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
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Liquidity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Return on Assets (ROA) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) 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 analysis of the financial data over the five-year period indicates several key trends and developments in the company's profitability and capital efficiency.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT experienced significant growth from 2020 to 2021, increasing from 1,698 million US dollars to 6,188 million US dollars. However, from 2021 onwards, there has been a consistent decline, with NOPAT decreasing to 5,116 million in 2022, 4,632 million in 2023, and further to 4,538 million in 2024. This suggests that while the company managed a substantial profit increase early in the period, profitability has weakened in the subsequent years.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, fluctuating slightly between 19.5% and 20.41%. The small variations suggest the company faced a consistent capital cost environment, without significant changes that could have materially influenced investment decisions or profitability margins.
- Invested Capital
- The invested capital showed a general upward trend from 32,173 million US dollars in 2020 to a peak of 36,035 million in 2022. After reaching this peak, invested capital decreased to 35,126 million in 2023 and further to 33,889 million in 2024. This pattern may reflect strategic reallocation or divestment of capital assets after a period of expansion, potentially influenced by shifts in operational focus or market conditions.
- Economic Profit
- The economic profit remained negative throughout the period, indicating that the company did not generate returns above its cost of capital. The loss was most pronounced in 2020 with a deficit of 4,576 million US dollars. There was an improvement in 2021, with the loss narrowing substantially to 935 million. However, from 2022 onwards, economic profit deteriorated again, with losses increasing to 2,216 million in 2022, 2,504 million in 2023, and slightly improving to 2,380 million in 2024. The persistent negative economic profit suggests ongoing challenges in value creation despite fluctuations in operating profit and invested capital.
Overall, the company demonstrated a peak in operational profitability in 2021 but faced challenges in sustaining this growth. Invested capital increased initially and then retrenched, while economic profit remained negative, signaling the company has yet to overcome the hurdle imposed by its cost of capital. Strategic focus on improving capital efficiency and profitability would be critical moving forward.
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 Trend
- The economic profit has consistently remained negative throughout the observed periods. It improved significantly from -4576 million US dollars in 2020 to -935 million in 2021, indicating a reduction in economic losses. However, from 2021 onward, economic profit deteriorated again, increasing negative values to -2216 million in 2022, -2504 million in 2023, and slightly improving to -2380 million in 2024. This pattern suggests persistent challenges in generating positive economic returns despite occasional improvements.
- Invested Capital Trend
- Invested capital increased steadily from 32173 million US dollars at the end of 2020 to a peak of 36035 million in 2022. This growth indicates ongoing investment or capital allocation during the initial years. Following 2022, the invested capital slightly declined to 35126 million in 2023 and further to 33889 million in 2024, reflecting a moderate reduction in invested assets or capital withdrawal in the recent years.
- Economic Spread Ratio Pattern
- The economic spread ratio remained negative in all periods, indicating that the return on invested capital was less than the cost of capital. It showed a marked improvement from -14.22% in 2020 to -2.67% in 2021, suggesting a closer alignment towards breaking even. However, from 2021 onwards, the ratio worsened again to -6.15% in 2022, subsequently declining to -7.13% in 2023 and slightly improving to -7.02% in 2024. The overall trend reflects ongoing struggles to generate returns above the capital cost.
- Overall Insights
- The data reflects a company facing consistent economic losses despite periods of capital growth and temporary improvements in profitability metrics. Economic profit remained negative, indicating insufficient value generation relative to capital costs. The invested capital growth followed by a small decline might suggest an adjustment strategy to manage capital allocation in response to performance challenges. The economic spread ratio corroborates these observations, showing persistent negative spreads, which imply operational or market inefficiencies reducing the financial performance relative to invested resources.
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 × ÷ =
- Adjusted Revenues
- The adjusted revenues demonstrated a consistent upward trend across the analyzed periods. Starting at $14,251 million in 2020, revenues increased significantly to $22,971 million in 2021. Although there was a slight dip to $22,665 million in 2022, the values recovered to $22,940 million in 2023 and then rose substantially again to reach $25,385 million in 2024. This pattern reflects overall growth in revenue with minor fluctuations.
- Economic Profit
- The company’s economic profit remained negative throughout all periods, indicating economic losses rather than value creation. The economic loss narrowed substantially from -$4,576 million in 2020 to -$935 million in 2021, suggesting an improvement in operational efficiency or cost management. However, this trend reversed in 2022 when economic profit decreased again to -$2,216 million, followed by further deterioration in 2023 and 2024 to -$2,504 million and -$2,380 million respectively. This signals ongoing challenges in generating returns above the cost of capital despite increasing revenues.
- Economic Profit Margin
- The economic profit margin, which measures economic profit relative to revenues, follows a similar trend of improvement and subsequent decline. Starting from a deeply negative margin of -32.11% in 2020, there was a strong recovery to -4.07% in 2021, correlating with the improvement in economic profit. Nevertheless, the margin deteriorated to -9.78% in 2022 and further to -10.91% in 2023, before a slight recovery to -9.37% in 2024. This indicates that while revenues increased, the company struggled to convert them into economic profit effectively during the latter periods.
- Overall Analysis
- Despite notable growth in adjusted revenues over the five-year span, economic profit and economic profit margin reveal persistent economic losses with a brief improvement phase in 2021. The company appears to face ongoing difficulties in translating revenue growth into sustainable economic value. The data suggests a need for strategies focused on improving cost structures, capital efficiency, or pricing power to enhance economic profitability moving forward.