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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	18.96%	19.33%	19.10%	17.96%	17.61%	18.73%
Invested capital³	16,266)	15,617)	15,181)	16,521)	17,328)	17,628)

Economic profit⁴	(623)	(895)	(1,123)	(1,236)	(181)	(1,090)

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 – 18.96% × 16,266 = -623

The financial performance from 2014 to 2019 is characterized by a persistent failure to generate positive economic profit, indicating that the returns on invested capital remained below the company's cost of capital throughout the period.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited significant volatility, peaking at 2,871 million US$ in 2015 before experiencing a sharp decline to 1,731 million US$ in 2016. From 2016 through 2019, a consistent recovery trend is observed, with NOPAT rising steadily to reach 2,461 million US$ by the end of the period.
Cost of Capital and Invested Capital: The cost of capital remained relatively stable, fluctuating within a narrow range between 17.61% and 19.33%. Simultaneously, invested capital followed a downward trajectory from 17,628 million US$ in 2014 to a low of 15,181 million US$ in 2017, before modestly increasing to 16,266 million US$ by 2019. This suggests a period of capital contraction or asset optimization between 2014 and 2017.
Economic Profit Analysis: Economic profit remained negative for all six years analyzed, signifying that the business did not create shareholder value in economic terms during this timeframe. The deficit reached its maximum in 2016 at -1,236 million US$. However, a positive trend in value creation is evident from 2017 onward, as economic profit improved from -1,123 million US$ to -623 million US$ in 2019. This improvement was driven by the combination of rising NOPAT and a stabilized capital base.

The data suggests that while the company has narrowed the gap between its operating returns and the cost of its capital, the high cost of capital—averaging near 19%—continues to act as a significant hurdle to achieving positive economic value added.

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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 analysis of the financial data for the period from September 30, 2014, to September 30, 2019, reveals notable fluctuations in key profitability metrics.

Net Earnings Common Stockholders: The net earnings attributable to common stockholders demonstrate variability over the periods considered. Initially, there was an increase from 2,147 million USD in 2014 to a peak of 2,710 million USD in 2015. This was followed by a significant decrease to 1,635 million USD in 2016 and a slight further reduction to 1,518 million USD in 2017. Subsequently, the earnings recovered, rising to 2,203 million USD in 2018 and marginally improving to 2,306 million USD by 2019. This pattern suggests volatility in profitability, with a notable dip in the middle years before recovery in the latter two years.
Net Operating Profit After Taxes (NOPAT): NOPAT shows a similar trend to net earnings, with an increase from 2,212 million USD in 2014 to 2,871 million USD in 2015, followed by a substantial decrease to 1,731 million USD in 2016. Unlike net earnings, NOPAT stabilizes somewhat in 2017 with a slight increase to 1,776 million USD. In the subsequent years, NOPAT rises consistently, reaching 2,124 million USD in 2018 and 2,461 million USD in 2019. This trend indicates a recovery in operating profitability after a period of decline, with steady improvements in the final two years.

Overall, both net earnings and NOPAT experienced a peak in 2015, followed by a decline over the next one to two years, and then a recovery phase from 2017 onward. The recovery in NOPAT appears somewhat stronger and more consistent than that in net earnings. These trends highlight periods of operational challenges and subsequent improvement in financial performance.

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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).

Income Tax Expense: The income tax expense demonstrated a fluctuating downward trend over the six-year period. Starting at $1,164 million in 2014, it increased to a peak of $1,428 million in 2015. However, from 2015 onwards, the figure declined significantly to $697 million in 2016 and further decreased to $660 million in 2017. The downward trend continued, reaching a low of $443 million in 2018, before showing a modest increase to $531 million in 2019. This pattern suggests variability in taxable income or changes in tax rates, with a notable reduction after 2015 and slight recovery toward 2019.
Cash Operating Taxes: Cash operating taxes followed a similar overall declining trajectory with some variation. Beginning at $1,394 million in 2014, the amount rose to $1,525 million in 2015, indicating higher cash tax payments that year. Subsequently, there was a sharp decline to $782 million in 2016 and a marginal decrease to $766 million in 2017. The downward movement persisted, with taxes dropping to $737 million in 2018 and then declining further to $619 million in 2019. This trend mirrors the reduction observed in income tax expense, possibly reflecting lower taxable income or effective tax management strategies resulting in decreased cash tax obligations over time.

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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.

Total Reported Debt & Leases: The total reported debt and leases exhibited a non-linear trend over the analyzed periods. It increased from 6,834 million USD in 2014 to peak at 7,624 million USD in 2015, followed by a reduction to 5,137 million USD in 2017. Subsequently, the amount rose again, reaching 6,191 million USD by 2019. This pattern suggests fluctuations in debt management, with a notable decrease in the middle period before a moderate rebound.
Common Stockholders’ Equity: Common stockholders’ equity showed a general decline from 10,119 million USD in 2014 to 7,568 million USD in 2016. Thereafter, it increased to 8,947 million USD in 2018, before descending again to 8,233 million USD in 2019. This series of movements indicates some volatility but overall a downward pressure on equity levels during the period.
Invested Capital: Invested capital steadily decreased from 17,628 million USD in 2014 to a low of 15,181 million USD in 2017. After 2017, it gradually increased to 16,266 million USD by 2019. The downward trend in the initial years followed by a recovery suggests adjustments in the company's capital investment strategy or asset base.
Overall Observations: The data reflects a period of financial adjustment, with both liabilities and equity experiencing declines and recoveries at different times. The decrease in invested capital up until 2017, coupled with reduced debt levels in the same period, could indicate an active effort to deleverage or optimize capital structure. Subsequently, the increases in debt and invested capital alongside fluctuating equity values imply dynamic financial management responsive to changing conditions or strategic priorities.

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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	×	21.44%	=	18.65%
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					18.96%

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	×	21.44%	=	19.00%
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					19.33%

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	×	21.44%	=	18.78%
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					19.10%

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	×	21.44%	=	17.61%
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					17.96%

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	×	21.44%	=	17.23%
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					17.61%

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	×	21.44%	=	18.43%
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					18.73%

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	(623)	(895)	(1,123)	(1,236)	(181)	(1,090)
Invested capital²	16,266)	15,617)	15,181)	16,521)	17,328)	17,628)
Performance Ratio
Economic spread ratio³	-3.83%	-5.73%	-7.40%	-7.48%	-1.04%	-6.18%
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 × -623 ÷ 16,266 = -3.83%

⁴ Click competitor name to see calculations.

Between 2014 and 2019, the organization consistently generated negative economic profit, indicating that the returns on invested capital remained below the cost of capital throughout the entire period. While the magnitude of these losses fluctuated, a general trend toward recovery in economic value creation is observable in the latter half of the period.

Economic Profit Trends: Economic profit remained negative across all reported years, with significant volatility observed between 2014 and 2016. A notable short-term improvement occurred in 2015, where losses narrowed to 181 million USD, before widening to a period low of 1.236 billion USD in 2016. From 2017 through 2019, a consistent recovery trend is evident, with losses reducing sequentially to 623 million USD by September 30, 2019.
Invested Capital Dynamics: The invested capital base experienced a steady contraction from 2014 to 2017, decreasing from 17.628 billion USD to a low of 15.181 billion USD. This period of capital reduction was followed by a moderate increase in invested capital, reaching 16.266 billion USD by 2019, suggesting a shift toward renewed investment or capital expansion after 2017.
Economic Spread Ratio Analysis: The economic spread ratio remained negative throughout the six-year period, confirming that the company failed to create economic value above its cost of capital. The ratio reached its highest point in 2015 at -1.04%, before dropping to its lowest levels in 2016 and 2017, where it hovered around -7.4%. A progressive improvement is noted from 2017 onward, with the ratio narrowing to -3.83% by 2019, indicating a gradual increase in the efficiency of capital utilization relative to its cost.

The synchronization of the economic profit and economic spread ratio suggests that the decline in value creation peaked in 2016. The subsequent three-year trend indicates a systematic effort to narrow the spread, although the company had not yet achieved a positive economic spread by the end of the observed period.

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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	(623)	(895)	(1,123)	(1,236)	(181)	(1,090)
Net sales	18,372)	17,408)	15,264)	14,522)	22,304)	24,537)
Performance Ratio
Economic profit margin²	-3.39%	-5.14%	-7.36%	-8.51%	-0.81%	-4.44%
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 × -623 ÷ 18,372 = -3.39%

³ Click competitor name to see calculations.

The analysis of economic value added reveals a consistent inability to generate positive economic profit between 2014 and 2019. Throughout this six-year window, the company remained in a value-destructive state, as economic profit figures remained negative, indicating that operating returns did not exceed the cost of capital.

Economic Profit Performance: Absolute economic losses exhibited significant volatility. A notable improvement occurred in 2015, where losses narrowed to 181 million USD. This was followed by a sharp decline to the period's lowest point of -1,236 million USD in 2016. From 2017 through 2019, a consistent recovery trend is observed, with losses narrowing steadily to -623 million USD.
Net Sales Dynamics: Revenue patterns show a severe contraction in 2016, where net sales dropped to 14,522 million USD from 22,304 million USD the previous year. Following this trough, a steady recovery in top-line growth is evident, with sales increasing annually to reach 18,372 million USD by September 30, 2019.
Economic Profit Margin Trajectory: The economic profit margin mirrored the volatility of absolute losses and sales. The margin reached its most critical level in 2016 at -8.51%, coinciding with the lowest net sales. Since 2016, the margin has demonstrated a steady improvement, moving from -7.36% in 2017 to -3.39% in 2019, suggesting a gradual increase in capital efficiency despite the continued negative value creation.

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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