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 = -1,421,736
The financial analysis for the period from 2017 to 2021 indicates a consistent trend of negative economic profit, signaling that the company failed to generate returns exceeding its cost of capital. Throughout the five-year duration, the company operated in a state of value destruction, as the net operating profit after taxes remained insufficient to cover the capital charge associated with its invested capital base.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated significant volatility over the observed period. After an initial increase from 1.37 billion USD in 2017 to a peak of 1.77 billion USD in 2018, profitability declined, reaching a period low of 1.21 billion USD in 2020. A marginal recovery was noted in 2021, with NOPAT rising to 1.35 billion USD, though it remained well below the 2018 levels.
- Cost of Capital and Invested Capital
- The cost of capital remained relatively stable, hovering between 14.75% and 15.70% across the five years. Concurrently, invested capital showed an overall upward trend, growing from 17.39 billion USD in 2017 to 18.43 billion USD in 2021. A notable exception occurred in 2020, where invested capital contracted to 15.60 billion USD before rebounding sharply in the following year.
- Economic Profit Performance
- Economic profit remained negative for the entire duration of the analysis. While there was a slight improvement in 2018, where the deficit narrowed to 985.60 million USD, the trend reversed thereafter. By 2021, the economic profit reached its lowest point at negative 1.42 billion USD. The widening gap between operating returns and the cost of capital suggests that the increase in invested capital has not been effectively translated into proportional operating profit growth.
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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% | = | 15.40% | ||
| 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 | (1,421,736) | (1,242,029) | (1,091,457) | (985,602) | (1,194,506) | |
| Invested capital2 | 18,430,300) | 15,595,900) | 18,090,500) | 17,830,002) | 17,388,578) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.71% | -7.96% | -6.03% | -5.53% | -6.87% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Linde plc | -8.90% | — | — | — | — | |
| Sherwin-Williams Co. | -2.69% | — | — | — | — | |
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 × -1,421,736 ÷ 18,430,300 = -7.71%
4 Click competitor name to see calculations.
The analysis of economic value added (EVA) metrics indicates a persistent inability to generate positive economic profit over the five-year period from 2017 to 2021. The consistent negative values across all metrics suggest that the returns generated on invested capital remained below the company's cost of capital throughout this duration.
- Economic Profit Trends
- Economic profit remained negative throughout the observed period, exhibiting a general downward trajectory. Although a temporary improvement occurred in 2018, when the deficit narrowed to approximately $985.6 million, subsequent years saw a steady decline. This deterioration culminated in the largest deficit of the period in 2021, reaching negative $1.42 billion.
- Invested Capital Fluctuations
- Invested capital displayed relative stability with some volatility. There was a gradual increase from $17.39 billion in 2017 to $18.09 billion in 2019. A notable contraction occurred in 2020, where invested capital dropped to $15.60 billion, followed by a sharp recovery in 2021 to a period high of $18.43 billion.
- Economic Spread Ratio Analysis
- The economic spread ratio remained consistently negative, reflecting a sustained gap between the actual return on capital and the required cost of capital. The ratio reached its most favorable point in 2018 at -5.53%, before deteriorating significantly to -7.96% in 2020. A marginal recovery to -7.71% was observed in 2021, yet the ratio continues to indicate that the company is destroying rather than creating economic value.
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Economic Profit Margin
Ecolab Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (1,421,736) | (1,242,029) | (1,091,457) | (985,602) | (1,194,506) | |
| Net sales | 12,733,100) | 11,790,200) | 14,906,300) | 14,668,200) | 13,838,300) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -11.17% | -10.53% | -7.32% | -6.72% | -8.63% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Linde plc | -20.97% | — | — | — | — | |
| Sherwin-Williams Co. | -2.13% | — | — | — | — | |
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 × -1,421,736 ÷ 12,733,100 = -11.17%
3 Click competitor name to see calculations.
Between 2017 and 2021, a consistent trend of negative economic profit is observed, indicating that the returns on capital were insufficient to cover the cost of capital throughout the analyzed period. While there was a temporary improvement in economic value in 2018, a persistent downward trajectory occurred from 2019 through 2021, signaling a deterioration in economic value creation.
- Economic Profit Trends
- The absolute economic profit remained negative for five consecutive years. After an initial reduction in losses to approximately 985.6 million USD in 2018, the deficit expanded annually, reaching approximately 1.42 billion USD by December 31, 2021. This widening loss suggests an increasing gap between the company's net operating profit after tax and its imputed cost of capital.
- Net Sales Performance
- Revenue growth was observed from 2017 through 2019, peaking at approximately 14.91 billion USD. A significant contraction occurred in 2020, with sales dropping to approximately 11.79 billion USD. Although a partial recovery was recorded in 2021, with sales increasing to approximately 12.73 billion USD, revenue did not return to the levels seen in the 2018-2019 period.
- Economic Profit Margin Analysis
- The economic profit margin remained negative throughout the period, reflecting an inability to generate economic value relative to sales volume. The margin peaked in 2018 at -6.72% before entering a period of steady decline. By 2021, the margin deteriorated to -11.17%, the lowest point in the series. This indicates that the decline in economic profit occurred at a faster rate than the recovery of net sales in the final year, resulting in diminished capital efficiency.
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