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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.
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Estée Lauder Cos. Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2005
- Current Ratio since 2005
- Total Asset Turnover since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Debt
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Economic Profit
12 months ended: | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | |
---|---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | |||||||
Cost of capital2 | |||||||
Invested capital3 | |||||||
Economic profit4 |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data over the six-year period reflects varying performance dynamics with respect to operating profitability, invested capital, and economic profit, alongside relatively stable cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT shows significant fluctuations. Starting at $1,482 million in 2018, it increased notably to $1,921 million in 2019 before sharply declining to $591 million in 2020. This decline was followed by a strong recovery, peaking at $2,923 million in 2021. Subsequently, NOPAT decreased to $2,408 million in 2022 and further to $1,239 million in 2023. The volatility may indicate challenges in profitability possibly due to external or internal factors impacting operating performance.
- Cost of Capital
- The cost of capital remained relatively stable over the period, fluctuating marginally between 13.01% and 13.97%. The highest value was recorded in 2021 at 13.97%, and the lowest in 2023 at 13.01%. This slight variation suggests consistent capital market conditions or company risk profile throughout the years under review.
- Invested Capital
- Invested capital exhibited a steady growth trend. It rose from $10,334 million in 2018 to $17,123 million in 2023. Despite a mild dip in 2022 to $14,574 million from $15,610 million in 2021, the general direction was upward. This increase indicates expansion in asset base or capital deployment to support operations over time.
- Economic Profit
- Economic profit showed volatility and inconsistency compared to invested capital growth. It was positive at $98 million in 2018 and increased significantly to $333 million in 2019. However, there was a substantial negative economic profit of -$1,274 million in 2020, aligning with the sharp NOPAT decline that year. Economic profit recovered to $742 million in 2021, then decreased to $382 million in 2022, and again turned negative to -$989 million in 2023. These swings suggest that the company’s profitability adjusted for the cost of capital was highly variable, affected by changes in operational efficiency or market conditions impacting returns relative to capital investment.
In summary, while invested capital has generally increased, the corresponding economic profit and NOPAT have been volatile, indicating periods of profitability challenges despite expanded capital investments. The cost of capital remained stable, but the fluctuations in economic profit highlight varying effectiveness in capital utilization and operating performance across the years.
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in accrued restructuring charges.
5 Addition of increase (decrease) in equity equivalents to net earnings attributable to The Estée Lauder Companies Inc..
6 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net earnings attributable to The Estée Lauder Companies Inc..
9 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
- Net Earnings Attributable to The Estée Lauder Companies Inc.
- The net earnings exhibit significant volatility over the analyzed period. Starting at $1,108 million in mid-2018, the figure rose notably to $1,785 million in mid-2019. A sharp decline occurred in mid-2020, with earnings dropping to $684 million, likely reflecting impacts from external economic conditions or extraordinary events during that year. This was followed by a robust recovery to $2,870 million in mid-2021, marking the peak in the period under review. Subsequent years saw a decrease to $2,390 million in mid-2022 and further down to $1,006 million by mid-2023, indicating a downward trend after the substantial recovery.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT trends closely mirror those of net earnings, suggesting consistent operational profitability dynamics. The value increased from $1,482 million in mid-2018 to $1,921 million in mid-2019, indicating improved operational efficiency or profitability. It then sharply contracted to $591 million in mid-2020, consistent with the net earnings downturn during that year. A strong rebound occurred in mid-2021, with NOPAT peaking at $2,923 million. This was followed by a decline to $2,408 million in mid-2022 and a further reduction to $1,239 million in mid-2023, aligning with the observed decrease in net earnings.
- Summary of Trends and Insights
- Both net earnings and NOPAT display considerable fluctuations over the six-year period, characterized by a sharp downturn in 2020 and a pronounced recovery in 2021. The subsequent declining trend in 2022 and 2023 suggests emerging challenges or changes in the company's operating environment impacting profitability. The correlation between net earnings and NOPAT indicates that operating performance significantly influences net profitability. Monitoring external factors and internal operational efficiencies will be critical to understanding and addressing the causes of recent declines.
Cash Operating Taxes
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
- Provision for Income Taxes
- The provision for income taxes exhibited a generally decreasing trend from June 30, 2018, through June 30, 2023. Starting at 863 million US dollars in 2018, it sharply declined to 513 million in 2019 and further to 350 million in 2020. A moderate increase was observed in 2021 and 2022, reaching 456 million and 628 million respectively, followed by a decline again in 2023 to 387 million. This fluctuation suggests variability in taxable income or changes in tax rates and accounting policies during the period.
- Cash Operating Taxes
- Cash operating taxes showed a different pattern, with an initial increase from 750 million in 2018 to 629 million in 2019, then a decrease to 541 million in 2020. After that, there was a rising trend, peaking at 823 million in 2022 before decreasing again to 637 million in 2023. This indicates some volatility in actual tax payments, possibly reflecting timing differences between tax provisions and cash payments or changes in the company's cash tax obligations.
Invested Capital
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
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 deferred revenue.
5 Addition of accrued restructuring charges.
6 Addition of equity equivalents to stockholders’ equity, The Estée Lauder Companies Inc..
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of available-for-sale investments.
- Total reported debt & leases
- The total reported debt and leases exhibit a fluctuating upward trend across the periods analyzed. Initially, the debt remained relatively stable between 2018 and 2019, slightly decreasing from 6,321 million USD to 6,238 million USD. However, a significant increase occurred in 2020, rising sharply to 8,789 million USD. This figure decreased somewhat in 2021 and 2022, dropping to 8,099 million USD and 7,645 million USD respectively. In 2023, the debt surged again, reaching the highest recorded level of 10,169 million USD, indicating a possible strategy involving greater leverage or increased financing needs.
- Stockholders’ equity
- The stockholders’ equity shows an overall decline from 2018 through 2020, falling from 4,688 million USD to 3,935 million USD. This decreasing equity trend reversed in 2021, with a considerable rise to 6,057 million USD, potentially reflecting improvements in retained earnings or capital injections. In 2022 and 2023, the equity slightly decreased and then stabilized around the 5,590 million USD to 5,585 million USD range, suggesting a plateau in equity growth during the most recent periods.
- Invested capital
- Invested capital consistently increased over the six-year period. Starting at 10,334 million USD in 2018, the figure rose steadily each year reaching 17,123 million USD in 2023. This upward trajectory denotes ongoing investments in company assets or operations, supporting business expansion or restructuring activities. The steady growth reflects an accumulation of both debt and equity used to finance the company's strategic initiatives.
Cost of Capital
Estée Lauder Cos. Inc., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Current and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2023-06-30).
1 US$ in millions
2 Equity. See details »
3 Current and long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Current and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2022-06-30).
1 US$ in millions
2 Equity. See details »
3 Current and long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Current and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-06-30).
1 US$ in millions
2 Equity. See details »
3 Current and long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Current and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2020-06-30).
1 US$ in millions
2 Equity. See details »
3 Current and long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Current and long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2019-06-30).
1 US$ in millions
2 Equity. See details »
3 Current and long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Current and long-term debt3 | ÷ | = | × | × (1 – 28.10%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 28.10%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2018-06-30).
1 US$ in millions
2 Equity. See details »
3 Current and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | |||||||
Economic profit1 | |||||||
Invested capital2 | |||||||
Performance Ratio | |||||||
Economic spread ratio3 | |||||||
Benchmarks | |||||||
Economic Spread Ratio, Competitors4 | |||||||
Procter & Gamble Co. |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited significant volatility over the examined period. Starting at a positive value of 98 million USD in mid-2018, it increased markedly to 333 million USD in mid-2019. This was followed by a sharp decline to a substantial negative economic profit of -1,274 million USD in mid-2020. A recovery is observed in mid-2021 with economic profit rising to 742 million USD, before declining again to 382 million USD in mid-2022, and then falling sharply to -989 million USD by mid-2023. This pattern indicates considerable fluctuation in the company's ability to generate profit above its cost of capital, with several years of underperformance.
- Invested Capital
- The invested capital showed a general upward trend throughout the period. It increased steadily from 10,334 million USD in mid-2018 to 11,514 million USD in mid-2019, then reached 13,826 million USD in mid-2020. This upward trajectory continued, peaking at 15,610 million USD in mid-2021. However, a slight decline occurred in mid-2022, bringing invested capital down to 14,574 million USD, before rising again to 17,123 million USD by mid-2023. The overall increase suggests ongoing investment and capital allocation to support the company’s operations and growth initiatives.
- Economic Spread Ratio
- The economic spread ratio mirrored the volatility seen in economic profit. It began at a moderate 0.95% in mid-2018 and improved significantly to 2.9% in mid-2019, indicating enhanced returns over the cost of capital. However, this was followed by a steep decline to -9.21% in mid-2020, highlighting inefficiency in capital utilization. The ratio rebounded to 4.75% in mid-2021, showing improved profitability, but then declined to 2.62% in mid-2022. By mid-2023, the ratio had decreased sharply again to -5.78%, aligning with negative economic profit and reflecting continued challenges in maintaining value-adding investments.
Economic Profit Margin
Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | |||||||
Economic profit1 | |||||||
Net sales | |||||||
Add: Increase (decrease) in deferred revenue | |||||||
Adjusted net sales | |||||||
Performance Ratio | |||||||
Economic profit margin2 | |||||||
Benchmarks | |||||||
Economic Profit Margin, Competitors3 | |||||||
Procter & Gamble Co. |
Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × ÷ =
3 Click competitor name to see calculations.
- Adjusted Net Sales
- Adjusted net sales showed a generally positive trend from 2018 through 2022, increasing from 13,683 million USD in 2018 to a peak of 17,728 million USD in 2022. However, there was a decline in 2023, with sales decreasing to 16,120 million USD. This indicates growth over most of the period, followed by a reversal in the latest year.
- Economic Profit
- Economic profit exhibited notable volatility across the years. It started at 98 million USD in 2018, increased substantially to 333 million USD in 2019, then sharply declined to a significant negative value of -1,274 million USD in 2020. A recovery occurred in 2021, with economic profit rising to 742 million USD, followed by a decline to 382 million USD in 2022, and then dropping again to a negative figure of -989 million USD in 2023. This pattern reflects considerable fluctuations, with years of both strong positive and negative economic profitability.
- Economic Profit Margin
- The economic profit margin mirrors the trends observed in economic profit. It increased from 0.72% in 2018 to a high of 2.25% in 2019 before plunging to -8.96% in 2020. A rebound took place in 2021, reaching 4.55%, followed by a decline to 2.16% in 2022 and a further fall to -6.14% in 2023. These changes suggest periods of improving profitability interrupted by significant downturns, indicating a lack of consistent margin stability over the analyzed timeframe.
- Summary
- The financial data reflects a company experiencing growth in net sales over most years, but with unstable economic profitability as evidenced by wide swings in economic profit and profit margin. The negative economic profit values and margins in 2020 and again in 2023 signal challenging periods that offset gains made in other years. The decline in adjusted net sales and accompanying drop in economic profitability in 2023 warrant close attention, as they may indicate emerging issues affecting financial performance.