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
Estée Lauder Cos. Inc., economic profit 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 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
= 1,239 – 15.19% × 17,123 = -1,362
The financial performance from 2018 to 2023 is characterized by significant volatility in operating profitability and a general expansion of the capital base, resulting in inconsistent economic value creation. The company has struggled to maintain a positive economic profit, alternating between periods of value creation and substantial value destruction.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited extreme fluctuations over the six-year period. After an initial increase in 2019, a sharp contraction occurred in 2020, where profit dropped to 591 million US$. A strong recovery followed in 2021, reaching a peak of 2,923 million US$, before entering a downward trajectory that culminated in a significant decline to 1,239 million US$ by June 30, 2023.
- Invested Capital and Cost of Capital
- Invested capital showed a consistent upward trend, growing from 10,334 million US$ in 2018 to 17,123 million US$ in 2023, representing a substantial increase in the resources deployed to generate returns. Meanwhile, the cost of capital remained relatively stable, fluctuating within a narrow range between 15.19% and 16.36%. The stability of this high hurdle rate intensified the pressure on NOPAT to grow commensurately with the invested capital base.
- Economic Profit and Value Creation
- Economic profit remained unstable, failing to establish a consistent positive trend. The company recorded deep losses in economic profit during 2020 (-1,590 million US$) and 2023 (-1,362 million US$). While positive economic profit was achieved in 2019, 2021, and 2022, these gains were marginal or transient. The most recent data indicates a severe disconnect between the expanded capital base and the operating returns, as the highest level of invested capital in 2023 coincided with a sharp drop in NOPAT, leading to significant value destruction.
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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
= 2,055 × 2.50% = 51
7 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 306 × 21.00% = 64
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
= 0 × 21.00% = 0
10 Elimination of after taxes investment income.
The financial performance from June 30, 2018, to June 30, 2023, is characterized by significant volatility in both Net Operating Profit After Taxes (NOPAT) and net earnings. A pronounced contraction occurred in 2020, followed by a substantial recovery in 2021 and a subsequent downward trend leading into 2023.
- NOPAT Performance Trends
- NOPAT increased from 1,482 million USD in 2018 to 1,921 million USD in 2019, before experiencing a sharp decline to 591 million USD in 2020. A rapid recovery was observed in 2021, with NOPAT reaching a peak of 2,923 million USD. However, a steady decline followed, with values dropping to 2,408 million USD in 2022 and further to 1,239 million USD by June 30, 2023.
- Net Earnings Correlation
- Net earnings attributable to the company mirrored the trajectory of NOPAT, peaking in 2021 at 2,870 million USD and falling to 1,006 million USD in 2023. In the 2021 and 2022 periods, NOPAT and net earnings converged closely, indicating a phase where operating profits were the primary driver of bottom-line results.
- Comparative Volatility Analysis
- The most acute fluctuation occurred between 2020 and 2021, during which NOPAT increased by approximately 395%. The subsequent decline in 2023 indicates a return to profitability levels similar to those recorded in 2018, reflecting a cyclical pattern of growth and contraction over the six-year observation period.
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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).
The analysis of tax expenditures from 2018 to 2023 reveals a period of significant volatility in both accrual-based provisions and actual cash outflows. Cash operating taxes exhibit a fluctuating trend, declining from 2018 to a minimum in 2020, followed by a peak in 2022 and a subsequent reduction in 2023.
- Cash Operating Tax Trends
- Cash operating taxes decreased from 750 million USD in 2018 to 541 million USD in 2020. A subsequent recovery phase led to a peak of 823 million USD in 2022, representing the highest cash tax outflow in the analyzed period. By June 30, 2023, this figure retracted to 637 million USD.
- Provision for Income Taxes Analysis
- The provision for income taxes followed a similar, though more pronounced, trajectory of volatility. After a sharp decline from 863 million USD in 2018 to 350 million USD in 2020, the provision increased to 628 million USD by 2022 before falling again to 387 million USD in 2023.
- Divergence Between Accruals and Cash Outflows
- A notable shift in the relationship between tax provisions and cash operating taxes is observed starting in 2019. While the provision exceeded cash taxes in 2018, cash operating taxes remained consistently higher than the reported provision for every subsequent year through 2023. This divergence is most prominent in 2021 and 2022, where cash taxes exceeded provisions by 279 million USD and 195 million USD, respectively.
- Economic Value Added (EVA) Implications
- For the purposes of calculating Economic Value Added, the reliance on cash operating taxes rather than the provision for income taxes results in a higher tax deduction from Net Operating Profit After Tax (NOPAT) for the period between 2019 and 2023. This indicates that the actual cash burden of taxes has been heavier than the accounting expense recognized in the income statements during these years.
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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.
Invested capital exhibited a consistent upward trajectory from 2018 to 2023, increasing from 10,334 million US dollars to 17,123 million US dollars. This growth indicates an expansion of the total capital base deployed to generate economic value, with the most significant expansion occurring between 2020 and 2023.
- Total Reported Debt and Leases
- Debt levels displayed notable volatility throughout the period. A sharp increase was observed in 2020, where obligations rose to 8,789 million US dollars, followed by a moderate decline through 2022. However, a substantial spike occurred in 2023, with debt and leases reaching a period high of 10,169 million US dollars, serving as a primary driver for the overall increase in invested capital.
- Stockholders’ Equity
- Equity levels underwent a period of contraction between 2018 and 2020, reaching a low of 3,935 million US dollars. A significant recovery was recorded in 2021, peaking at 6,057 million US dollars, before stabilizing at approximately 5,585 million US dollars by 2023. This suggests that equity contributions to the capital base remained relatively flat during the final two years of the period.
- Capital Structure Dynamics
- The overall growth in invested capital is more closely aligned with the fluctuations in debt than with equity trends. The correlation between the peak in invested capital in 2023 and the simultaneous peak in reported debt indicates an increased reliance on leverage to fund the organization's operational assets and growth initiatives.
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Cost of Capital
Estée Lauder Cos. Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 56,047) | 56,047) | ÷ | 65,767) | = | 0.85 | 0.85 | × | 17.36% | = | 14.80% | ||
| Current and long-term debt3 | 7,665) | 7,665) | ÷ | 65,767) | = | 0.12 | 0.12 | × | 3.65% × (1 – 21.00%) | = | 0.34% | ||
| Operating lease liability4 | 2,055) | 2,055) | ÷ | 65,767) | = | 0.03 | 0.03 | × | 2.50% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 65,767) | 1.00 | 15.19% | ||||||||||
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 | 94,733) | 94,733) | ÷ | 102,105) | = | 0.93 | 0.93 | × | 17.36% | = | 16.11% | ||
| Current and long-term debt3 | 5,139) | 5,139) | ÷ | 102,105) | = | 0.05 | 0.05 | × | 3.19% × (1 – 21.00%) | = | 0.13% | ||
| Operating lease liability4 | 2,233) | 2,233) | ÷ | 102,105) | = | 0.02 | 0.02 | × | 2.40% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 102,105) | 1.00 | 16.28% | ||||||||||
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 | 123,134) | 123,134) | ÷ | 131,926) | = | 0.93 | 0.93 | × | 17.36% | = | 16.20% | ||
| Current and long-term debt3 | 6,262) | 6,262) | ÷ | 131,926) | = | 0.05 | 0.05 | × | 3.18% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 2,530) | 2,530) | ÷ | 131,926) | = | 0.02 | 0.02 | × | 2.30% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 131,926) | 1.00 | 16.36% | ||||||||||
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 | 80,434) | 80,434) | ÷ | 89,989) | = | 0.89 | 0.89 | × | 17.36% | = | 15.52% | ||
| Current and long-term debt3 | 6,902) | 6,902) | ÷ | 89,989) | = | 0.08 | 0.08 | × | 3.19% × (1 – 21.00%) | = | 0.19% | ||
| Operating lease liability4 | 2,653) | 2,653) | ÷ | 89,989) | = | 0.03 | 0.03 | × | 2.50% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 89,989) | 1.00 | 15.77% | ||||||||||
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 | 71,123) | 71,123) | ÷ | 77,655) | = | 0.92 | 0.92 | × | 17.36% | = | 15.90% | ||
| Current and long-term debt3 | 3,706) | 3,706) | ÷ | 77,655) | = | 0.05 | 0.05 | × | 3.45% × (1 – 21.00%) | = | 0.13% | ||
| Operating lease liability4 | 2,826) | 2,826) | ÷ | 77,655) | = | 0.04 | 0.04 | × | 3.45% × (1 – 21.00%) | = | 0.10% | ||
| Total: | 77,655) | 1.00 | 16.13% | ||||||||||
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 | 49,788) | 49,788) | ÷ | 56,232) | = | 0.89 | 0.89 | × | 17.36% | = | 15.37% | ||
| Current and long-term debt3 | 3,667) | 3,667) | ÷ | 56,232) | = | 0.07 | 0.07 | × | 3.39% × (1 – 28.10%) | = | 0.16% | ||
| Operating lease liability4 | 2,777) | 2,777) | ÷ | 56,232) | = | 0.05 | 0.05 | × | 3.39% × (1 – 28.10%) | = | 0.12% | ||
| Total: | 56,232) | 1.00 | 15.65% | ||||||||||
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 | (1,362) | 36) | 369) | (1,590) | 64) | (136) | |
| Invested capital2 | 17,123) | 14,574) | 15,610) | 13,826) | 11,514) | 10,334) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -7.96% | 0.25% | 2.36% | -11.50% | 0.55% | -1.31% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Procter & Gamble Co. | 5.69% | 6.09% | 5.67% | — | — | — | |
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 × -1,362 ÷ 17,123 = -7.96%
4 Click competitor name to see calculations.
The analysis of economic value creation reveals a period of significant volatility characterized by inconsistent returns relative to the cost of capital. While the capital base has expanded steadily, the ability to generate positive economic profit has fluctuated sharply, resulting in an unstable economic spread ratio.
- Invested Capital Trends
- A general upward trajectory in invested capital is observed, rising from 10,334 million USD in 2018 to 17,123 million USD in 2023. Aside from a minor contraction in 2022, the continuous increase in invested capital indicates a persistent expansion of the asset base used to generate returns.
- Economic Profit Volatility
- Economic profit exhibits extreme instability, alternating between modest gains and severe losses. Significant downturns occurred in 2020 and 2023, with losses of 1,590 million USD and 1,362 million USD respectively. These periods of value destruction contrast with the marginal positive outcomes recorded in 2019, 2021, and 2022, suggesting a vulnerability to cyclical or systemic shocks.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility of economic profit, fluctuating from a high of 2.36% in 2021 to a low of -11.50% in 2020. The prevalence of negative spreads in 2018, 2020, and 2023 indicates that in those years, the return on invested capital was insufficient to cover the company's cost of capital. The sharp decline to -7.96% in 2023 represents a substantial erosion of economic value relative to the expanded capital base.
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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 | (1,362) | 36) | 369) | (1,590) | 64) | (136) | |
| Net sales | 15,910) | 17,737) | 16,215) | 14,294) | 14,863) | 13,683) | |
| Add: Increase (decrease) in deferred revenue | 210) | (9) | 92) | (82) | (19) | —) | |
| Adjusted net sales | 16,120) | 17,728) | 16,307) | 14,212) | 14,844) | 13,683) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -8.45% | 0.20% | 2.26% | -11.19% | 0.43% | -0.99% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Procter & Gamble Co. | 6.69% | 7.13% | 7.09% | — | — | — | |
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 × -1,362 ÷ 16,120 = -8.45%
3 Click competitor name to see calculations.
The financial performance of Estée Lauder Cos. Inc. between 2018 and 2023 is characterized by extreme volatility in economic value generation. While adjusted net sales demonstrated a general upward trajectory for the majority of the period, this growth did not consistently result in positive economic profit, indicating significant fluctuations in the company's ability to generate returns above its cost of capital.
- Economic Profit Margin Volatility
- The economic profit margin exhibits a highly unstable pattern, alternating between value creation and value destruction. The margin reached severe lows in June 2020 (-11.19%) and June 2023 (-8.45%), suggesting periods where the return on invested capital fell significantly below the required threshold. Conversely, a recovery peak was observed in June 2021, where the margin reached 2.26%, the highest point in the analyzed timeframe.
- Adjusted Net Sales Trends
- Net sales showed a steady increase from 13,683 million in 2018 to a peak of 17,728 million in 2022. However, this growth trend reversed in 2023, with sales declining to 16,120 million. The lack of a direct, stable correlation between sales growth and economic profit suggests that external shocks or internal cost structures heavily influenced the company's economic value added regardless of top-line expansion.
- Economic Profit Performance
- Economic profit experienced sharp contractions and rebounds. The substantial deficit of 1,590 million in 2020 was followed by a recovery to 369 million in 2021 and a modest 36 million in 2022. The period concludes with a significant downturn in 2023, as economic profit fell to -1,362 million. This indicates a recurring difficulty in maintaining a sustainable positive spread over the cost of capital.
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