Economic Value Added (EVA)
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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: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Price to Earnings (P/E) since 2005
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Economic Profit
Estée Lauder Cos. Inc., economic profit calculation
US$ in millions
| 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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT exhibits significant fluctuations over the six-year period. It increased from 1,482 million USD in 2018 to a peak of 2,923 million USD in 2021. However, a notable decline occurred in 2020, where NOPAT fell sharply to 591 million USD, possibly reflecting adverse market conditions or internal challenges during that year. After the peak in 2021, NOPAT decreased to 2,408 million USD in 2022 and further declined to 1,239 million USD in 2023, indicating recent operational profitability pressures.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating moderately between 12.88% and 13.83%. It was at its highest in 2021 at 13.83% and gradually declined to 12.88% by 2023. This slight decrease in the cost of capital towards the end of the period could suggest lowered perceived risk or improved capital market conditions.
- Invested Capital
- Invested capital grew consistently throughout the period, rising from 10,334 million USD in 2018 to 17,123 million USD in 2023. The growth rate was steady, with a minor decrease in 2022 compared to 2021 before increasing again in 2023. This upward trend reflects ongoing investment in the company's assets or business expansion efforts.
- Economic Profit
- Economic profit shows considerable volatility with positive and negative values. Starting at 112 million USD in 2018, it surged to 350 million USD in 2019, then sharply declined to a negative 1,255 million USD in 2020, mirroring the decline in NOPAT. A recovery is observed in 2021 with economic profit reaching 764 million USD, but subsequent years show a declining trend with 403 million USD in 2022 and falling back to a negative 967 million USD in 2023. The negative values in 2020 and 2023 suggest that the company did not cover its cost of capital during these years, indicating potential value destruction in those periods.
Net Operating Profit after Taxes (NOPAT)
Estée Lauder Cos. Inc., NOPAT calculation
US$ in millions
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 $1,239 million in mid-2023, aligning with the observed decrease in net earnings.
- Summary of Trends and Insights
- Both net earnings and NOPAT display considerable fluctuations over the six-year period, characterized by a sharp downturn in 2020 and a pronounced recovery in 2021. The subsequent declining trend in 2022 and 2023 suggests emerging challenges or changes in the company's operating environment impacting profitability. The correlation between net earnings and NOPAT indicates that operating performance significantly influences net profitability. Monitoring external factors and internal operational efficiencies will be critical to understanding and addressing the causes of recent declines.
Cash Operating Taxes
Estée Lauder Cos. Inc., cash operating taxes calculation
US$ in millions
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
Estée Lauder Cos. Inc., invested capital calculation (financing approach)
US$ in millions
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
Estée Lauder Cos. Inc., economic spread ratio calculation, comparison to benchmarks
| 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 periods observed. It increased sharply from 112 million USD in 2018 to 350 million USD in 2019. This was followed by a substantial decline to a negative 1,255 million USD in 2020, indicating a considerable economic loss during that year. In 2021, economic profit recovered to a positive 764 million USD, but then decreased again to 403 million USD in 2022 before falling to negative 967 million USD in 2023. The fluctuating pattern reflects variability in the company's ability to generate returns above its cost of capital.
- Invested Capital
- Invested capital showed a consistent upward trend throughout the period. It increased steadily from 10,334 million USD in 2018 to 17,123 million USD in 2023. The growth was relatively smooth, with only a slight dip observed in 2022 when invested capital decreased from 15,610 million USD in 2021 to 14,574 million USD. The overall trend suggests ongoing expansion or reinvestment activities within the company.
- Economic Spread Ratio
- The economic spread ratio, representing the differential between returns and cost of capital as a percentage, closely mirrored the economic profit trend but with pronounced fluctuations. Starting at 1.09% in 2018, it improved significantly to 3.04% in 2019, then declined dramatically to -9.07% in 2020, indicating returns below cost of capital. A recovery occurred in 2021 with the ratio rising to 4.89%, followed by a decrease to 2.76% in 2022. In 2023, the ratio dropped again to -5.65%, signaling negative economic value added during that period. These oscillations underline the unstable profitability relative to capital costs across the years.
Economic Profit Margin
Estée Lauder Cos. Inc., economic profit margin calculation, comparison to benchmarks
| 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 demonstrated a general upward trend from June 30, 2018, to June 30, 2022, increasing from 13,683 million USD to a peak of 17,728 million USD. However, there was a notable decline in the most recent period ending June 30, 2023, where sales decreased to 16,120 million USD. This suggests a period of growth followed by a contraction in sales in the latest year.
- Economic Profit
- The economic profit exhibited significant volatility throughout the periods. Starting at 112 million USD in June 2018, it rose sharply to a high of 350 million USD in June 2019 before declining substantially to a negative 1,255 million USD in June 2020. A recovery occurred in subsequent years, with positive profits of 764 million USD and 403 million USD in June 2021 and June 2022 respectively, but this was again followed by a drop to a negative 967 million USD in June 2023. This pattern indicates fluctuating profitability performance with alternating periods of gains and losses.
- Economic Profit Margin
- The economic profit margin mirrored the variability seen in economic profit. It increased from 0.82% in 2018 to 2.35% in 2019, then declined sharply to -8.83% in 2020. The margin improved to 4.69% in 2021, then reduced to 2.27% in 2022 before turning negative again at -6.00% in 2023. This trend signifies unstable profitability relative to sales, with multiple reversals between positive and negative margins.
- General Insights
- The financial data reflects a challenging environment with notable fluctuations in profitability despite growth in sales during most of the periods. The sharp declines in economic profit and margin in 2020 and again in 2023 may indicate external disruptions or internal cost pressures affecting financial performance adversely. The downward adjustment in net sales in the latest year, coupled with negative economic profit and margin, suggests recent difficulties in maintaining profitability. Overall, the company exhibits a pattern of recovery following losses but struggles to sustain consistent economic profit margins.