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.
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Eaton Corp. plc pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Income Statement
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Reportable Segments
- Analysis of Geographic Areas
- Dividend Discount Model (DDM)
- Selected Financial Data since 2005
- Price to Sales (P/S) since 2005
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Economic Profit
Eaton Corp. plc, economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The financial performance from 2021 to 2025 indicates a consistent effort to reduce economic losses and move toward value creation. While economic profit remained negative throughout the period, a clear trend of recovery is evident, driven primarily by substantial growth in operating profitability that has outpaced the increase in the cost of capital and invested capital.
- Net Operating Profit After Taxes (NOPAT)
- A strong and continuous upward trajectory is observed in NOPAT, which grew from 2,328 million USD in 2021 to 4,690 million USD by 2025. This represents a significant increase in operational efficiency and earnings power, with the most pronounced growth occurring between 2022 and 2023.
- Capital Charge Dynamics
- The cost of capital has experienced a gradual increase, rising from 17.26% in 2021 to 18.59% in 2025. Simultaneously, invested capital expanded from 29,709 million USD to 34,920 million USD. The combination of a higher hurdle rate and a larger capital base has increased the total capital charge that the company must overcome to achieve a positive economic profit.
- Economic Profit Trend
- Economic profit reached its lowest point in 2022 at -3,034 million USD. Following this trough, a steady recovery has been recorded, with the deficit narrowing to -1,804 million USD by 2025. The persistent negative values indicate that the return on invested capital remains below the weighted average cost of capital; however, the narrowing gap suggests that the growth in NOPAT is effectively offsetting the rising costs associated with the capital employed.
The convergence of these metrics suggests an improving financial position. The ability to nearly double NOPAT over the five-year period, despite a rising cost of capital and an expanding asset base, demonstrates a positive trend toward achieving economic value added.
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
= × =
8 2025 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 25.00% =
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$603 million in 2025, indicating a growing impact from these non-operating factors.
- Growth Rates
- The year-over-year growth rate of NOPAT fluctuates. From 2021 to 2022, NOPAT grew by 6.27%. This growth accelerated to 33.86% from 2022 to 2023, then slowed to 16.63% from 2023 to 2024, and finally to 21.78% from 2024 to 2025. This pattern suggests potential variations in operational performance or external economic conditions impacting profitability.
The sustained growth in NOPAT indicates improving operational efficiency and profitability. However, the divergence between NOPAT and net income warrants further investigation to understand the specific non-operating items influencing the reported net income figure.
Cash Operating Taxes
Eaton Corp. plc, cash operating taxes calculation
US$ 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$866 million. The magnitude of fluctuation in cash operating taxes is greater than that of income tax expense.
- Relationship Between Income Tax Expense and Cash Operating Taxes
- While both metrics initially moved in the same direction (decreasing from 2021 to 2022), their subsequent trajectories diverged. The difference between cash operating taxes and income tax expense widened in 2023 and 2024, suggesting potential timing differences in recognizing taxable income versus accounting income, or the impact of items such as deferred taxes or tax credits. The narrowing of this difference in 2025 suggests a partial convergence of these factors.
The variations in cash operating taxes, particularly the substantial increase from 2022 to 2024, warrant further investigation to understand the underlying drivers. These could include changes in tax regulations, the utilization of tax loss carryforwards, or adjustments related to international operations.
Invested Capital
Eaton Corp. plc, invested capital calculation (financing approach)
US$ 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$3,000 million, potentially indicating a significant investment initiative or acquisition during that time.
The consistent growth in invested capital, coupled with the increase in debt, suggests the company is actively deploying capital, potentially to fund expansion, acquisitions, or other strategic initiatives. The slight dip in shareholders’ equity in 2024 warrants further investigation to understand the underlying causes and potential implications for the company’s financial health.
Cost of Capital
Eaton Corp. plc, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2025-12-31).
1 US$ 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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
An analysis of economic value added metrics reveals a period of negative economic profit characterized by a consistent recovery trend following a trough in 2022. While the organization continues to operate below its cost of capital, there is a measurable reduction in value destruction over the observed timeframe.
- Economic Profit Trends
- Economic profit remained negative throughout the period from 2021 to 2025. A peak deficit of US$ 3,034 million was recorded in 2022, after which a steady recovery commenced. By December 31, 2025, the economic profit improved to -US$ 1,804 million, indicating a narrowing of the gap between actual earnings and the required return on capital.
- Invested Capital Growth
- Invested capital exhibited a sustained upward trajectory, increasing from US$ 29,709 million in 2021 to US$ 34,920 million by 2025. The continued expansion of the capital base occurred simultaneously with the improvement in economic profit, suggesting an increase in the efficiency of deployed capital over time.
- Economic Spread Ratio Analysis
- The economic spread ratio, representing the difference between the return on invested capital and the cost of capital, reached its lowest point in 2022 at -9.82%. Subsequently, a positive trend is observed, with the ratio improving to -7.92% in 2023, -6.34% in 2024, and -5.16% in 2025. This steady upward movement indicates that the company is progressively reducing the spread between its cost of capital and its actual returns, moving closer to a value-creation threshold.
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 | ||||||
| Net sales | ||||||
| Add: Increase (decrease) in deferred revenue liabilities | ||||||
| Adjusted net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The analysis of economic value added reveals a consistent trend toward recovery and operational efficiency between 2021 and 2025. While the organization continued to operate with a negative economic profit throughout the period, there is a clear trajectory of narrowing losses coupled with sustained revenue growth.
- Adjusted Net Sales Performance
- Revenue demonstrated continuous growth over the five-year period, increasing from 19,793 million USD in 2021 to 27,753 million USD by 2025. This indicates a steady expansion of the top-line scale and market presence.
- Economic Profit Trends
- Economic profit experienced a marginal deterioration in 2022, reaching a peak deficit of -3,034 million USD. However, from 2023 onward, a consistent recovery is observed, with the economic loss narrowing to -2,500 million USD in 2023, -2,024 million USD in 2024, and -1,804 million USD by the end of 2025.
- Economic Profit Margin Evolution
- The economic profit margin mirrored the trajectory of absolute economic profit. After reaching a trough of -14.56% in 2022, the margin improved progressively to -10.72% in 2023, -8.14% in 2024, and -6.50% in 2025. This trend suggests that while the entity has not yet achieved a positive economic profit, the efficiency of capital utilization relative to sales is improving significantly.