 2022 to $614 million, the amount increased again to $830 million in 2023 and further to $964 million in 2024. The pattern suggests ongoing growth in cash operating tax payments over the timeframe, with a temporary dip observed in 2022.
- Comparative Insights
- When comparing income tax expense and cash operating taxes, both show generally increasing trends through the years, despite some fluctuations. The income tax expense appears more volatile, with sharper increases and decreases, while cash operating taxes demonstrate a steadier increase. The largest deviations for both metrics occur in 2021, indicating possible changes in tax policies, financial performance, or accounting treatments during that year. By the end of the period, cash operating taxes surpass income tax expense, potentially reflecting differences in timing, recognition, or tax planning strategies.
Invested Capital
Eaton Corp. plc, invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 liabilities.
5 Addition of product warranty accruals.
6 Addition of liabilities related to workforce reductions, plant closing and other associated costs.
7 Addition of equity equivalents to total Eaton shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of short-term investments.
- Total reported debt & leases
- The total reported debt and lease obligations have shown a consistent upward trend over the five-year period. Starting at $8,500 million in 2020, the figure increased to $9,984 million by the end of 2024. The most notable annual increment occurred between 2022 and 2023, where debt increased by approximately $696 million. This trend suggests a gradual rise in the company’s financial leverage over time.
- Total Eaton shareholders’ equity
- Shareholders’ equity demonstrated growth from $14,930 million in 2020 to a peak of $19,036 million in 2023, before slightly declining to $18,488 million in 2024. The steady increase from 2020 through 2023 indicates an accumulation of residual interest in the company assets, reflecting potentially retained earnings or capital inflows. The slight decrease in the final year may imply dividend payouts, share repurchases, or other equity adjustments.
- Invested capital
- Invested capital, which represents the total capital provided by shareholders and debt holders, showed a steady increase from $27,450 million in 2020 to $31,924 million in 2024. The incremental rises each year suggest ongoing investments in the company’s operational assets or capital expenditures. The rate of growth in invested capital is moderate and appears to align with the increases observed in both reported debt and equity, indicating balanced financing activities.
Cost of Capital
Eaton Corp. plc, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 113,829) | 113,829) | ÷ | 123,312) | = | 0.92 | 0.92 | × | 15.35% | = | 14.17% | ||
| Debt3 | 8,651) | 8,651) | ÷ | 123,312) | = | 0.07 | 0.07 | × | 3.42% × (1 – 25.00%) | = | 0.18% | ||
| Operating lease liability4 | 832) | 832) | ÷ | 123,312) | = | 0.01 | 0.01 | × | 4.40% × (1 – 25.00%) | = | 0.02% | ||
| Total: | 123,312) | 1.00 | 14.37% | ||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ 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 | 115,456) | 115,456) | ÷ | 125,056) | = | 0.92 | 0.92 | × | 15.35% | = | 14.17% | ||
| Debt3 | 8,932) | 8,932) | ÷ | 125,056) | = | 0.07 | 0.07 | × | 3.19% × (1 – 25.00%) | = | 0.17% | ||
| Operating lease liability4 | 668) | 668) | ÷ | 125,056) | = | 0.01 | 0.01 | × | 4.00% × (1 – 25.00%) | = | 0.02% | ||
| Total: | 125,056) | 1.00 | 14.36% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
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 | 68,766) | 68,766) | ÷ | 77,301) | = | 0.89 | 0.89 | × | 15.35% | = | 13.66% | ||
| Debt3 | 7,949) | 7,949) | ÷ | 77,301) | = | 0.10 | 0.10 | × | 3.21% × (1 – 25.00%) | = | 0.25% | ||
| Operating lease liability4 | 586) | 586) | ÷ | 77,301) | = | 0.01 | 0.01 | × | 3.30% × (1 – 25.00%) | = | 0.02% | ||
| Total: | 77,301) | 1.00 | 13.92% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
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 | 59,545) | 59,545) | ÷ | 69,247) | = | 0.86 | 0.86 | × | 15.35% | = | 13.20% | ||
| Debt3 | 9,245) | 9,245) | ÷ | 69,247) | = | 0.13 | 0.13 | × | 2.82% × (1 – 25.00%) | = | 0.28% | ||
| Operating lease liability4 | 457) | 457) | ÷ | 69,247) | = | 0.01 | 0.01 | × | 2.60% × (1 – 25.00%) | = | 0.01% | ||
| Total: | 69,247) | 1.00 | 13.49% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
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 | 52,820) | 52,820) | ÷ | 62,338) | = | 0.85 | 0.85 | × | 15.35% | = | 13.01% | ||
| Debt3 | 9,076) | 9,076) | ÷ | 62,338) | = | 0.15 | 0.15 | × | 3.10% × (1 – 25.00%) | = | 0.34% | ||
| Operating lease liability4 | 442) | 442) | ÷ | 62,338) | = | 0.01 | 0.01 | × | 3.30% × (1 – 25.00%) | = | 0.02% | ||
| Total: | 62,338) | 1.00 | 13.36% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Eaton Corp. plc, economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (734) | (1,224) | (1,830) | (1,681) | (2,127) | |
| Invested capital2 | 31,924) | 31,576) | 30,906) | 29,709) | 27,450) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -2.30% | -3.88% | -5.92% | -5.66% | -7.75% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -35.79% | -15.74% | -21.12% | -19.66% | -31.17% | |
| Caterpillar Inc. | 4.43% | 4.32% | 0.15% | 0.30% | -6.22% | |
| GE Aerospace | 4.29% | 5.85% | -10.05% | -15.02% | -4.88% | |
| Honeywell International Inc. | -3.07% | -1.15% | -2.12% | -1.05% | -2.38% | |
| Lockheed Martin Corp. | 10.41% | 16.84% | 12.81% | 13.81% | 17.13% | |
| RTX Corp. | -1.05% | -2.91% | -2.74% | -2.28% | -7.84% | |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -734 ÷ 31,924 = -2.30%
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit, expressed in millions of US dollars, shows a consistent negative trend throughout the five-year period. Beginning at -2127 million in 2020, the loss improved gradually each year, reaching -734 million by the end of 2024. This indicates a persistent inability to generate returns above the cost of capital, although the gap is narrowing over time, suggesting progress towards profitability.
- Invested Capital
- Invested capital has exhibited a steady increase over the period under review. Starting from 27,450 million US dollars in 2020, it rose incrementally each year to reach 31,924 million by the end of 2024. This upward trend signifies continued capital deployment, likely reflecting investments in assets or growth initiatives despite the negative economic profit.
- Economic Spread Ratio
- The economic spread ratio, expressed as a percentage, remained negative throughout the analyzed years but demonstrated noticeable improvement. The ratio improved from -7.75% in 2020 to -2.3% in 2024, indicating that the company's returns are moving closer to meeting or exceeding its cost of capital. This suggests an enhancement in operational efficiency or profitability, albeit not yet reaching a positive spread.
Economic Profit Margin
Eaton Corp. plc, economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (734) | (1,224) | (1,830) | (1,681) | (2,127) | |
| Net sales | 24,878) | 23,196) | 20,752) | 19,628) | 17,858) | |
| Add: Increase (decrease) in deferred revenue liabilities | (8) | 118) | 86) | 165) | 23) | |
| Adjusted net sales | 24,870) | 23,314) | 20,838) | 19,793) | 17,881) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -2.95% | -5.25% | -8.78% | -8.49% | -11.90% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -27.03% | -9.08% | -16.12% | -15.60% | -25.53% | |
| Caterpillar Inc. | 4.16% | 3.75% | 0.15% | 0.35% | -8.61% | |
| GE Aerospace | 4.60% | 4.55% | -9.11% | -15.16% | -7.79% | |
| Honeywell International Inc. | -4.80% | -1.52% | -2.79% | -1.46% | -3.53% | |
| Lockheed Martin Corp. | 4.22% | 6.83% | 5.16% | 5.89% | 7.35% | |
| RTX Corp. | -1.45% | -4.73% | -4.62% | -4.06% | -16.01% | |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -734 ÷ 24,870 = -2.95%
3 Click competitor name to see calculations.
- Adjusted Net Sales
- There is a consistent upward trend in adjusted net sales over the analyzed periods. Sales increased from 17,881 million US dollars in 2020 to 24,870 million US dollars in 2024, reflecting a steady growth in revenue generation across the years.
- Economic Profit
- Economic profit remains negative throughout the entire period, indicating that the company has consistently incurred economic losses. However, the magnitude of these losses shows a clear improvement trend, decreasing from -2,127 million US dollars in 2020 to -734 million US dollars in 2024. This suggests that while the company is not yet generating positive economic profit, it is moving towards better economic profitability.
- Economic Profit Margin
- The economic profit margin, which measures economic profit as a percentage of adjusted net sales, follows a similar improving pattern. It starts at -11.9% in 2020 and steadily improves to -2.95% by 2024. This indicates that relative to its sales, the company's economic losses have been shrinking each year, signaling better operational efficiency or cost management over time.
- Overall Analysis
- The financial data reveals a company that is growing its revenue base robustly while simultaneously reducing its economic losses both in absolute terms and relative to sales. Despite negative economic profit figures, the continuous improvement in these metrics may suggest that initiatives aimed at enhancing profitability are yielding positive results. Continued focus on managing costs and improving economic returns could potentially lead to a positive economic profit in future periods.