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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	15.09%	15.76%	15.69%	15.52%	14.80%
Invested capital³	18,430,300)	15,595,900)	18,090,500)	17,830,002)	17,388,578)

Economic profit⁴	(1,431,945)	(1,251,089)	(1,101,887)	(995,759)	(1,203,918)

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 – 15.09% × 18,430,300 = -1,431,945

The financial performance from 2017 to 2021 is characterized by a persistent failure to generate positive economic profit, indicating that the returns on invested capital remained below the company's weighted average cost of capital throughout the period.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited significant volatility over the five-year period. After an initial increase to a peak of 1.77 billion USD in 2018, a downward trend emerged, culminating in a sharp decline to 1.21 billion USD in 2020. A partial recovery was observed in 2021, with NOPAT rising to 1.35 billion USD, though it remained below 2018 and 2019 levels.
Capital Structure and Cost of Capital: The cost of capital remained relatively stable, fluctuating within a narrow range between 14.80% and 15.76%. Invested capital showed a general upward trajectory, increasing from 17.39 billion USD in 2017 to 18.43 billion USD in 2021. A notable anomaly occurred in 2020, where invested capital decreased to 15.60 billion USD before rebounding strongly in the following year.
Economic Profit Analysis: Economic profit remained consistently negative, signifying continuous value destruction. Although the deficit narrowed slightly in 2018 to -995.76 million USD, the trend reversed in subsequent years. By December 31, 2021, the economic loss widened to -1.43 billion USD. This suggests that the growth in invested capital and the stability of the cost of capital have outpaced the growth in operating profits, leading to an expanding gap between the actual returns and the required return on 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	×	17.57%	=	14.75%
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					15.09%

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	×	17.57%	=	15.46%
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					15.76%

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	×	17.57%	=	15.35%
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					15.69%

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	×	17.57%	=	15.16%
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					15.52%

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	×	17.57%	=	14.41%
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					14.80%

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	(1,431,945)	(1,251,089)	(1,101,887)	(995,759)	(1,203,918)
Invested capital²	18,430,300)	15,595,900)	18,090,500)	17,830,002)	17,388,578)
Performance Ratio
Economic spread ratio³	-7.77%	-8.02%	-6.09%	-5.58%	-6.92%
Benchmarks
Economic Spread Ratio, Competitors⁴
Linde plc	-8.83%	—	—	—	—
Sherwin-Williams Co.	-2.91%	—	—	—	—

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 × -1,431,945 ÷ 18,430,300 = -7.77%

⁴ Click competitor name to see calculations.

The analysis of economic value added indicates a consistent trend of negative economic profit and negative economic spread ratios from 2017 through 2021. This pattern demonstrates that the returns generated by the invested capital have been insufficient to cover the cost of capital throughout the entire observed period.

Economic Profit Trend: Economic profit remained negative for all five years, exhibiting a slight improvement in 2018 before entering a period of steady decline. The deficit narrowed to 995.8 million US dollars in 2018 but subsequently widened, reaching a peak loss of 1.43 billion US dollars by the end of 2021. This trajectory indicates a growing disparity between operational earnings and the required return on capital.
Invested Capital Fluctuations: Invested capital showed a gradual increase from 17.39 billion US dollars in 2017 to 18.09 billion US dollars in 2019. A significant contraction occurred in 2020, with capital decreasing to 15.60 billion US dollars, followed by a sharp recovery in 2021 to 18.43 billion US dollars, the highest level in the five-year sequence.
Economic Spread Ratio Analysis: The economic spread ratio remained negative throughout the period, fluctuating between -5.58% and -8.02%. The most favorable ratio was recorded in 2018 at -5.58%, while the least favorable performance occurred in 2020 at -8.02%. The deterioration in 2020 occurred despite a reduction in invested capital, suggesting a significant decline in the efficiency of capital utilization relative to the cost of financing. The ratio ended the period at -7.77% in 2021, confirming a persistent failure to create economic value.

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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	(1,431,945)	(1,251,089)	(1,101,887)	(995,759)	(1,203,918)
Net sales	12,733,100)	11,790,200)	14,906,300)	14,668,200)	13,838,300)
Performance Ratio
Economic profit margin²	-11.25%	-10.61%	-7.39%	-6.79%	-8.70%
Benchmarks
Economic Profit Margin, Competitors³
Linde plc	-20.81%	—	—	—	—
Sherwin-Williams Co.	-2.31%	—	—	—	—

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 × -1,431,945 ÷ 12,733,100 = -11.25%

³ Click competitor name to see calculations.

An analysis of the financial performance from 2017 to 2021 reveals a persistent negative economic profit, indicating that the returns generated were insufficient to cover the company's cost of capital throughout the period. While there was a brief improvement in 2018, the overall trajectory shows a decline in value creation efficiency.

Economic Profit Trends: The economic profit remained negative for all five years analyzed. After reaching a peak of -995,759 thousand USD in 2018, the figure deteriorated steadily, reaching its lowest point of -1,431,945 thousand USD by December 31, 2021. This downward trend suggests an increasing gap between the actual net operating profit and the required return on capital.
Net Sales Performance: Revenue exhibited growth from 2017 through 2019, peaking at 14,906,300 thousand USD. A significant contraction occurred in 2020, where net sales dropped to 11,790,200 thousand USD. Although a partial recovery was observed in 2021 with sales rising to 12,733,100 thousand USD, the volume remained below the 2017 to 2019 baseline.
Economic Profit Margin Analysis: The economic profit margin reflects a widening deficit. The margin improved from -8.70% in 2017 to -6.79% in 2018, representing the most efficient point in the period. However, the margin subsequently declined, dropping sharply to -10.61% in 2020 and further to -11.25% in 2021. The correlation between falling sales in 2020 and the expanding negative margin suggests that the cost of capital became more burdensome as revenue decreased.

In summary, the period is characterized by a failure to achieve a positive economic profit, with the economic profit margin deteriorating significantly between 2018 and 2021. The inability to reverse the negative trend in economic profit, despite a partial recovery in net sales in 2021, indicates a systemic challenge in generating returns that exceed the weighted average 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