Economic Value Added (EVA)
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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
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Freeport-McMoRan Inc. pages available for free this week:
- Statement of Comprehensive Income
- Common-Size Balance Sheet: Assets
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Equity (ROE) since 2005
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Economic Profit
Freeport-McMoRan Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data reveals several key trends regarding the company's profitability, capital investment, and cost of capital over the analyzed five-year period.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT experienced significant growth from 2020 to 2021, rising sharply from 1,698 million US dollars to 6,188 million US dollars. However, following this peak, there was a declining trend with values decreasing to 5,116 million in 2022, 4,632 million in 2023, and 4,538 million in 2024. This suggests that after an initial strong performance, operational profitability has weakened gradually over the last three years.
- Cost of Capital
- The cost of capital remained relatively stable over the period, with slight incremental increases year over year. It started at 20.1% in 2020 and rose gradually to 21.04% by 2024. This stability combined with minor increments indicates a consistently high capital cost environment without major fluctuations.
- Invested Capital
- Invested capital showed an upward trend from 32,173 million US dollars in 2020 to a peak of 36,035 million in 2022. However, it then decreased to 35,126 million in 2023 and further to 33,889 million in 2024. This pattern reflects initial growth in capital investment followed by a cautious reduction in the most recent years.
- Economic Profit
- Economic profit remained negative throughout the period, with some improvement after 2020 but no sustained positive values. The loss narrowed from -4,768 million in 2020 to -1,156 million in 2021 but then deteriorated again to -2,442 million in 2022, -2,724 million in 2023, and -2,593 million in 2024. The persistent negative economic profit indicates that the returns generated did not exceed the cost of capital, highlighting challenges in creating shareholder value despite fluctuations in operating profit and invested capital.
Overall, the data suggest that while the company achieved a peak in operating profitability in 2021 and increased its invested capital up to 2022, it faced decreasing profit performance and continued to generate negative economic profit, with a consistent high cost of capital. This implies pressure on value creation and operational efficiency in the latter part of the analyzed timeframe.
Net Operating Profit after Taxes (NOPAT)
Freeport-McMoRan Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in deferred revenue.
3 Addition of increase (decrease) in equity equivalents to net income attributable to common stockholders.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net income attributable to common stockholders.
- Net Income Attributable to Common Stockholders
- The net income attributable to common stockholders showed a significant increase from 599 million USD in 2020 to a peak of 4306 million USD in 2021. However, after this peak, net income declined to 3468 million USD in 2022 and continued to decrease further to 1848 million USD in 2023. There was a slight recovery in 2024, with net income rising marginally to 1889 million USD. Overall, the data indicates a pronounced volatility with a substantial peak in 2021 followed by a consistent downward trend in the subsequent years through 2024.
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes also demonstrated a strong upward movement from 1698 million USD in 2020 to 6188 million USD in 2021. Following this, NOPAT experienced a decline to 5116 million USD in 2022 and a further decrease to 4632 million USD in 2023. By 2024, NOPAT slightly decreased again to 4538 million USD. Despite the reductions after 2021, NOPAT levels remained substantially higher than the 2020 baseline, signifying an overall improved operating profitability compared to the start of the period.
- General Observations
- Both net income and NOPAT peaked in 2021, indicating a year of exceptional profitability. Post-2021, both metrics declined, with net income showing a sharper drop compared to NOPAT. This divergence suggests that factors affecting net income beyond operating performance, such as non-operating expenses or one-time gains/losses, could have influenced net income volatility. Despite declines, the company maintained profitability above initial 2020 levels over the five-year span. The slight uptick in net income in 2024 may hint at stabilization or recovering profitability after several years of decrease.
Cash Operating Taxes
Freeport-McMoRan Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
The financial data reveals trends in the provision for income taxes and cash operating taxes over a five-year period ending December 31, 2024.
- Provision for Income Taxes
- There is a notable increase from 944 million US dollars in 2020 to 2299 million in 2021, indicating a sharp rise in tax provisions. The figures then remain relatively stable around the 2200-2270 million range for the years 2022 and 2023. In 2024, a further increase to 2523 million is observed, suggesting continuing growth in tax obligations.
- Cash Operating Taxes
- This category exhibits a significant surge from 774 million US dollars in 2020 to 2217 million in 2021, reflecting a major increase in cash tax payments. There is a slight downward trend in 2022 and 2023, with cash operating taxes recorded at 2088 million and 2009 million respectively. However, in 2024, a sharp rise occurs, reaching 2672 million, surpassing previous years' levels.
Overall, the trends indicate a substantial increase in both provision for income taxes and cash operating taxes starting in 2021. While the provision for income taxes shows a steady upward trend after 2021, cash operating taxes display more variability with a dip in the middle years followed by a significant rebound in 2024. This pattern may reflect changes in the company's profitability, tax strategies, or external tax environment impacting its tax liabilities and payments.
Invested Capital
Freeport-McMoRan Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of deferred revenue.
4 Addition of equity equivalents to stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
7 Subtraction of investment securities.
The financial data reveals several key trends regarding the company’s capital structure and equity position over the five-year period.
- Total Reported Debt & Leases
- The total reported debt and leases show fluctuation but overall a slight decrease from 2020 to 2024. After peaking in 2022 at 10,952 million USD, the debt level declines to 9,738 million USD by the end of 2024. This suggests an effort to reduce debt or improve debt management after a temporary increase in 2022.
- Stockholders’ Equity
- Stockholders’ equity demonstrates consistent growth year over year. Starting at 10,174 million USD in 2020, it rises steadily to reach 17,581 million USD in 2024. This upward trend indicates strengthening equity, possibly due to retained earnings growth, issuing equity, or increased profitability enhancing the company’s net asset base.
- Invested Capital
- Invested capital increases from 32,173 million USD in 2020 to a peak of 36,035 million USD in 2022, followed by a decline to 33,889 million USD in 2024. The increase up to 2022 may reflect expanded operational assets or investment in capital projects, while the subsequent decline suggests divestitures, asset sales, or depreciation outpacing new investments.
Overall, the data reflects a company focused on strengthening equity while managing debt levels relatively stable after a notable increase in 2022. Investment in capital assets has peaked and begun to recede moderately, indicating possible strategic shifts in capital allocation or operational adjustments during the latter years.
Cost of Capital
Freeport-McMoRan Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Freeport-McMoRan Inc., economic spread ratio calculation
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
- Economic Profit
- The economic profit exhibited a significant improvement from a substantial loss of 4768 million USD in 2020 to a much smaller loss of 1156 million USD in 2021. However, this positive trend was not sustained as economic profit deteriorated again in subsequent years, reaching a loss of 2442 million USD in 2022 and further declining to 2724 million USD in 2023. In 2024, a slight recovery was observed with the loss decreasing marginally to 2593 million USD. Overall, economic profit remains negative throughout the period, indicating challenges in generating returns above the cost of capital.
- Invested Capital
- Invested capital steadily increased from 32173 million USD in 2020 to a peak of 36035 million USD in 2022. Following this peak, a reversal occurred with a decline to 35126 million USD in 2023 and further down to 33889 million USD in 2024. The initial growth suggests investment in operations or assets during the early years, but a reduction in invested capital over the last two years indicates possible divestments, depreciation exceeding new investments, or asset disposals.
- Economic Spread Ratio
- The economic spread ratio displayed negative values throughout the period, reflecting a consistent inability to earn returns above the cost of capital. The ratio improved notably from -14.82% in 2020 to -3.3% in 2021, suggesting enhanced efficiency or profitability relative to capital costs. However, this improvement was temporary, as the ratio worsened to -6.78% in 2022 and further to -7.75% in 2023. In 2024, a slight improvement to -7.65% was noted but still indicated suboptimal performance in terms of economic profitability.
- Summary
- The data reveals a company facing ongoing challenges in creating economic value, as indicated by persistent negative economic profits and economic spread ratios. While invested capital grew initially, it contracted in the last two years, possibly reflecting adjustments in investment strategy or asset base. The slight fluctuations in economic profit and spread ratio suggest some operational or strategic changes attempted to improve financial performance, but these have not yet resulted in sustained positive economic profitability.
Economic Profit Margin
Freeport-McMoRan Inc., economic profit margin calculation
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × ÷ =
The financial data reveals several notable trends over the five-year period ending in 2024. Adjusted revenues display a generally positive trajectory, increasing from $14,251 million in 2020 to $25,385 million in 2024. This indicates a significant growth in the company's sales or core operations.
Despite the rising revenues, the company has consistently reported negative economic profit throughout the period. Although the economic losses narrowed significantly from -$4,768 million in 2020 to -$1,156 million in 2021, there was a subsequent deterioration in 2022 and 2023 with economic profit falling back to -$2,442 million and -$2,724 million, respectively. In 2024, there is a slight improvement to -$2,593 million but economic profit remains deeply negative.
The economic profit margin follows a similar pattern to economic profit. It starts at a very low -33.46% in 2020 and improves sharply to -5.03% in 2021, suggesting better relative profitability against invested capital or operating resources. However, the margin declines again in the next two years, to -10.78% in 2022 and -11.87% in 2023, before a marginal recovery to -10.22% in 2024. This persistent negative margin indicates that despite growing revenues, the company has not achieved positive returns above its cost of capital.
- Revenue Trend
- Consistent growth from $14.3 billion in 2020 to $25.4 billion in 2024.
- Economic Profit
- Substantial loss in 2020 partially recovered in 2021, but deteriorated again in 2022 and 2023, with slight improvement in 2024; all values remain negative.
- Economic Profit Margin
- Initial drastic improvement in 2021 followed by weakening profitability margins in subsequent years, indicating sustained challenges in achieving value creation.
Overall, while revenue growth is strong and reflects increased business scale or market share, the enduring negative economic profit and margin suggest the company struggles to convert sales growth into economic value or to sufficiently cover its cost of capital. Management attention might be warranted to address the factors influencing profitability despite favorable top-line performance.