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Economic Value Added (EVA)

Difficulty: Advanced

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

Exxon Mobil Corp., economic profit calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net operating profit after taxes (NOPAT)1
Cost of capital2 % % % % %
Invested capital3
Economic profit4

Source: Based on data from Exxon Mobil Corp. Annual Reports

2017 Calculations

1 NOPAT. See Details »

2 Cost of capital. See Details »

3 Invested capital. See Details »

4 Economic profit = NOPAT – Cost of capital × Invested capital
= % × =

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. Exxon Mobil Corp.'s economic profit declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Net Operating Profit after Taxes (NOPAT)

Exxon Mobil Corp., NOPAT calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income attributable to ExxonMobil
Deferred income tax expense (benefit)1
Increase (decrease) in reserves for doubtful notes and accounts receivable2
Increase (decrease) in LIFO reserve3
Increase (decrease) in equity equivalents4
Interest expense
Interest expense, operating lease obligations5
Adjusted interest expense
Tax benefit of interest expense6
Adjusted interest expense, after taxes7
(Gain) loss on marketable securities
Investment income, before taxes
Tax expense (benefit) of investment income8
Investment income, after taxes9
Net income (loss) attributable to noncontrolling interest
Net operating profit after taxes (NOPAT)

Source: Based on data from Exxon Mobil Corp. Annual Reports

2017 Calculations

1 Elimination of deferred tax expense. See Details »

2 Addition of increase (decrease) in reserves for doubtful notes and accounts receivable.

3 Addition of increase (decrease) in LIFO reserve. See Details »

4 Addition of increase (decrease) in equity equivalents to net income attributable to ExxonMobil.

5 Addition of interest expense on capitalized operating leases. See Details »

6 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35% =

7 Addition of after taxes interest expense to net income attributable to ExxonMobil.

8 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =

9 Elimination of after taxes investment income.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. Exxon Mobil Corp.'s NOPAT declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Cash Operating Taxes

Exxon Mobil Corp., cash operating taxes calculation

USD $ in millions

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Income tax expense
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense
Less: Tax imposed on investment income
Cash operating taxes

Source: Based on data from Exxon Mobil Corp. Annual Reports

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. Exxon Mobil Corp.'s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Invested Capital

Exxon Mobil Corp., invested capital calculation (financing approach)

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Notes and loans payable
Long-term debt, excluding due within one year
PV of operating lease payments1
Total reported debt & leases
Total ExxonMobil share of equity
Net deferred tax (assets) liabilities2
Reserves for doubtful notes and accounts receivable3
LIFO reserve4
Equity equivalents5
Accumulated other comprehensive (income) loss, net of tax6
Noncontrolling interests
Adjusted total ExxonMobil share of equity
Invested capital

Source: Based on data from Exxon Mobil Corp. Annual Reports

1 Addition of capitalized operating leases. See Details »

2 Elimination of deferred taxes from assets and liabilities. See Details »

3 Addition of allowance for doubtful accounts receivable.

4 Addition of LIFO reserve. See Details »

5 Addition of equity equivalents to total ExxonMobil share of equity.

6 Removal of accumulated other comprehensive income.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Exxon Mobil Corp.'s invested capital increased from 2015 to 2016 and from 2016 to 2017.

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Cost of Capital

Exxon Mobil Corp., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Exxon Mobil Corp. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Exxon Mobil Corp. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Exxon Mobil Corp. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Exxon Mobil Corp. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 ÷ = × % = %
Debt3 ÷ = × % × (1 – 35%) = %
PV of operating lease payments4 ÷ = × % × (1 – 35%) = %
Total: %

Source: Based on data from Exxon Mobil Corp. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 PV of operating lease payments. See Details »

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Economic Spread

Exxon Mobil Corp., economic spread calculation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Economic profit1
Invested capital2
Ratio
Economic spread3 % % % % %

Source: Based on data from Exxon Mobil Corp. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × ÷ = %

Ratio Description The company
Economic spread The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Exxon Mobil Corp.'s economic spread deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

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Economic Profit Margin

Exxon Mobil Corp., economic profit margin calculation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Economic profit1
Sales and other operating revenue
Ratio
Economic profit margin2 % % % % %

Source: Based on data from Exxon Mobil Corp. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ Sales and other operating revenue
= 100 × ÷ = %

Ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company's profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. Exxon Mobil Corp.'s economic profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

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