Economic Value Added (EVA)
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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:
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- Analysis of Reportable Segments
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Revenues
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Economic Profit
Eaton Corp. plc, economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes has exhibited a consistent upward trend over the five-year period. Starting at 1,541 million US dollars in 2020, it increased each year, reaching 3,854 million US dollars by the end of 2024. This represents a substantial growth in operating profitability, indicating improved operational efficiency or revenue generation.
- Cost of Capital
- The cost of capital has shown a gradual increase during the same period. It rose from 13.37% in 2020 to 14.38% in 2024. Although the increment is moderate, it suggests a slightly higher required return on invested capital, potentially due to changes in market conditions, risk profile, or capital structure.
- Invested Capital
- Invested capital has steadily increased year over year, starting from 27,450 million US dollars in 2020 and reaching 31,924 million US dollars by 2024. This gradual rise indicates ongoing investment in assets or operations, but the growth rate in invested capital is moderate compared to the growth in NOPAT.
- Economic Profit
- Economic profit, defined as NOPAT minus the cost of capital multiplied by invested capital, remains negative throughout the period, though the deficit is shrinking. The economic loss decreased from -2,129 million US dollars in 2020 to -736 million US dollars in 2024. This improvement suggests that the company is moving closer to creating value, albeit still not surpassing the cost of capital fully.
- Overall Analysis
- The company shows a positive trend in operating profitability with NOPAT increasing significantly and invested capital growing steadily. The rising cost of capital reflects a cautious financial environment or changing risk, which partly offsets profitability gains. Despite consistent negative economic profit, the trend indicates improving value creation, as the gap between earnings and capital costs narrows. The data implies progress toward enhanced financial performance and value generation but also highlights the continued challenge of exceeding the cost of capital.
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
= × =
8 2024 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
- 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 $31,924 million in 2024. The incremental rises each year suggest ongoing investments in the company’s operational assets or capital expenditures. The rate of growth in invested capital is moderate and appears to align with the increases observed in both reported debt and equity, indicating balanced financing activities.
Cost of Capital
Eaton Corp. plc, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 25.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ 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 »
| 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: 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 | ||||||
| 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: 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 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit has shown a consistent improvement over the five-year period. Starting at a negative value of -2129 million US dollars in 2020, the loss has steadily decreased each year, reaching -736 million US dollars by 2024. Despite remaining negative throughout, the trend suggests a gradual reduction in losses, indicating potential progress toward profitability.
- Invested Capital
- The invested capital has demonstrated a steady upward trend across the examined years. Beginning at 27,450 million US dollars in 2020, it increased each year with some deceleration in growth rate and reached 31,924 million US dollars in 2024. This pattern reflects ongoing capital investment and an expansion of the company's asset base over time.
- Economic Spread Ratio
- The economic spread ratio, which measures the return on invested capital relative to the cost of capital, has remained negative but has shown consistent improvement. Starting at -7.76% in 2020, the ratio has moved toward zero each year, reaching -2.31% in 2024. This trend indicates that the company’s returns are still below the cost of capital, but the gap is narrowing, suggesting enhanced capital efficiency and better utilization of assets.
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 | ||||||
| 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: 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 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit, measured in US$ millions, shows a consistent improvement over the five-year period from 2020 to 2024. Initially, it was significantly negative at -2129 million US$ in 2020, then it improved to -1683 million US$ in 2021. Although there was a slight decline in 2022 to -1832 million US$, the trend of improvement resumed in subsequent years, reaching -1226 million US$ in 2023 and further improving to -736 million US$ in 2024. This trend indicates a gradual reduction in economic losses over time, suggesting increased operational efficiency or profitability.
- Adjusted Net Sales
- Adjusted net sales show a steady increase throughout the period, rising consistently each year. Starting at 17,881 million US$ in 2020, the figure increased to 19,793 million US$ in 2021, 20,838 million US$ in 2022, 23,314 million US$ in 2023, and finally 24,870 million US$ in 2024. This reflects a continuous revenue growth trajectory over the five years, indicating sustained demand and possibly effective sales or marketing strategies.
- Economic Profit Margin
- The economic profit margin, expressed as a percentage, mirrors the improvements seen in economic profit. It starts from a negative margin of -11.91% in 2020 and improves to -8.50% in 2021. There is a mild deterioration in 2022 to -8.79%, but thereafter, the margin improves substantially to -5.26% in 2023 and further to -2.96% in 2024. The shrinking negative margin suggests progress toward profitability, with less economic loss relative to sales over time.
- Summary of Trends
- Overall, the data indicates a positive trend in financial performance. While the company has not yet achieved positive economic profit, the continuous reduction in losses and steady revenue growth imply progress. The improvement in economic profit margin suggests enhanced operational leverage or cost management. The slight setbacks observed in 2022 merit attention but do not negate the overarching favorable trend towards economic improvement.