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
Emerson Electric Co., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,461 – 18.78% × 16,266 = -594
Between September 30, 2014, and September 30, 2019, the entity consistently reported negative economic profit, indicating that the net operating profit after taxes (NOPAT) was insufficient to cover the total cost of capital employed. Despite the persistent deficit, a recovery trend is evident in the latter half of the period, as the economic profit moved closer to a break-even point.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility during the analyzed period. After reaching a peak of 2,871 million in 2015, profits declined sharply to 1,731 million in 2016. However, a sustained recovery followed, with NOPAT increasing annually from 2017 through 2019, ending the period at 2,461 million.
- Invested Capital
- A contraction in the capital base was observed from 2014 to 2017, with invested capital decreasing from 17,628 million to 15,181 million. This downward trend reversed after 2017, as the capital base expanded to 16,266 million by 2019.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating within a range of approximately 1.7 percentage points. The rate reached its lowest point of 17.45% in 2015 and peaked at 19.15% in 2018, before settling at 18.78% in 2019.
- Economic Profit Analysis
- Economic profit remained negative throughout the six-year duration, with the most significant deficit occurring in 2016 at -1,208 million. Since that low point, there has been a consistent improvement in economic value added, with the deficit narrowing to -594 million by 2019. This improvement correlates with the steady increase in NOPAT and a relative stabilization of the cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Emerson Electric Co., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
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 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 470 × 3.06% = 14
7 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 215 × 21.00% = 45
8 Addition of after taxes interest expense to net earnings common stockholders.
9 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 27 × 21.00% = 6
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
The financial performance between 2014 and 2019 is characterized by a period of volatility followed by a sustained recovery in both operating profitability and net earnings. A peak in performance occurred in 2015, followed by a notable contraction in 2016 and 2017, before returning to growth levels in 2018 and 2019.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT exhibited significant variance, increasing from US$ 2,212 million in 2014 to a peak of US$ 2,871 million in 2015. A sharp decline followed in 2016, with NOPAT falling to US$ 1,731 million. Following a period of relative stability in 2017 at US$ 1,776 million, a consistent upward trajectory was established, reaching US$ 2,461 million by September 30, 2019.
- Net Earnings for Common Stockholders Trend
- Net earnings followed a trajectory closely aligned with NOPAT. After rising to US$ 2,710 million in 2015, net earnings dropped substantially to US$ 1,635 million in 2016 and reached a period low of US$ 1,518 million in 2017. A recovery was observed in 2018 and 2019, with earnings climbing to US$ 2,203 million and US$ 2,306 million, respectively.
- Comparative Analysis of NOPAT and Net Earnings
- Throughout the majority of the observed period, NOPAT remained higher than net earnings, suggesting that operational profitability generally exceeded the final earnings available to stockholders after accounting for financing costs and other non-operating items. A notable divergence occurred in 2018, where net earnings (US$ 2,203 million) exceeded NOPAT (US$ 2,124 million), indicating a period where non-operating income or tax adjustments positively influenced the bottom line relative to core operational performance. By 2019, the relationship reverted, with NOPAT returning to a value higher than net earnings.
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Cash Operating Taxes
Emerson Electric Co., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
An analysis of tax-related expenditures between 2014 and 2019 reveals a significant volatility in both accounting tax expenses and actual cash tax outflows, with a pronounced downward shift occurring after 2015.
- Cash Operating Taxes Trend
- Cash operating taxes peaked in September 2015 at 1,525 million US dollars. This was followed by a substantial reduction in 2016, where outflows dropped to 782 million US dollars, a decrease of approximately 48.7%. From 2016 through 2019, a general downward trajectory continued, concluding at 619 million US dollars in 2019.
- Income Tax Expense Trend
- Income tax expense mirrored the movement of cash operating taxes, peaking in 2015 at 1,428 million US dollars before falling sharply to 697 million US dollars in 2016. The lowest point was reached in 2018 at 443 million US dollars, followed by a moderate recovery to 531 million US dollars in 2019.
- Variance Between Cash and Accounting Taxes
- Throughout the entire period, cash operating taxes consistently exceeded income tax expense. The gap between these two metrics fluctuated over time; it was most pronounced in 2018, where cash operating taxes were 294 million US dollars higher than the reported tax expense. In contrast, the variance was narrowest in 2016 and 2019, suggesting periods of closer alignment between statutory tax accounting and actual cash disbursements.
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Invested Capital
Emerson Electric Co., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
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.
The analysis of the capital structure from 2014 to 2019 reveals a period of capital contraction followed by a moderate expansion. Total invested capital peaked in 2014 and reached its lowest point in 2017 before trending upward through 2019.
- Invested Capital Trends
- A consistent decline in invested capital is observed from 2014, when it stood at US$ 17,628 million, to a low of US$ 15,181 million in 2017. This contraction represents a reduction of approximately 13.9% over three years. A reversal occurred in 2018 and 2019, with the figure climbing to US$ 16,266 million by the end of the period.
- Debt and Lease Obligations
- Debt levels exhibited significant volatility during the analyzed timeframe. An initial increase occurred in 2015, reaching US$ 7,624 million, followed by a sharp decline to a period low of US$ 5,137 million in 2017. From 2017 onward, a steady upward trend in reported debt and leases is evident, ending at US$ 6,191 million in 2019.
- Equity Fluctuations
- Common stockholders' equity experienced a notable contraction between 2014 and 2016, dropping from US$ 10,119 million to US$ 7,568 million. A partial recovery was recorded in 2017 and 2018, peaking at US$ 8,947 million, before declining again to US$ 8,233 million in 2019.
- Capital Composition Insights
- The reduction in invested capital between 2014 and 2017 was driven by simultaneous declines in both equity and debt. However, the subsequent increase in invested capital from 2017 to 2019 was primarily fueled by rising debt levels, as equity levels remained below 2014 peaks and showed a decrease in the final year of the period.
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Cost of Capital
Emerson Electric Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 44,511) | 44,511) | ÷ | 51,171) | = | 0.87 | 0.87 | × | 21.23% | = | 18.47% | ||
| Debt3 | 6,190) | 6,190) | ÷ | 51,171) | = | 0.12 | 0.12 | × | 3.06% × (1 – 21.00%) | = | 0.29% | ||
| Operating lease liability4 | 470) | 470) | ÷ | 51,171) | = | 0.01 | 0.01 | × | 3.06% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 51,171) | 1.00 | 18.78% | ||||||||||
Based on: 10-K (reporting date: 2019-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 42,867) | 42,867) | ÷ | 48,354) | = | 0.89 | 0.89 | × | 21.23% | = | 18.82% | ||
| Debt3 | 4,895) | 4,895) | ÷ | 48,354) | = | 0.10 | 0.10 | × | 3.81% × (1 – 24.50%) | = | 0.29% | ||
| Operating lease liability4 | 592) | 592) | ÷ | 48,354) | = | 0.01 | 0.01 | × | 3.81% × (1 – 24.50%) | = | 0.04% | ||
| Total: | 48,354) | 1.00 | 19.15% | ||||||||||
Based on: 10-K (reporting date: 2018-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 38,676) | 38,676) | ÷ | 44,134) | = | 0.88 | 0.88 | × | 21.23% | = | 18.60% | ||
| Debt3 | 4,977) | 4,977) | ÷ | 44,134) | = | 0.11 | 0.11 | × | 3.89% × (1 – 35.00%) | = | 0.29% | ||
| Operating lease liability4 | 481) | 481) | ÷ | 44,134) | = | 0.01 | 0.01 | × | 3.89% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 44,134) | 1.00 | 18.92% | ||||||||||
Based on: 10-K (reporting date: 2017-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 35,333) | 35,333) | ÷ | 43,006) | = | 0.82 | 0.82 | × | 21.23% | = | 17.44% | ||
| Debt3 | 7,123) | 7,123) | ÷ | 43,006) | = | 0.17 | 0.17 | × | 2.99% × (1 – 35.00%) | = | 0.32% | ||
| Operating lease liability4 | 550) | 550) | ÷ | 43,006) | = | 0.01 | 0.01 | × | 2.99% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 43,006) | 1.00 | 17.79% | ||||||||||
Based on: 10-K (reporting date: 2016-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 32,734) | 32,734) | ÷ | 40,714) | = | 0.80 | 0.80 | × | 21.23% | = | 17.07% | ||
| Debt3 | 7,198) | 7,198) | ÷ | 40,714) | = | 0.18 | 0.18 | × | 2.98% × (1 – 35.00%) | = | 0.34% | ||
| Operating lease liability4 | 782) | 782) | ÷ | 40,714) | = | 0.02 | 0.02 | × | 2.98% × (1 – 35.00%) | = | 0.04% | ||
| Total: | 40,714) | 1.00 | 17.45% | ||||||||||
Based on: 10-K (reporting date: 2015-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 44,497) | 44,497) | ÷ | 51,742) | = | 0.86 | 0.86 | × | 21.23% | = | 18.26% | ||
| Debt3 | 6,435) | 6,435) | ÷ | 51,742) | = | 0.12 | 0.12 | × | 3.28% × (1 – 35.00%) | = | 0.27% | ||
| Operating lease liability4 | 810) | 810) | ÷ | 51,742) | = | 0.02 | 0.02 | × | 3.28% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 51,742) | 1.00 | 18.55% | ||||||||||
Based on: 10-K (reporting date: 2014-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Emerson Electric Co., economic spread ratio calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (594) | (866) | (1,095) | (1,208) | (152) | (1,058) | |
| Invested capital2 | 16,266) | 15,617) | 15,181) | 16,521) | 17,328) | 17,628) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -3.65% | -5.54% | -7.21% | -7.31% | -0.88% | -6.00% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -594 ÷ 16,266 = -3.65%
4 Click competitor name to see calculations.
The financial performance from 2014 to 2019 is characterized by a persistent inability to generate positive economic value, as evidenced by consistently negative economic profit and economic spread ratios. Despite this, a general trend toward recovery is observable in the latter half of the period.
- Economic Profit Trends
- Economic profit remained negative throughout the entire six-year period, indicating that the return on invested capital did not exceed the cost of capital. A significant volatility is noted, with a sharp improvement in 2015 to -152 million US$, followed by a substantial decline to a period low of -1,208 million US$ in 2016. From 2016 through 2019, a steady upward trajectory is observed, with the deficit narrowing to -594 million US$ by the end of the period.
- Invested Capital Dynamics
- Invested capital exhibited a contraction phase between 2014 and 2017, decreasing from 17,628 million US$ to 15,181 million US$. This period of capital reduction was followed by a moderate expansion phase, with invested capital rising to 16,266 million US$ by September 30, 2019. The overall movement suggests a strategic realignment or divestment period followed by a reinvestment phase.
- Economic Spread Ratio Analysis
- The economic spread ratio remained in negative territory, mirroring the trend of the economic profit. The ratio reached its most favorable point in 2015 at -0.88%, before dropping to -7.31% in 2016. Since 2016, the spread ratio has consistently improved, moving from -7.21% in 2017 to -3.65% in 2019. This consistent narrowing of the negative spread indicates a gradual improvement in the efficiency of capital utilization relative to the cost of funding.
In summary, while the organization did not achieve economic value addition during the analyzed timeframe, the convergence of the economic spread ratio toward zero and the reduction in economic profit losses since 2016 suggest an improving financial trajectory.
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Economic Profit Margin
Emerson Electric Co., economic profit margin calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (594) | (866) | (1,095) | (1,208) | (152) | (1,058) | |
| Net sales | 18,372) | 17,408) | 15,264) | 14,522) | 22,304) | 24,537) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -3.23% | -4.97% | -7.17% | -8.32% | -0.68% | -4.31% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -594 ÷ 18,372 = -3.23%
3 Click competitor name to see calculations.
The financial performance from 2014 to 2019 is characterized by a persistent inability to generate positive economic value, as economic profit remained negative throughout the entire period. However, a notable recovery trend is evident following a significant downturn in 2016, with both absolute economic profit and the economic profit margin showing steady improvement toward the end of the analyzed timeframe.
- Economic Profit Trends
- Economic profit exhibited significant volatility, starting at -1,058 million USD in 2014 and improving sharply to -152 million USD in 2015. A substantial reversal occurred in 2016, where losses widened to the period low of -1,208 million USD. From 2017 through 2019, a consistent recovery path was established, with losses narrowing to -1,095 million USD, -866 million USD, and -594 million USD, respectively.
- Net Sales Performance
- Net sales experienced a sharp contraction between 2014 and 2016, falling from 24,537 million USD to a low of 14,522 million USD. This decline coincided with the peak in economic losses. Subsequent years showed a gradual recovery in top-line revenue, increasing to 18,372 million USD by September 30, 2019, although sales remained below 2014 levels.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of absolute losses and sales. The margin improved to -0.68% in 2015 before plummeting to its lowest point of -8.32% in 2016. Following this trough, the margin demonstrated a consistent upward trajectory, improving to -7.17% in 2017, -4.97% in 2018, and finally reaching -3.23% in 2019. This suggests an incremental improvement in the efficiency of capital utilization relative to revenue generation.
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