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: 2025-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2025 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 4,690 – 18.52% × 34,920 = -1,777
The financial performance from 2021 to 2025 exhibits a consistent narrowing of economic losses, although the organization operated with a negative economic profit throughout the entire period. While the company has not yet achieved a positive economic value added, there is a clear trend toward recovery and a reduction in the gap between operational returns and the cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- A strong and consistent upward trajectory is observed in NOPAT, which increased from US$ 2,328 million in 2021 to US$ 4,690 million in 2025. This growth indicates a significant expansion in operational profitability, which serves as the primary catalyst for the improving economic profit trend.
- Capital Charges and Investment
- The cost of capital has risen steadily from 17.19% in 2021 to 18.52% in 2025. Concurrently, invested capital increased from US$ 29,709 million to US$ 34,920 million. The simultaneous increase in both the capital base and the percentage cost of that capital has exerted upward pressure on the total capital charge, acting as a counterforce to the gains made in operational profit.
- Economic Profit Analysis
- Economic profit reached its lowest point in 2022 at -US$ 3,011 million. From 2023 through 2025, a recovery pattern emerged, with the deficit narrowing to -US$ 1,777 million by the end of the period. This indicates that the growth rate of NOPAT is currently outpacing the growth of the capital charge, suggesting a progressive movement toward a break-even point where the company begins to generate value above its cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Eaton Corp. plc, NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 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).
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 2025 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 789 × 4.70% = 37
8 2025 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 278 × 25.00% = 70
9 Addition of after taxes interest expense to net income attributable to Eaton ordinary shareholders.
Net income attributable to Eaton ordinary shareholders and net operating profit after taxes (NOPAT) both demonstrate a consistent upward trend over the five-year period from 2021 to 2025. The rate of increase in NOPAT appears to be slightly higher than that of net income, particularly in the later years of the observed period.
- NOPAT Trend
- NOPAT increased from US$2,328 million in 2021 to US$4,690 million in 2025. This represents a cumulative growth of approximately 101.37% over the five-year timeframe. The growth was not linear; the increase from 2022 to 2023 (US$2,473 million to US$3,310 million) was more substantial than the increase from 2021 to 2022 (US$2,328 million to US$2,473 million).
- Relationship between NOPAT and Net Income
- While both metrics trend upwards, NOPAT consistently exceeds net income attributable to Eaton ordinary shareholders throughout the period. This difference suggests that non-operating items, such as financing costs or certain tax adjustments, are reducing reported net income relative to core operational profitability as measured by NOPAT. The gap between NOPAT and net income widens from approximately US$184 million in 2021 to US$603 million in 2025, indicating a growing impact from these non-operating factors.
- Growth Rates
- The year-over-year growth rate of NOPAT fluctuates. From 2021 to 2022, NOPAT grew by 6.27%. This growth accelerated to 33.86% from 2022 to 2023, then slowed to 16.63% from 2023 to 2024, and finally to 21.78% from 2024 to 2025. This pattern suggests potential variations in operational performance or external economic conditions impacting profitability.
The sustained growth in NOPAT indicates improving operational efficiency and profitability. However, the divergence between NOPAT and net income warrants further investigation to understand the specific non-operating items influencing the reported net income figure.
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Cash Operating Taxes
Eaton Corp. plc, cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 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).
The reported income tax expense and cash operating taxes exhibit distinct patterns over the five-year period. Income tax expense decreased significantly from 2021 to 2022, then increased through 2025, while cash operating taxes show a more complex fluctuation.
- Income Tax Expense Trend
- Income tax expense began at US$750 million in 2021. A substantial decrease was recorded in 2022, falling to US$445 million. Subsequently, income tax expense increased steadily, reaching US$604 million in 2023, US$768 million in 2024, and US$841 million in 2025. This indicates a growing tax burden as income levels potentially increased.
- Cash Operating Taxes Trend
- Cash operating taxes started at US$819 million in 2021, declining to US$614 million in 2022, mirroring the decrease in income tax expense. However, unlike income tax expense, cash operating taxes then rose sharply to US$830 million in 2023 and further to US$964 million in 2024. A slight decrease was observed in 2025, with cash operating taxes reported at US$866 million. The magnitude of fluctuation in cash operating taxes is greater than that of income tax expense.
- Relationship Between Income Tax Expense and Cash Operating Taxes
- While both metrics initially moved in the same direction (decreasing from 2021 to 2022), their subsequent trajectories diverged. The difference between cash operating taxes and income tax expense widened in 2023 and 2024, suggesting potential timing differences in recognizing taxable income versus accounting income, or the impact of items such as deferred taxes or tax credits. The narrowing of this difference in 2025 suggests a partial convergence of these factors.
The variations in cash operating taxes, particularly the substantial increase from 2022 to 2024, warrant further investigation to understand the underlying drivers. These could include changes in tax regulations, the utilization of tax loss carryforwards, or adjustments related to international operations.
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Invested Capital
Eaton Corp. plc, invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2025-12-31), 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).
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.
Over the five-year period ending December 31, 2025, a consistent upward trend is observed in all three reported financial items: total reported debt & leases, total shareholders’ equity, and invested capital. The rate of increase varies across these items, suggesting differing dynamics in the company’s capital structure and funding strategies.
- Total Reported Debt & Leases
- Total reported debt & leases demonstrates a steady increase from US$9,036 million in 2021 to US$10,684 million in 2025. The growth is relatively consistent year-over-year, with a slight deceleration in the increase from 2023 to 2024. This suggests a continued reliance on debt financing, although the pace of borrowing moderated in the latter period.
- Total Eaton Shareholders’ Equity
- Total shareholders’ equity also exhibits an upward trajectory, rising from US$16,413 million in 2021 to US$19,425 million in 2025. A noticeable dip occurred between 2023 and 2024, decreasing from US$19,036 million to US$18,488 million, before recovering in 2025. This fluctuation could be attributed to factors such as share repurchases, dividend payouts, or changes in accumulated other comprehensive income.
- Invested Capital
- Invested capital, representing the sum of debt and equity, shows the most substantial overall growth, increasing from US$29,709 million in 2021 to US$34,920 million in 2025. The growth rate mirrors the trends in its components, with consistent increases throughout the period. The largest year-over-year increase in invested capital occurred between 2024 and 2025, reaching US$3,000 million, potentially indicating a significant investment initiative or acquisition during that time.
The consistent growth in invested capital, coupled with the increase in debt, suggests the company is actively deploying capital, potentially to fund expansion, acquisitions, or other strategic initiatives. The slight dip in shareholders’ equity in 2024 warrants further investigation to understand the underlying causes and potential implications for the company’s financial health.
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Cost of Capital
Eaton Corp. plc, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 145,303) | 145,303) | ÷ | 155,680) | = | 0.93 | 0.93 | × | 19.65% | = | 18.34% | ||
| Debt3 | 9,588) | 9,588) | ÷ | 155,680) | = | 0.06 | 0.06 | × | 3.52% × (1 – 25.00%) | = | 0.16% | ||
| Operating lease liability4 | 789) | 789) | ÷ | 155,680) | = | 0.01 | 0.01 | × | 4.70% × (1 – 25.00%) | = | 0.02% | ||
| Total: | 155,680) | 1.00 | 18.52% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | 113,829) | 113,829) | ÷ | 123,312) | = | 0.92 | 0.92 | × | 19.65% | = | 18.14% | ||
| 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 | 18.34% | ||||||||||
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 | × | 19.65% | = | 18.14% | ||
| 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 | 18.32% | ||||||||||
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 | × | 19.65% | = | 17.48% | ||
| 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 | 17.74% | ||||||||||
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 | × | 19.65% | = | 16.89% | ||
| 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 | 17.19% | ||||||||||
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 »
Economic Spread Ratio
Eaton Corp. plc, economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (1,777) | (2,000) | (2,476) | (3,011) | (2,779) | |
| Invested capital2 | 34,920) | 31,924) | 31,576) | 30,906) | 29,709) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -5.09% | -6.26% | -7.84% | -9.74% | -9.35% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -5.82% | -35.12% | -15.06% | -20.44% | -19.05% | |
| Caterpillar Inc. | -6.93% | -2.36% | -2.42% | -6.34% | -5.74% | |
| GE Aerospace | 3.24% | -0.64% | 1.18% | -13.77% | -18.68% | |
| Honeywell International Inc. | -4.94% | -3.97% | -2.12% | -3.10% | -2.01% | |
| Lockheed Martin Corp. | 12.79% | 11.78% | 18.22% | 14.24% | 15.22% | |
| RTX Corp. | -0.82% | -2.94% | -4.69% | -4.74% | -4.20% | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2025 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,777 ÷ 34,920 = -5.09%
4 Click competitor name to see calculations.
An analysis of the economic value added metrics reveals a consistent trend of recovery in value creation efficiency from 2022 through 2025, despite the company maintaining a negative economic profit throughout the observed period. While the entity continues to operate below its cost of capital, the magnitude of the economic loss has diminished steadily over the latter three years.
- Economic Profit Trends
- Economic profit experienced an initial decline, reaching a trough of -3,011 million USD in 2022. Following this low point, a sustained recovery is observed, with losses narrowing to -2,476 million USD in 2023, -2,000 million USD in 2024, and -1,777 million USD by 2025. This represents a significant reduction in the economic deficit since the 2022 fiscal year.
- Invested Capital Growth
- There is a consistent upward trajectory in invested capital over the five-year period. Capital increased from 29,709 million USD in 2021 to 34,920 million USD in 2025. The steady expansion of the capital base suggests ongoing investment in assets and operations, which occurred simultaneously with the improvement in economic profit.
- Economic Spread Ratio Performance
- The economic spread ratio mirrors the trend seen in economic profit, showing a gradual movement toward a positive threshold. After declining to -9.74% in 2022, the ratio improved to -7.84% in 2023, -6.26% in 2024, and finally to -5.09% in 2025. The narrowing of this negative spread indicates that the return on invested capital is progressively closing the gap with the company's weighted average cost of capital.
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Economic Profit Margin
Eaton Corp. plc, economic profit margin calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (1,777) | (2,000) | (2,476) | (3,011) | (2,779) | |
| Net sales | 27,448) | 24,878) | 23,196) | 20,752) | 19,628) | |
| Add: Increase (decrease) in deferred revenue liabilities | 305) | (8) | 118) | 86) | 165) | |
| Adjusted net sales | 27,753) | 24,870) | 23,314) | 20,838) | 19,793) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -6.40% | -8.04% | -10.62% | -14.45% | -14.04% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -3.49% | -26.54% | -8.69% | -15.61% | -15.13% | |
| Caterpillar Inc. | -7.00% | -2.21% | -2.10% | -6.14% | -6.62% | |
| GE Aerospace | 2.96% | -0.69% | 0.92% | -12.48% | -18.85% | |
| Honeywell International Inc. | -8.03% | -6.23% | -2.80% | -4.09% | -2.80% | |
| Lockheed Martin Corp. | 5.17% | 4.77% | 7.40% | 5.74% | 6.50% | |
| RTX Corp. | -1.01% | -3.92% | -7.38% | -7.77% | -7.30% | |
Based on: 10-K (reporting date: 2025-12-31), 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).
1 Economic profit. See details »
2 2025 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -1,777 ÷ 27,753 = -6.40%
3 Click competitor name to see calculations.
The analysis of economic value added reveals a consistent recovery trajectory over the observed five-year period. While economic profit remains negative, there is a clear trend toward value creation as the deficit narrows and the economic profit margin improves.
- Economic Profit Performance
- Economic profit experienced a slight decline between 2021 and 2022, reaching a low of -3,011 million US dollars. However, from 2023 onward, a steady upward trend is observed, with the deficit reducing to -1,777 million US dollars by 2025. This indicates a progressive reduction in the shortfall between the company's operating returns and its cost of capital.
- Adjusted Net Sales Growth
- A consistent increase in adjusted net sales is evident throughout the period. Revenue grew from 19,793 million US dollars in 2021 to 27,753 million US dollars in 2025. This sustained top-line expansion suggests strong growth in market reach and provides a larger operational base to support the improvement in economic profit.
- Economic Profit Margin Analysis
- The economic profit margin reflects a significant recovery. After bottoming at -14.45% in 2022, the margin improved to -10.62% in 2023, -8.04% in 2024, and finally to -6.40% in 2025. The narrowing of this negative margin demonstrates that the organization is enhancing its efficiency in generating returns relative to the capital employed.
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