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Microsoft Excel LibreOffice Calc


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

Ford Motor Co., economic profit calculation

USD $ in millions

Microsoft Excel LibreOffice Calc
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 hidden hidden hidden hidden hidden
Cost of capital2 hidden% hidden% hidden% hidden% hidden%
Invested capital3 hidden hidden hidden hidden hidden
Economic profit4 hidden hidden hidden hidden hidden

Source: Based on data from Ford Motor Co. 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
= hiddenhidden% × hidden = hidden

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. Ford Motor Co.'s economic profit declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

Net Operating Profit after Taxes (NOPAT)

Ford Motor Co., NOPAT calculation

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income attributable to Ford Motor Company hidden hidden hidden hidden hidden
Deferred income tax expense (benefit)1 hidden hidden hidden hidden hidden
Increase (decrease) in allowances for doubtful receivables2 hidden hidden hidden hidden hidden
Increase (decrease) in LIFO reserve3 hidden hidden hidden hidden hidden
Increase (decrease) in deferred revenue4 hidden hidden hidden hidden hidden
Increase (decrease) in accrual related to warranty costs and field service actions5 hidden hidden hidden hidden hidden
Increase (decrease) in equity equivalents6 hidden hidden hidden hidden hidden
Interest expense on Automotive debt hidden hidden hidden hidden hidden
Interest expense, operating lease obligations7 hidden hidden hidden hidden hidden
Adjusted interest expense on Automotive debt hidden hidden hidden hidden hidden
Tax benefit of interest expense on Automotive debt8 hidden hidden hidden hidden hidden
Adjusted interest expense on Automotive debt, after taxes9 hidden hidden hidden hidden hidden
(Gain) loss on marketable securities hidden hidden hidden hidden hidden
Investment-related interest income hidden hidden hidden hidden hidden
Investment income, before taxes hidden hidden hidden hidden hidden
Tax expense (benefit) of investment income10 hidden hidden hidden hidden hidden
Investment income, after taxes11 hidden hidden hidden hidden hidden
Net income (loss) attributable to noncontrolling interest hidden hidden hidden hidden hidden
Net operating profit after taxes (NOPAT) hidden hidden hidden hidden hidden

Source: Based on data from Ford Motor Co. Annual Reports

2017 Calculations

1 Elimination of deferred tax expense. See Details »

2 Addition of increase (decrease) in allowances for doubtful receivables.

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

4 Addition of increase (decrease) in deferred revenue.

5 Addition of increase (decrease) in accrual related to warranty costs and field service actions.

6 Addition of increase (decrease) in equity equivalents to net income attributable to Ford Motor Company.

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

8 Tax benefit of interest expense on Automotive debt = Adjusted interest expense on Automotive debt × Statutory income tax rate
= hidden × 35% = hidden

9 Addition of after taxes interest expense to net income attributable to Ford Motor Company.

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

11 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. Ford Motor Co.'s NOPAT declined from 2015 to 2016 and from 2016 to 2017.

Cash Operating Taxes

Ford Motor Co., cash operating taxes calculation

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Provision for (benefit from) income taxes hidden hidden hidden hidden hidden
Less: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Add: Tax savings from interest expense on Automotive debt hidden hidden hidden hidden hidden
Less: Tax imposed on investment income hidden hidden hidden hidden hidden
Cash operating taxes hidden hidden hidden hidden hidden

Source: Based on data from Ford Motor Co. 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. Ford Motor Co.'s cash operating taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

Invested Capital

Ford Motor Co., invested capital calculation (financing approach)

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Automotive debt payable within one year hidden hidden hidden hidden hidden
Financial Services debt payable within one year hidden hidden hidden hidden hidden
Automotive long-term debt payable after one year hidden hidden hidden hidden hidden
Financial Services long-term debt payable after one year hidden hidden hidden hidden hidden
PV of operating lease payments1 hidden hidden hidden hidden hidden
Total reported debt & leases hidden hidden hidden hidden hidden
Equity attributable to Ford Motor Company hidden hidden hidden hidden hidden
Net deferred tax (assets) liabilities2 hidden hidden hidden hidden hidden
Allowances for doubtful receivables3 hidden hidden hidden hidden hidden
LIFO reserve4 hidden hidden hidden hidden hidden
Deferred revenue5 hidden hidden hidden hidden hidden
Accrual related to warranty costs and field service actions6 hidden hidden hidden hidden hidden
Equity equivalents7 hidden hidden hidden hidden hidden
Accumulated other comprehensive (income) loss, net of tax8 hidden hidden hidden hidden hidden
Redeemable noncontrolling interest hidden hidden hidden hidden hidden
Equity attributable to noncontrolling interests hidden hidden hidden hidden hidden
Adjusted equity attributable to Ford Motor Company hidden hidden hidden hidden hidden
Construction in progress9 hidden hidden hidden hidden hidden
Marketable securities10 hidden hidden hidden hidden hidden
Invested capital hidden hidden hidden hidden hidden

Source: Based on data from Ford Motor Co. 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 deferred revenue.

6 Addition of accrual related to warranty costs and field service actions.

7 Addition of equity equivalents to equity attributable to Ford Motor Company.

8 Removal of accumulated other comprehensive income.

9 Subtraction of construction in progress.

10 Subtraction of marketable securities.

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

Cost of Capital

Ford Motor Co., cost of capital calculations

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

Source: Based on data from Ford Motor Co. 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 hidden hidden ÷ hidden = hidden hidden × hidden% = hidden%
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
PV of operating lease payments4 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
Total: hidden hidden hidden%

Source: Based on data from Ford Motor Co. 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 hidden hidden ÷ hidden = hidden hidden × hidden% = hidden%
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
PV of operating lease payments4 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
Total: hidden hidden hidden%

Source: Based on data from Ford Motor Co. 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 hidden hidden ÷ hidden = hidden hidden × hidden% = hidden%
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
PV of operating lease payments4 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
Total: hidden hidden hidden%

Source: Based on data from Ford Motor Co. 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 hidden hidden ÷ hidden = hidden hidden × hidden% = hidden%
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
PV of operating lease payments4 hidden hidden ÷ hidden = hidden hidden × hidden% × (1 – 35%) = hidden%
Total: hidden hidden hidden%

Source: Based on data from Ford Motor Co. Annual Reports

1 USD $ in millions

2 Equity. See Details »

3 Debt. See Details »

4 PV of operating lease payments. See Details »


Economic Spread

Ford Motor Co., economic spread calculation

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

Source: Based on data from Ford Motor Co. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

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

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. Ford Motor Co.'s economic spread deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

Economic Profit Margin

Ford Motor Co., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Economic profit1 hidden hidden hidden hidden hidden
Automotive sales hidden hidden hidden hidden hidden
Increase (decrease) in deferred revenue hidden hidden hidden hidden hidden
Ratio
Economic profit margin2 hidden% hidden% hidden% hidden% hidden%

Source: Based on data from Ford Motor Co. Annual Reports

2017 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ (Automotive sales + Change in deferred revenue)
= 100 × hidden ÷ (hidden + hidden) = hidden%

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. Ford Motor Co.'s economic profit margin deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.