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 – 18.47% × 34,920 = -1,761
The financial trajectory indicates a consistent improvement in operational profitability, although the entity has not yet achieved positive economic profit over the analyzed five-year period. While Economic Profit remains negative, a clear trajectory of recovery is evident, driven primarily by significant growth in Net Operating Profit After Taxes (NOPAT).
- Operational Profitability Trends
- A strong upward trend is observed in NOPAT, which increased from US$ 2,328 million in 2021 to US$ 4,690 million by 2025. This represents a substantial expansion in operating earnings, with the growth rate accelerating notably between 2022 and 2025.
- Capital Base and Cost of Capital
- Invested capital grew steadily from US$ 29,709 million in 2021 to US$ 34,920 million in 2025. During the same period, the cost of capital rose from 17.15% to 18.47%. The concurrent increase in both the capital base and the required rate of return has elevated the financial hurdle necessary to generate positive economic value.
- Economic Profit Analysis
- Economic profit reached its nadir in 2022 at -US$ 2,998 million. However, from 2023 through 2025, a consistent narrowing of this deficit is observed, with the figure improving to -US$ 1,761 million. This trend suggests that the rapid growth in NOPAT is successfully offsetting the combined impact of an expanding capital base and a rising cost of capital, moving the entity closer to a state of positive economic value added.
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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$3,000 million, potentially indicating a significant investment initiative or acquisition during that time.
The consistent growth in invested capital, coupled with the increase in debt, suggests the company is actively deploying capital, potentially to fund expansion, acquisitions, or other strategic initiatives. The slight dip in shareholders’ equity in 2024 warrants further investigation to understand the underlying causes and potential implications for the company’s financial health.
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Cost of Capital
Eaton Corp. plc, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 145,303) | 145,303) | ÷ | 155,680) | = | 0.93 | 0.93 | × | 19.60% | = | 18.29% | ||
| Debt3 | 9,588) | 9,588) | ÷ | 155,680) | = | 0.06 | 0.06 | × | 3.52% × (1 – 25.00%) | = | 0.16% | ||
| Operating lease liability4 | 789) | 789) | ÷ | 155,680) | = | 0.01 | 0.01 | × | 4.70% × (1 – 25.00%) | = | 0.02% | ||
| Total: | 155,680) | 1.00 | 18.47% | ||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | × | 19.60% | = | 18.09% | ||
| 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 | 18.29% | ||||||||||
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 | × | 19.60% | = | 18.10% | ||
| 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 | 18.28% | ||||||||||
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 | × | 19.60% | = | 17.44% | ||
| 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 | 17.70% | ||||||||||
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 | × | 19.60% | = | 16.85% | ||
| 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 | 17.15% | ||||||||||
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 | (1,761) | (1,986) | (2,462) | (2,998) | (2,767) | |
| Invested capital2 | 34,920) | 31,924) | 31,576) | 30,906) | 29,709) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -5.04% | -6.22% | -7.80% | -9.70% | -9.31% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -5.78% | -35.09% | -15.02% | -20.41% | -19.02% | |
| Caterpillar Inc. | -6.98% | -2.40% | -2.46% | -6.38% | -5.78% | |
| GE Aerospace | 3.23% | -0.65% | 1.17% | -13.77% | -18.68% | |
| Honeywell International Inc. | -4.85% | -3.88% | -2.02% | -3.00% | -1.91% | |
| Lockheed Martin Corp. | 13.05% | 12.02% | 18.47% | 14.50% | 15.48% | |
| RTX Corp. | -0.61% | -2.75% | -4.51% | -4.53% | -4.01% | |
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 × -1,761 ÷ 34,920 = -5.04%
4 Click competitor name to see calculations.
The analysis of economic value added indicates a consistent trajectory of recovery following a peak in economic loss during 2022. While the organization continues to operate with a negative economic profit, the magnitude of this deficit has diminished steadily over the subsequent three fiscal years, suggesting an improving alignment between returns and the cost of capital.
- Economic Profit Trends
- A decline in economic profit was observed between 2021 and 2022, with the deficit widening from -2,767 million USD to -2,998 million USD. Following this trough, a sustained recovery trend emerged, with losses narrowing to -2,462 million USD in 2023, -1,986 million USD in 2024, and reaching -1,761 million USD by the end of 2025.
- Invested Capital Growth
- Invested capital exhibited a continuous upward trajectory throughout the analyzed period. Starting at 29,709 million USD in 2021, the capital base expanded steadily to 31,924 million USD by 2024, before increasing more significantly to 34,920 million USD in 2025, indicating ongoing investment in the company's asset base.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative across the entire period, confirming that the return on invested capital was lower than the weighted average cost of capital. However, the ratio demonstrates a marked improvement from its low of -9.70% in 2022 to -5.04% in 2025. This trend reflects a narrowing of the gap between capital costs and earnings, indicating a gradual move toward positive economic value creation.
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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 | (1,761) | (1,986) | (2,462) | (2,998) | (2,767) | |
| 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 | -6.35% | -7.99% | -10.56% | -14.39% | -13.98% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -3.47% | -26.52% | -8.67% | -15.59% | -15.10% | |
| Caterpillar Inc. | -7.05% | -2.25% | -2.14% | -6.18% | -6.67% | |
| GE Aerospace | 2.95% | -0.70% | 0.91% | -12.49% | -18.86% | |
| Honeywell International Inc. | -7.87% | -6.08% | -2.67% | -3.95% | -2.67% | |
| Lockheed Martin Corp. | 5.28% | 4.87% | 7.50% | 5.85% | 6.61% | |
| RTX Corp. | -0.75% | -3.66% | -7.09% | -7.43% | -6.96% | |
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 × -1,761 ÷ 27,753 = -6.35%
3 Click competitor name to see calculations.
The financial trajectory from 2021 through 2025 demonstrates a consistent recovery in economic value creation metrics, characterized by a steady reduction in economic losses and a sustained expansion of adjusted net sales.
- Economic Profit Trajectory
- Economic profit experienced an initial decline, reaching its lowest point in 2022 at -2,998 million USD. However, a consistent upward trend followed, with losses narrowing to -1,761 million USD by 2025. This progression indicates a gradual improvement in the company's ability to generate returns that exceed its cost of capital.
- Adjusted Net Sales Growth
- A persistent increase in adjusted net sales is observed, rising from 19,793 million USD in 2021 to 27,753 million USD in 2025. The continuous year-over-year growth suggests a successful scaling of operations, which has provided the necessary top-line support for the recovery of economic profit.
- Economic Profit Margin Performance
- The economic profit margin mirrors the recovery seen in absolute values. After reaching a trough of -14.39% in 2022, the margin improved steadily to -6.35% by 2025. The reduction of the negative margin by approximately 804 basis points from its lowest point indicates that the company is becoming significantly more efficient at utilizing its capital to generate value relative to its sales volume.
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