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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.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Ecolab Inc., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net operating profit after taxes (NOPAT)¹	1,348,902)	1,206,880)	1,736,725)	1,771,309)	1,369,555)
Cost of capital²	14.96%	15.62%	15.56%	15.38%	14.67%
Invested capital³	18,430,300)	15,595,900)	18,090,500)	17,830,002)	17,388,578)

Economic profit⁴	(1,407,846)	(1,229,705)	(1,077,268)	(971,784)	(1,181,701)

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 – 14.96% × 18,430,300 = -1,407,846

The analysis of economic value added indicates a sustained period of negative economic profit from 2017 through 2021. Throughout this five-year interval, the company consistently failed to generate sufficient net operating profit after taxes to cover the cost of the capital employed, resulting in a persistent destruction of economic value.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited significant volatility, peaking in 2018 at 1,771,309 thousand USD before experiencing a sharp decline in 2020 to 1,206,880 thousand USD. A partial recovery was noted in 2021, with figures rising to 1,348,902 thousand USD, although this remained below the levels observed in 2018 and 2019.
Cost of Capital and Invested Capital: The cost of capital remained relatively stable, fluctuating within a narrow range between 14.67% and 15.62%. Invested capital followed a non-linear trend, increasing steadily until 2019, followed by a notable contraction in 2020 to 15,595,900 thousand USD, and a subsequent expansion to a five-year high of 18,430,300 thousand USD by the end of 2021.
Economic Profit Trajectory: Economic profit remained negative across all reported years. While 2018 represented the period of lowest value destruction at -971,784 thousand USD, the deficit widened significantly by 2021, reaching -1,407,846 thousand USD. The deterioration in 2021 is particularly evident as the substantial increase in invested capital outpaced the recovery in NOPAT, thereby expanding the gap between operating returns and the cost of capital.

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Ecolab Inc., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income (loss) attributable to Ecolab	1,129,900)	(1,205,100)	1,558,900)	1,429,100)	1,508,400)
Deferred income tax expense (benefit)¹	(900)	(39,300)	(37,700)	85,100)	(354,500)
Increase (decrease) in allowance for expected credit losses²	(15,600)	29,600)	1,400)	(10,900)	3,900)
Increase (decrease) in LIFO reserve³	99,300)	(9,200)	(5,400)	29,000)	18,100)
Increase (decrease) in restructuring liability⁴	(60,000)	(800)	32,900)	37,300)	1,900)
Increase (decrease) in equity equivalents⁵	22,800)	(19,700)	(8,800)	140,500)	(330,600)
Interest expense	230,600)	304,800)	215,300)	237,200)	274,600)
Interest expense, operating lease liability⁶	12,209)	15,851)	23,136)	18,850)	18,469)
Adjusted interest expense	242,809)	320,651)	238,436)	256,050)	293,069)
Tax benefit of interest expense⁷	(50,990)	(67,337)	(50,072)	(53,771)	(102,574)
Adjusted interest expense, after taxes⁸	191,819)	253,314)	188,364)	202,280)	190,495)
Interest income	(12,300)	(14,600)	(24,100)	(14,900)	(19,600)
Investment income, before taxes	(12,300)	(14,600)	(24,100)	(14,900)	(19,600)
Tax expense (benefit) of investment income⁹	2,583)	3,066)	5,061)	3,129)	6,860)
Investment income, after taxes¹⁰	(9,717)	(11,534)	(19,039)	(11,771)	(12,740)
(Income) loss from discontinued operations, net of tax¹¹	—)	2,172,500)	—)	—)	—)
Net income (loss) attributable to noncontrolling interest	14,100)	17,400)	17,300)	11,200)	14,000)
Net operating profit after taxes (NOPAT)	1,348,902)	1,206,880)	1,736,725)	1,771,309)	1,369,555)

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.

Net Income (Loss) Attributable to Ecolab: The net income attributable to Ecolab exhibited positive values from 2017 through 2019, with a slight decrease in 2018 followed by a recovery in 2019. However, in 2020, there was a significant decline, reflected by a net loss of approximately 1.2 billion US dollars. This downturn was reversed in 2021, where net income returned to a positive figure, measuring around 1.13 billion US dollars, although still below the 2019 peak.
Net Operating Profit After Taxes (NOPAT): NOPAT showed an overall increasing trend from 2017 to 2019, starting at about 1.37 billion US dollars and peaking at roughly 1.74 billion US dollars in 2019. In 2020, similar to net income, NOPAT experienced a decline but remained positive at about 1.21 billion US dollars. In 2021, there was a moderate recovery, with NOPAT increasing to approximately 1.35 billion US dollars; however, this figure did not reach the 2019 peak level.
Summary of Trends and Insights: The data indicates that the company experienced a strong performance in the initial years up to 2019, with increasing profitability as evidenced by both net income and NOPAT. The year 2020 represents a notable inflection point with a severe reduction in profitability, culminating in a net loss. This suggests that external or internal factors during 2020 heavily impacted earnings. Both metrics improved in 2021, reflecting a recovery phase, but the full return to the profitability levels of 2019 has not yet been realized by the end of that year. The persistence of positive NOPAT through the downturn indicates ongoing operational profitability despite overall net losses in 2020.

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Ecolab Inc., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Provision for income taxes	270,200)	176,600)	322,700)	364,300)	242,400)
Less: Deferred income tax expense (benefit)	(900)	(39,300)	(37,700)	85,100)	(354,500)
Add: Tax savings from interest expense	50,990)	67,337)	50,072)	53,771)	102,574)
Less: Tax imposed on investment income	2,583)	3,066)	5,061)	3,129)	6,860)
Cash operating taxes	319,507)	280,171)	405,411)	329,842)	692,614)

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).

The financial data reveals notable fluctuations in the provision for income taxes and cash operating taxes over the five-year period.

Provision for income taxes: This item experienced an overall increase from 242,400 thousand US dollars in 2017 to a peak of 364,300 thousand US dollars in 2018. Subsequently, it decreased to 322,700 thousand US dollars in 2019 and sharply declined further to 176,600 thousand US dollars in 2020. However, it rebounded to 270,200 thousand US dollars in 2021. This pattern indicates volatility with a significant dip in 2020, possibly linked to changes in taxable income or tax regulations, followed by a partial recovery in the final year.
Cash operating taxes: Cash operating taxes presented a different trend characterized by a marked decrease from 692,614 thousand US dollars in 2017 to 329,842 thousand US dollars in 2018. After this drop, values rose to 405,411 thousand US dollars in 2019, followed by another decline to 280,171 thousand US dollars in 2020. There was a moderate increase to 319,507 thousand US dollars in 2021. Overall, the data exhibits considerable volatility with no sustained growth or decline, indicating fluctuating cash tax outflows over the years.

In summary, both provision for income taxes and cash operating taxes show significant variability throughout the period, with notable decreases in 2020 likely tied to the extraordinary circumstances of that year. The partial rebounds in 2021 suggest a normalization trend, although both metrics remain below their initial high points observed in earlier years.

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Ecolab Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Short-term debt	411,000)	17,300)	380,600)	743,600)	564,400)
Long-term debt, excluding current maturities	8,347,200)	6,669,300)	5,973,500)	6,301,600)	6,758,300)
Operating lease liability¹	397,700)	426,100)	578,400)	574,702)	552,978)
Total reported debt & leases	9,155,900)	7,112,700)	6,932,500)	7,619,902)	7,875,678)
Total Ecolab shareholders’ equity	7,224,200)	6,166,500)	8,685,300)	8,003,200)	7,618,500)
Net deferred tax (assets) liabilities²	501,400)	320,700)	584,800)	659,500)	540,500)
Allowance for expected credit losses³	52,800)	68,400)	62,000)	60,600)	71,500)
LIFO cost to FIFO cost difference⁴	114,900)	15,600)	(9,300)	(3,900)	(32,900)
Restructuring liability⁵	42,400)	102,400)	111,700)	78,800)	41,500)
Equity equivalents⁶	711,500)	507,100)	749,200)	795,000)	620,600)
Accumulated other comprehensive (income) loss, net of tax⁷	1,634,800)	1,994,400)	2,089,700)	1,761,700)	1,642,300)
Noncontrolling interest	28,900)	35,000)	40,500)	50,400)	70,200)
Adjusted total Ecolab shareholders’ equity	9,599,400)	8,703,000)	11,564,700)	10,610,300)	9,951,600)
Construction in progress⁸	(325,000)	(219,800)	(406,700)	(400,200)	(438,700)
Invested capital	18,430,300)	15,595,900)	18,090,500)	17,830,002)	17,388,578)

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.

Total Reported Debt & Leases: The total reported debt and leases exhibit a fluctuating pattern over the observed periods. Starting at approximately $7.88 billion in 2017, there is a gradual decline until 2019, reaching about $6.93 billion. This is followed by a slight increase in 2020 to approximately $7.11 billion, and a notable rise in 2021 to roughly $9.16 billion. The large increase in 2021 indicates a significant change in the company's leverage or financing activities.
Total Shareholders' Equity: Shareholders’ equity shows a general upward trend from 2017 to 2019, rising from around $7.62 billion to approximately $8.69 billion. However, in 2020, there is a sharp decrease to about $6.17 billion, followed by a partial recovery in 2021 to approximately $7.22 billion. The drop in 2020 could reflect significant losses, dividend payments, share repurchases, or other equity-reducing activities during that year.
Invested Capital: Invested capital demonstrates an increase from 2017 to 2019, moving from around $17.39 billion to $18.09 billion. In 2020, there is a decline to approximately $15.60 billion, consistent with the reduction in shareholders' equity and the minor increase in debt. By 2021, invested capital rises again to about $18.43 billion, reaching its highest level in the observed timeframe. This trend suggests active adjustments in the capital structure and investment base through the period.

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Ecolab Inc., cost of capital calculations

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	51,701,301)	51,701,301)	÷	61,592,801)	=	0.84	0.84	×	17.41%	=	14.62%
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					14.96%

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 »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	59,845,547)	59,845,547)	÷	67,991,547)	=	0.88	0.88	×	17.41%	=	15.33%
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					15.62%

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 »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	51,999,634)	51,999,634)	÷	59,519,734)	=	0.87	0.87	×	17.41%	=	15.21%
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					15.56%

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 »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	48,981,106)	48,981,106)	÷	56,742,708)	=	0.86	0.86	×	17.41%	=	15.03%
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					15.38%

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 »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	37,794,238)	37,794,238)	÷	46,077,916)	=	0.82	0.82	×	17.41%	=	14.28%
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					14.67%

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 »

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	(1,407,846)	(1,229,705)	(1,077,268)	(971,784)	(1,181,701)
Invested capital²	18,430,300)	15,595,900)	18,090,500)	17,830,002)	17,388,578)
Performance Ratio
Economic spread ratio³	-7.64%	-7.88%	-5.95%	-5.45%	-6.80%
Benchmarks
Economic Spread Ratio, Competitors⁴
Linde plc	-8.71%	—	—	—	—
Sherwin-Williams Co.	-2.75%	—	—	—	—

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 × -1,407,846 ÷ 18,430,300 = -7.64%

⁴ Click competitor name to see calculations.

An analysis of the financial performance from 2017 to 2021 reveals a consistent inability to generate positive economic profit, indicating that the returns on invested capital did not exceed the weighted average cost of capital throughout the five-year period.

Economic Profit: Economic profit remained negative across all reported years. Although a marginal improvement was observed in 2018, where losses narrowed to approximately 971.78 million USD, a downward trend emerged thereafter. The economic deficit widened progressively from 2019 through 2021, reaching a period low of negative 1.41 billion USD by the end of 2021.
Invested Capital: Invested capital showed an overall upward trajectory with a notable exception in 2020. The capital base grew steadily from 17.39 billion USD in 2017 to 18.09 billion USD in 2019. A significant contraction occurred in 2020, with invested capital dropping to 15.60 billion USD, before rebounding sharply in 2021 to a five-year peak of 18.43 billion USD.
Economic Spread Ratio: The economic spread ratio stayed consistently negative, reflecting a persistent value-destruction phase. The ratio peaked at -5.45% in 2018, representing the period of highest relative efficiency. However, the ratio deteriorated significantly in 2020, reaching its lowest point of -7.88%, before showing a slight recovery to -7.64% in 2021. The correlation between the widening economic profit deficit and the negative spread ratio confirms a sustained gap between actual returns and the required cost of capital.

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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	(1,407,846)	(1,229,705)	(1,077,268)	(971,784)	(1,181,701)
Net sales	12,733,100)	11,790,200)	14,906,300)	14,668,200)	13,838,300)
Performance Ratio
Economic profit margin²	-11.06%	-10.43%	-7.23%	-6.63%	-8.54%
Benchmarks
Economic Profit Margin, Competitors³
Linde plc	-20.53%	—	—	—	—
Sherwin-Williams Co.	-2.18%	—	—	—	—

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 × -1,407,846 ÷ 12,733,100 = -11.06%

³ Click competitor name to see calculations.

The financial trajectory from 2017 to 2021 is characterized by consistent negative economic profit and a deteriorating economic profit margin. While net sales exhibited growth in the early part of the period, a significant contraction occurred in 2020, followed by a partial recovery in 2021. This recovery in sales did not translate into improved economic value creation, as the economic profit reached its lowest point in the final year of the analyzed period.

Economic Profit Trend: Economic profit remained negative throughout the five-year period. Following a brief improvement in 2018, where losses narrowed to US$ 971.8 million, a sustained downward trend emerged. By December 31, 2021, the economic profit declined to US$ -1.41 billion, indicating a failure to generate returns in excess of the cost of capital.
Net Sales Performance: Net sales increased from US$ 13.8 billion in 2017 to a peak of US$ 14.9 billion in 2019. A sharp contraction was observed in 2020, with sales falling to US$ 11.8 billion. Although sales rebounded to US$ 12.7 billion in 2021, the volume remained below the levels recorded between 2017 and 2019.
Economic Profit Margin Analysis: The economic profit margin demonstrated a general decline, mirroring the deterioration in economic profit. The margin improved from -8.54% in 2017 to -6.63% in 2018, but subsequently widened to -11.06% by 2021. The sharpest deterioration occurred between 2019 and 2020, suggesting that the decline in net sales had a disproportionate negative impact on the company's ability to cover its economic cost of capital.

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Ecolab Inc. (NYSE:ECL)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin