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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

Emerson Electric Co., economic profit calculation

US$ in millions

	12 months ended	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014	Sep 30, 2013
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

<>⁴ 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= hidden

–

×

=

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Emerson Electric Co.’s economic profit increased from 2016 to 2017 and from 2017 to 2018.

Emerson Electric Co., NOPAT calculation

US$ in millions

	12 months ended	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014	Sep 30, 2013
	Net earnings common stockholders
	Deferred income tax expense (benefit)¹
	Increase (decrease) in allowances²
	Increase (decrease) in product warranty³
	Increase (decrease) in liability for restructuring costs⁴
	Increase (decrease) in equity equivalents⁵
	Interest expense
	Interest expense, operating lease liability⁶
	Adjusted interest expense
	Tax benefit of interest expense⁷
	Adjusted interest expense, after taxes⁸
	Interest income
	Investment income, before taxes
	Tax expense (benefit) of investment income⁹
	Investment income, after taxes¹⁰
	(Income) loss from discontinued operations, net of tax¹¹
	Net income (loss) attributable to noncontrolling interest
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowances.

³ Addition of increase (decrease) in product warranty.

⁴ Addition of increase (decrease) in liability for restructuring costs.

⁵ Addition of increase (decrease) in equity equivalents to net earnings common stockholders.

⁶ 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁷ 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= hidden × 24.50% = hidden

⁸ Addition of after taxes interest expense to net earnings common stockholders.

⁹ 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 24.50% = hidden

¹⁰ Elimination of after taxes investment income.

¹¹ Elimination of discontinued operations.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Emerson Electric Co.’s NOPAT increased from 2016 to 2017 and from 2017 to 2018.

Emerson Electric Co., cash operating taxes calculation

US$ in millions

	12 months ended	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014	Sep 30, 2013
	Income tax expense
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Emerson Electric Co.’s cash operating taxes declined from 2016 to 2017 and from 2017 to 2018.

Emerson Electric Co., invested capital calculation (financing approach)

US$ in millions

		Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014	Sep 30, 2013
	Short-term borrowings and current maturities of long-term debt
	Long-term debt, excluding current maturities
	Operating lease liability¹
	Total reported debt & leases
	Common stockholders’ equity
	Net deferred tax (assets) liabilities²
	Allowances³
	Product warranty⁴
	Liability for restructuring costs⁵
	Equity equivalents⁶
	Accumulated other comprehensive (income) loss, net of tax⁷
	Noncontrolling interests in subsidiaries
	Adjusted common stockholders’ equity
	Construction in progress⁸
	Invested capital

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

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 product warranty.

⁵ Addition of liability for restructuring costs.

⁶ Addition of equity equivalents to common stockholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction in progress.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Emerson Electric Co.’s invested capital declined from 2016 to 2017 but then slightly increased from 2017 to 2018.

Emerson Electric Co., cost of capital calculations

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 24.50%)	=
Operating lease liability⁴		÷	=		×	× (1 – 24.50%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2018-11-19).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2017-11-20).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2016-11-16).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2015-11-18).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2014-11-19).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2013-11-19).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Emerson Electric Co., economic spread ratio calculation

		Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014	Sep 30, 2013
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Invested capital²
	Performance Ratio
	Economic spread ratio³

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Emerson Electric Co.’s economic spread ratio improved from 2016 to 2017 and from 2017 to 2018.

Emerson Electric Co., economic profit margin calculation

		Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014	Sep 30, 2013
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Net sales
	Performance Ratio
	Economic profit margin²

Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).

¹ Economic profit. See details »

² 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × hidden ÷ hidden = hidden

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Emerson Electric Co.’s economic profit margin improved from 2016 to 2017 and from 2017 to 2018.

	Emerson Electric Co.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Emerson Electric Co. (EMR)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Sep 30, 2018

Sep 30, 2017

Sep 30, 2016

Sep 30, 2015

Sep 30, 2014

Sep 30, 2013

Economic Spread Ratio

Economic Profit Margin