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
Ecolab Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,348,902 – 15.03% × 18,430,300 = -1,421,956
An analysis of the economic performance from 2017 through 2021 reveals a consistent inability to generate positive economic value added. Throughout the five-year period, the company operated with a negative economic profit, indicating that the net operating profit after taxes was insufficient to cover the weighted cost of the capital employed in operations.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated significant volatility, reaching a peak of $1.77 billion in 2018 before declining. A substantial contraction occurred in 2020, where profit fell to $1.21 billion, followed by a moderate recovery to $1.35 billion in 2021. Despite the recovery, the 2021 figures remain lower than those observed in 2018 and 2019.
- Cost of Capital
- The cost of capital remained relatively stable over the analyzed period, fluctuating within a narrow band between 14.75% and 15.70%. A gradual increase was observed from 2017 to 2020, followed by a slight reduction to 15.03% in 2021.
- Invested Capital
- Invested capital showed a general increasing trend until 2019, followed by a sharp decrease to $15.60 billion in 2020. By 2021, invested capital rose sharply to a five-year high of $18.43 billion, suggesting a significant expansion of the capital base in the final year of the period.
- Economic Profit
- Economic profit remained negative for all five years, confirming a persistent destruction of shareholder value from an economic perspective. While there was a slight improvement in the deficit in 2018, the economic loss widened progressively from 2019 onward, culminating in the largest deficit of negative $1.42 billion in 2021. The widening gap in 2021 is attributed to the simultaneous increase in invested capital and the failure of NOPAT to grow proportionally to the cost of that capital.
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Net Operating Profit after Taxes (NOPAT)
Ecolab Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for expected credit losses.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in restructuring liability.
5 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Ecolab.
6 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 397,700 × 3.07% = 12,209
7 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 242,809 × 21.00% = 50,990
8 Addition of after taxes interest expense to net income (loss) attributable to Ecolab.
9 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 12,300 × 21.00% = 2,583
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
An analysis of the financial results from 2017 through 2021 reveals a significant divergence between core operating profitability and bottom-line net income, particularly during the 2020 fiscal year.
- Net Income Volatility
- Net income attributable to the company exhibited substantial instability over the five-year period. After remaining relatively stable between 2017 and 2019, a severe contraction occurred in 2020, resulting in a net loss of 1,205,100 thousand US$. A recovery was observed in 2021, with net income returning to a positive value of 1,129,900 thousand US$, although this remained below pre-2020 levels.
- NOPAT Stability and Trends
- Net operating profit after taxes (NOPAT) demonstrated greater resilience than net income. NOPAT increased from 1,369,555 thousand US$ in 2017 to a peak of 1,771,309 thousand US$ in 2018. While a decline was noted in 2020, the figure remained positive at 1,206,880 thousand US$, before recovering to 1,348,902 thousand US$ in 2021.
- Operating Performance vs. Net Result
- A critical disparity is observed in 2020, where NOPAT remained positive despite a substantial net loss. This indicates that the core operating activities continued to generate value, and the net loss was likely driven by non-operating expenses, such as interest, taxes, or one-time non-recurring charges, rather than a failure of the primary business operations.
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Cash Operating Taxes
Ecolab Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
An analysis of cash operating taxes and income tax provisions between 2017 and 2021 reveals significant volatility in actual cash outflows compared to accounting provisions. The most notable trend is the substantial decline in cash operating taxes after 2017, followed by a period of fluctuation.
- Cash Operating Tax Volatility
- A sharp decrease in cash operating taxes occurred between 2017 and 2018, where expenditures fell from 692,614 thousand US$ to 329,842 thousand US$, representing a reduction of approximately 52%. While a moderate increase followed in 2019 to 405,411 thousand US$, a subsequent decline in 2020 brought cash taxes to a five-year low of 280,171 thousand US$, before a slight recovery to 319,507 thousand US$ in 2021.
- Divergence Between Provision and Cash Outflows
- There is a marked discrepancy between the provision for income taxes and actual cash operating taxes. In 2017, cash taxes were nearly three times higher than the recorded provision. Conversely, in 2018, the figures converged, with the provision (364,300 thousand US$) slightly exceeding cash taxes (329,842 thousand US$). This divergence indicates significant timing differences between accrual-based tax expenses and actual cash settlements.
- Recent Fiscal Trends
- The period from 2020 to 2021 shows a simultaneous increase in both provisions and cash operating taxes. The provision for income taxes rose from 176,600 thousand US$ to 270,200 thousand US$, while cash operating taxes increased from 280,171 thousand US$ to 319,507 thousand US$, suggesting a normalization of tax obligations following the 2020 trough.
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Invested Capital
Ecolab Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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 LIFO reserve. See details »
5 Addition of restructuring liability.
6 Addition of equity equivalents to total Ecolab shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
The analysis of invested capital and its components from 2017 to 2021 reveals a period of moderate growth, a significant contraction in 2020, and a subsequent recovery to a five-year peak by the end of 2021.
- Total Reported Debt and Leases
- A downward trend in debt and lease obligations was observed between 2017 and 2019, with values decreasing from 7,875,678 thousand to 6,932,500 thousand. This period of deleveraging was reversed in 2020 and 2021, culminating in a sharp increase to 9,155,900 thousand by December 31, 2021, marking the highest debt level in the analyzed timeframe.
- Total Shareholders’ Equity
- Equity grew steadily from 2017 to 2019, rising from 7,618,500 thousand to 8,685,300 thousand. However, a substantial decline occurred in 2020, where equity dropped to 6,166,500 thousand. A partial recovery followed in 2021, with equity increasing to 7,224,200 thousand, although it remained below the 2019 peak.
- Invested Capital
- Invested capital mirrored the fluctuations of its underlying components. After a period of gradual expansion from 17,388,578 thousand in 2017 to 18,090,500 thousand in 2019, the total contracted to 15,595,900 thousand in 2020. This decrease was primarily driven by the significant reduction in shareholders' equity. By December 31, 2021, invested capital rebounded strongly to 18,430,300 thousand, driven by simultaneous increases in both reported debt and shareholders' equity.
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Cost of Capital
Ecolab Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 51,701,301) | 51,701,301) | ÷ | 61,592,801) | = | 0.84 | 0.84 | × | 17.50% | = | 14.69% | ||
| Debt3 | 9,493,800) | 9,493,800) | ÷ | 61,592,801) | = | 0.15 | 0.15 | × | 2.68% × (1 – 21.00%) | = | 0.33% | ||
| Operating lease liability4 | 397,700) | 397,700) | ÷ | 61,592,801) | = | 0.01 | 0.01 | × | 3.07% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 61,592,801) | 1.00 | 15.03% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 59,845,547) | 59,845,547) | ÷ | 67,991,547) | = | 0.88 | 0.88 | × | 17.50% | = | 15.41% | ||
| Debt3 | 7,719,900) | 7,719,900) | ÷ | 67,991,547) | = | 0.11 | 0.11 | × | 3.11% × (1 – 21.00%) | = | 0.28% | ||
| Operating lease liability4 | 426,100) | 426,100) | ÷ | 67,991,547) | = | 0.01 | 0.01 | × | 3.72% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 67,991,547) | 1.00 | 15.70% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 51,999,634) | 51,999,634) | ÷ | 59,519,734) | = | 0.87 | 0.87 | × | 17.50% | = | 15.29% | ||
| Debt3 | 6,941,700) | 6,941,700) | ÷ | 59,519,734) | = | 0.12 | 0.12 | × | 3.39% × (1 – 21.00%) | = | 0.31% | ||
| Operating lease liability4 | 578,400) | 578,400) | ÷ | 59,519,734) | = | 0.01 | 0.01 | × | 4.00% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 59,519,734) | 1.00 | 15.63% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 48,981,106) | 48,981,106) | ÷ | 56,742,708) | = | 0.86 | 0.86 | × | 17.50% | = | 15.11% | ||
| Debt3 | 7,186,900) | 7,186,900) | ÷ | 56,742,708) | = | 0.13 | 0.13 | × | 3.28% × (1 – 21.00%) | = | 0.33% | ||
| Operating lease liability4 | 574,702) | 574,702) | ÷ | 56,742,708) | = | 0.01 | 0.01 | × | 3.28% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 56,742,708) | 1.00 | 15.46% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 37,794,238) | 37,794,238) | ÷ | 46,077,916) | = | 0.82 | 0.82 | × | 17.50% | = | 14.36% | ||
| Debt3 | 7,730,700) | 7,730,700) | ÷ | 46,077,916) | = | 0.17 | 0.17 | × | 3.34% × (1 – 35.00%) | = | 0.36% | ||
| Operating lease liability4 | 552,978) | 552,978) | ÷ | 46,077,916) | = | 0.01 | 0.01 | × | 3.34% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 46,077,916) | 1.00 | 14.75% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Ecolab Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (1,421,956) | (1,242,225) | (1,091,682) | (985,822) | (1,194,709) | |
| Invested capital2 | 18,430,300) | 15,595,900) | 18,090,500) | 17,830,002) | 17,388,578) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.72% | -7.97% | -6.03% | -5.53% | -6.87% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Linde plc | -8.85% | — | — | — | — | |
| Sherwin-Williams Co. | -2.76% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,421,956 ÷ 18,430,300 = -7.72%
4 Click competitor name to see calculations.
The analysis of economic value added indicates a consistent trend of value destruction from 2017 through 2021. The company failed to generate a return that exceeded its cost of capital throughout the entire five-year period, as evidenced by the persistently negative economic profit and economic spread ratio.
- Economic Profit Trajectory
- Economic profit remained negative for all reported years, starting at -1,194,709 thousand US$ in 2017. A marginal recovery was observed in 2018, where losses narrowed to -985,822 thousand US$. However, this trend reversed immediately, with economic losses widening consecutively from 2019 through 2021, culminating in a five-year low of -1,421,956 thousand US$.
- Invested Capital Dynamics
- Invested capital exhibited relative stability between 2017 and 2019, hovering around 17.3 billion to 18.1 billion US$. A significant contraction occurred in 2020, with invested capital dropping to 15,595,900 thousand US$. This was followed by a sharp increase in 2021 to 18,430,300 thousand US$, the highest level within the analyzed timeframe, suggesting a substantial reinvestment of capital despite the declining economic profit.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative throughout the period, signifying that the return on invested capital was consistently below the weighted average cost of capital. The ratio improved slightly to -5.53% in 2018 before deteriorating to its lowest point of -7.97% in 2020. Although the ratio saw a slight recovery to -7.72% in 2021, the continued negative spread confirms a systemic inability to create economic value during this period.
The correlation between the increase in invested capital and the widening economic loss in 2021 suggests that the additional capital deployed did not yield a proportional increase in operating returns. The most severe divergence between capital efficiency and cost occurred in 2020, where the economic spread ratio reached its nadir despite a decrease in the total invested capital base.
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Economic Profit Margin
Ecolab Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (1,421,956) | (1,242,225) | (1,091,682) | (985,822) | (1,194,709) | |
| Net sales | 12,733,100) | 11,790,200) | 14,906,300) | 14,668,200) | 13,838,300) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -11.17% | -10.54% | -7.32% | -6.72% | -8.63% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Linde plc | -20.85% | — | — | — | — | |
| Sherwin-Williams Co. | -2.19% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -1,421,956 ÷ 12,733,100 = -11.17%
3 Click competitor name to see calculations.
The financial analysis from 2017 to 2021 indicates a persistent failure to generate economic value above the cost of capital, characterized by consistently negative economic profit and deteriorating profit margins.
- Economic Profit Trajectory
- Economic profit remained negative throughout the entire five-year observation period. A brief improvement occurred in 2018, when the economic loss narrowed to $985.8 million from $1.19 billion in 2017. However, this trend reversed immediately, with losses expanding steadily from 2019 onward, reaching a peak deficit of $1.42 billion by December 31, 2021.
- Net Sales Performance
- Revenue exhibited an initial upward trend, growing from $13.84 billion in 2017 to a peak of $14.91 billion in 2019. A significant contraction followed in 2020, where sales dropped to $11.79 billion. While a recovery phase began in 2021 with sales rising to $12.73 billion, the volume remained below the 2017 starting point.
- Economic Profit Margin Analysis
- The economic profit margin demonstrates a clear erosion of value-creation efficiency. The margin improved from -8.63% in 2017 to -6.72% in 2018, but subsequently entered a period of continuous decline. The most severe deterioration was observed between 2019 and 2020, as the margin shifted from -7.32% to -10.54%, eventually reaching its lowest point of -11.17% in 2021.
The data suggests a strong correlation between the decline in net sales and the widening of the economic profit margin. The inability to maintain revenue levels alongside increasing economic losses indicates that the cost of capital is significantly outpacing the operating returns generated by the company.
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