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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, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014
Net operating profit after taxes (NOPAT)¹	2,461)	2,124)	1,776)	1,731)	2,871)	2,212)
Cost of capital²	18.90%	19.27%	19.04%	17.90%	17.56%	18.67%
Invested capital³	16,266)	15,617)	15,181)	16,521)	17,328)	17,628)

Economic profit⁴	(614)	(885)	(1,114)	(1,227)	(172)	(1,080)

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 – 18.90% × 16,266 = -614

The financial data reveals a consistent trend of negative economic profit over the six-year period from 2014 to 2019. This indicates that the company failed to generate sufficient net operating profit after taxes (NOPAT) to cover its cost of capital relative to the invested capital, resulting in the destruction of economic value for shareholders throughout the observed timeframe.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited significant volatility, peaking at 2,871 million US$ in 2015 before dropping sharply to 1,731 million US$ in 2016. Following this trough, a steady recovery trend is observed, with NOPAT increasing annually to reach 2,461 million US$ by September 30, 2019.
Cost of Capital and Invested Capital: The cost of capital remained relatively stable, fluctuating within a narrow range between 17.56% and 19.27%. Concurrently, invested capital showed a general decline from 17,628 million US$ in 2014 to a low of 15,181 million US$ in 2017, before beginning a gradual ascent to 16,266 million US$ by 2019.
Economic Profit Trends: Economic profit remained negative for all reported years. The most significant improvement occurred in 2015, where losses narrowed to 172 million US$, followed by a sharp decline to the period low of -1,227 million US$ in 2016. Since 2016, there has been a consistent upward trajectory in economic profit, reducing the annual loss from 1,227 million US$ to 614 million US$ by 2019.

The analysis indicates that while the company has not yet achieved a positive economic profit, the narrowing gap between NOPAT and the capital charge since 2016 suggests an improving trend in capital efficiency and value creation potential.

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Emerson Electric Co., NOPAT calculation

US$ in millions

12 months ended:	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014
Net earnings common stockholders	2,306)	2,203)	1,518)	1,635)	2,710)	2,147)
Deferred income tax expense (benefit)¹	(48)	(250)	(42)	(13)	(29)	(153)
Increase (decrease) in allowances²	(1)	22)	(1)	3)	14)	11)
Increase (decrease) in product warranty³	16)	4)	14)	5)	(26)	10)
Increase (decrease) in liability for restructuring costs⁴	17)	(13)	11)	(16)	53)	17)
Increase (decrease) in equity equivalents⁵	(16)	(237)	(18)	(21)	12)	(115)
Interest expense	201)	202)	201)	215)	200)	218)
Interest expense, operating lease liability⁶	14)	23)	19)	16)	23)	27)
Adjusted interest expense	215)	225)	220)	231)	223)	245)
Tax benefit of interest expense⁷	(45)	(55)	(77)	(81)	(78)	(86)
Adjusted interest expense, after taxes⁸	170)	170)	143)	150)	145)	159)
Interest income	(27)	(43)	(36)	(27)	(29)	(24)
Investment income, before taxes	(27)	(43)	(36)	(27)	(29)	(24)
Tax expense (benefit) of investment income⁹	6)	11)	13)	9)	10)	8)
Investment income, after taxes¹⁰	(21)	(32)	(23)	(18)	(19)	(16)
(Income) loss from discontinued operations, net of tax¹¹	—)	—)	125)	(45)	—)	—)
Net income (loss) attributable to noncontrolling interest	22)	21)	32)	29)	23)	37)
Net operating profit after taxes (NOPAT)	2,461)	2,124)	1,776)	1,731)	2,871)	2,212)

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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Emerson Electric Co., cash operating taxes calculation

US$ in millions

12 months ended:	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014
Income tax expense	531)	443)	660)	697)	1,428)	1,164)
Less: Deferred income tax expense (benefit)	(48)	(250)	(42)	(13)	(29)	(153)
Add: Tax savings from interest expense	45)	55)	77)	81)	78)	86)
Less: Tax imposed on investment income	6)	11)	13)	9)	10)	8)
Cash operating taxes	619)	737)	766)	782)	1,525)	1,394)

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

US$ in millions

	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015	Sep 30, 2014
Short-term borrowings and current maturities of long-term debt	1,444)	1,623)	862)	2,584)	2,553)	2,465)
Long-term debt, excluding current maturities	4,277)	3,137)	3,794)	4,062)	4,289)	3,559)
Operating lease liability¹	470)	592)	481)	550)	782)	810)
Total reported debt & leases	6,191)	5,352)	5,137)	7,196)	7,624)	6,834)
Common stockholders’ equity	8,233)	8,947)	8,718)	7,568)	8,081)	10,119)
Net deferred tax (assets) liabilities²	230)	410)	339)	(226)	9)	156)
Allowances³	112)	113)	91)	92)	128)	114)
Product warranty⁴	140)	124)	120)	106)	167)	193)
Liability for restructuring costs⁵	69)	52)	65)	54)	70)	17)
Equity equivalents⁶	551)	699)	615)	26)	374)	480)
Accumulated other comprehensive (income) loss, net of tax⁷	1,722)	1,015)	1,019)	1,999)	1,617)	575)
Noncontrolling interests in subsidiaries	40)	43)	52)	50)	47)	48)
Adjusted common stockholders’ equity	10,546)	10,704)	10,404)	9,643)	10,119)	11,222)
Construction in progress⁸	(471)	(439)	(360)	(318)	(415)	(428)
Invested capital	16,266)	15,617)	15,181)	16,521)	17,328)	17,628)

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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Emerson Electric Co., cost of capital calculations

Sep 30, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	44,511)	44,511)	÷	51,171)	=	0.87	0.87	×	21.37%	=	18.59%
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					18.90%

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 »

Sep 30, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	42,867)	42,867)	÷	48,354)	=	0.89	0.89	×	21.37%	=	18.94%
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					19.27%

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 »

Sep 30, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	38,676)	38,676)	÷	44,134)	=	0.88	0.88	×	21.37%	=	18.73%
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					19.04%

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 »

Sep 30, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	35,333)	35,333)	÷	43,006)	=	0.82	0.82	×	21.37%	=	17.56%
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					17.90%

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 »

Sep 30, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	32,734)	32,734)	÷	40,714)	=	0.80	0.80	×	21.37%	=	17.18%
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					17.56%

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 »

Sep 30, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	44,497)	44,497)	÷	51,742)	=	0.86	0.86	×	21.37%	=	18.38%
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					18.67%

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 »

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	(614)	(885)	(1,114)	(1,227)	(172)	(1,080)
Invested capital²	16,266)	15,617)	15,181)	16,521)	17,328)	17,628)
Performance Ratio
Economic spread ratio³	-3.77%	-5.67%	-7.34%	-7.43%	-0.99%	-6.12%
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 × -614 ÷ 16,266 = -3.77%

⁴ Click competitor name to see calculations.

Between 2014 and 2019, the entity consistently failed to generate positive economic value, as evidenced by negative economic profit and economic spread ratios throughout the entire analyzed period. This indicates that the returns on invested capital remained below the required cost of capital for six consecutive years.

Economic Profit Trends: Economic profit exhibited significant volatility during the first half of the period. After a loss of 1,080 million USD in 2014, there was a substantial improvement in 2015, with losses narrowing to 172 million USD. However, this was followed by a sharp decline in 2016, reaching a period low of negative 1,227 million USD. From 2017 onward, a consistent recovery trend is observed, with economic losses reducing steadily to 614 million USD by 2019.
Invested Capital Dynamics: Invested capital followed a U-shaped trajectory. A steady contraction occurred between 2014 and 2017, with the capital base decreasing from 17,628 million USD to 15,181 million USD. This downward trend reversed after 2017, as invested capital grew to 16,266 million USD by the end of the period in 2019.
Economic Spread Ratio Performance: The economic spread ratio remained negative, confirming a persistent shortfall in value creation. The ratio peaked in 2015 at -0.99% before dropping to its lowest point of -7.43% in 2016. Following this trough, the ratio demonstrated a gradual and consistent improvement, rising to -5.67% in 2018 and finishing at -3.77% in 2019. This upward movement suggests a narrowing gap between the internal rate of return and the cost of capital.

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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	(614)	(885)	(1,114)	(1,227)	(172)	(1,080)
Net sales	18,372)	17,408)	15,264)	14,522)	22,304)	24,537)
Performance Ratio
Economic profit margin²	-3.34%	-5.09%	-7.30%	-8.45%	-0.77%	-4.40%
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 × -614 ÷ 18,372 = -3.34%

³ Click competitor name to see calculations.

Between 2014 and 2019, the organization consistently reported negative economic profit, indicating that the returns generated were insufficient to cover the cost of capital. While the company failed to create economic value throughout the period, a general trend of recovery is observable starting from 2016.

Economic Profit Trends: Economic profit exhibited significant volatility, with a notable improvement in 2015 before dropping to a period low of -1,227 million USD in 2016. Following this trough, a consistent recovery trend emerged, with the deficit narrowing annually to reach -614 million USD by 2019.
Net Sales Performance: A substantial contraction in net sales occurred between 2015 and 2016, where revenues fell from 22,304 million USD to 14,522 million USD. This decline was followed by a steady period of growth over the subsequent three years, with net sales recovering to 18,372 million USD by September 30, 2019.
Economic Profit Margin Analysis: The economic profit margin mirrored the volatility of the absolute economic profit, reaching its most critical point in 2016 at -8.45%. Subsequent years showed a systematic improvement in the margin, which climbed to -7.30% in 2017, -5.09% in 2018, and finally -3.34% in 2019. This upward trajectory suggests an increase in operational efficiency or a reduction in the cost of capital relative to sales.

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Emerson Electric Co. (NYSE:EMR)

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