.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
FedEx Corp., economic profit calculation
USD $ in millions
| 12 months ended | May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | |
|---|---|---|---|---|---|---|---|
| | Net operating profit after taxes (NOPAT)1 | ||||||
| | Cost of capital2 | % | % | % | % | % | % |
| | Invested capital3 | ||||||
| | Economic profit4 | ||||||
Source: Based on data from FedEx 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. | FedEx Corp.'s economic profit increased from 2015 to 2016 and from 2016 to 2017. |
Net Operating Profit after Taxes (NOPAT)
FedEx Corp., NOPAT calculation
USD $ in millions
| 12 months ended | May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | |
|---|---|---|---|---|---|---|---|
| | Net income | ||||||
| | Deferred income tax expense (benefit)1 | ||||||
| | Increase (decrease) in allowances for doubtful accounts2 | ||||||
| | Increase (decrease) in equity equivalents3 | ||||||
| | Interest expense | ||||||
| | Interest expense, operating lease obligations4 | ||||||
| | Adjusted interest expense | ||||||
| | Tax benefit of interest expense5 | ||||||
| | Adjusted interest expense, after taxes6 | ||||||
| | Interest income | ||||||
| | Investment income, before taxes | ||||||
| | Tax expense (benefit) of investment income7 | ||||||
| | Investment income, after taxes8 | ||||||
| | Net operating profit after taxes (NOPAT) |
Source: Based on data from FedEx Corp. Annual Reports
2017 Calculations
1 Elimination of deferred tax expense. See Details »
2 Addition of increase (decrease) in allowances for doubtful accounts.
3 Addition of increase (decrease) in equity equivalents to net income.
4 Addition of interest expense on capitalized operating leases. See Details »
5 Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35% =
6 Addition of after taxes interest expense to net income.
7 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35% =
8 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. | FedEx Corp.'s NOPAT increased from 2015 to 2016 and from 2016 to 2017. |
Cash Operating Taxes
FedEx Corp., cash operating taxes calculation
USD $ in millions
| 12 months ended | May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | |
|---|---|---|---|---|---|---|---|
| | Provision for income taxes | ||||||
| | 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 FedEx 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. | FedEx Corp.'s cash operating taxes declined from 2015 to 2016 and from 2016 to 2017. |
Invested Capital
FedEx Corp., invested capital calculation (financing approach)
USD $ in millions
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Current portion of long-term debt | ||||||
| | Long-term debt, less current portion | ||||||
| | PV of operating lease payments1 | ||||||
| | Total reported debt & leases | ||||||
| | Common stockholders' investment | ||||||
| | Net deferred tax (assets) liabilities2 | ||||||
| | Allowances for doubtful accounts3 | ||||||
| | Equity equivalents4 | ||||||
| | Accumulated other comprehensive (income) loss, net of tax5 | ||||||
| | Adjusted common stockholders' investment | ||||||
| | Invested capital |
Source: Based on data from FedEx 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 equity equivalents to common stockholders' investment.
5 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. | FedEx Corp.'s invested capital increased from 2015 to 2016 and from 2016 to 2017. |
Cost of Capital
FedEx Corp., cost of capital calculations
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Long-term debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from FedEx Corp. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Long-term debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Long-term debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from FedEx Corp. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Long-term debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Long-term debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from FedEx Corp. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Long-term debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Long-term debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from FedEx Corp. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Long-term debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Long-term debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from FedEx Corp. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Long-term debt. See Details »
4 PV of operating lease payments. See Details »
| Fair Value1 | Weights | Cost of Capital | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | % | = | % | |||||
| Long-term debt3 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| PV of operating lease payments4 | ÷ | = | × | % × (1 – 35%) | = | % | |||||
| Total: | % | ||||||||||
Source: Based on data from FedEx Corp. Annual Reports
1 USD $ in millions
2 Equity. See Details »
3 Long-term debt. See Details »
4 PV of operating lease payments. See Details »
Economic Spread
FedEx Corp., economic spread calculation
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Economic profit1 | ||||||
| | Invested capital2 | ||||||
| Ratio | |||||||
| | Economic spread3 | % | % | % | % | % | % |
Source: Based on data from FedEx 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. | FedEx Corp.'s economic spread improved from 2015 to 2016 and from 2016 to 2017. |
Economic Profit Margin
FedEx Corp., economic profit margin calculation
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Economic profit1 | ||||||
| | Revenues | ||||||
| Ratio | |||||||
| | Economic profit margin2 | % | % | % | % | % | % |
Source: Based on data from FedEx Corp. Annual Reports
2017 Calculations
1 Economic profit. See Details »
2 Economic profit margin = 100 × Economic profit ÷ Revenues
= 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. | FedEx Corp.'s economic profit margin improved from 2015 to 2016 and from 2016 to 2017. |
