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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

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.

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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.

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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.

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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.

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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 »

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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.

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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.

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