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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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- Cash Flow Statement
- Common-Size Income Statement
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Return on Equity (ROE) since 2005
- Price to Sales (P/S) since 2005
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Economic Profit
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 annual financial data reveals varying trends in profitability, capital efficiency, and value generation over the five-year period.
- Net Operating Profit After Taxes (NOPAT)
- Over the period, NOPAT exhibits significant volatility. It begins at a positive US$6,132 million in 2020, declines sharply to a negative US$1,820 million in 2021, then recovers to a positive US$1,827 million in 2022. A substantial increase is observed in 2023, reaching US$10,514 million, before moderating to US$7,561 million in 2024. This pattern indicates periods of operational challenges followed by notable recovery and growth in profitability.
- Cost of Capital
- The cost of capital shows a consistent upward trend throughout the period. Starting at 9.92% in 2020, it rises steadily each year to reach 15.47% by 2024. This increase implies a growing expense associated with securing funds, which could reflect heightened risk perception or changes in market interest rates affecting the company’s capital structure.
- Invested Capital
- Invested capital displays a continual decline from US$117,528 million in 2020 down to US$37,678 million in 2024. This substantial reduction suggests a strategic divestment, asset sales, or efficiency improvements in capital usage. The shrinking capital base could also result from restructuring efforts or shifts in business focus.
- Economic Profit
- Economic profit remains negative during the initial three years, ranging from negative US$5,526 million in 2020 to negative US$10,653 million in 2021, improving slightly to negative US$6,564 million in 2022. In 2023, economic profit turns positive at US$3,081 million and remains positive in 2024 at US$1,731 million. The transition to positive economic profit indicates that the company began to generate returns exceeding its cost of capital only in the later years, reflecting an improvement in capital efficiency and value creation.
Overall, the data suggests a challenging period in the early years marked by operational losses and declining economic profit amidst increasing capital costs. However, the latter years show a recovery in profit, reduced capital investment, and a shift to positive economic profit, highlighting an improved financial performance and more effective utilization of capital resources.
Net Operating Profit after Taxes (NOPAT)
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 allowance for credit losses.
3 Addition of increase (decrease) in deferred income.
4 Addition of increase (decrease) in liability for product warranties.
5 Addition of increase (decrease) in equity equivalents to net earnings (loss) attributable to the Company.
6 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2024 Calculation
Tax benefit of interest and other financial charges = Adjusted interest and other financial charges × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net earnings (loss) attributable to the Company.
9 Elimination of discontinued operations.
The financial data reveals significant fluctuations in the profitability metrics over the five-year period examined. Both net earnings attributable to the company and net operating profit after taxes (NOPAT) exhibit notable volatility, reflecting changing operational performance and possibly external factors impacting the business environment.
- Net Earnings (Loss) Attributable to the Company
- Initially, the net earnings were positive at approximately 5.7 billion USD in 2020. However, there was a sharp decline in 2021, resulting in a substantial loss of about 6.52 billion USD. The company managed to recover in 2022, returning to a modest profit of 225 million USD. This positive trend accelerated in 2023, with net earnings reaching a peak of 9.48 billion USD. In 2024, earnings slightly decreased but remained strong at 6.56 billion USD, indicating sustained profitability beyond the prior years’ challenges.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT figures largely mirror the trends observed in net earnings, though the fluctuations are somewhat less extreme. Starting at roughly 6.13 billion USD in 2020, NOPAT dropped to a negative 1.82 billion USD in 2021. The subsequent years saw a recovery trajectory, with positive values of 1.83 billion USD in 2022, followed by a significant jump to over 10.5 billion USD in 2023. In 2024, while there was a decrease relative to the peak, NOPAT remained strong at roughly 7.56 billion USD.
Overall, the data suggest that the company experienced a period of considerable financial distress in 2021, interrupting otherwise strong profitability. The recovery through 2022 to 2024 is notable, with both net earnings and NOPAT exceeding initial 2020 levels in the latest years. This recovery indicates improved operational efficiency or favorable market conditions contributing to restored and enhanced profitability. However, the dip in 2024 compared to 2023 highlights the potential for variability and the need for ongoing monitoring of factors influencing financial performance.
Cash Operating Taxes
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 data reveals significant fluctuations in the provision (benefit) for income taxes over the five-year period. Initially, there was a substantial tax benefit recorded in 2020 and 2021, with values of -474 million USD and -286 million USD respectively. However, starting in 2022, the figures shifted dramatically to positive values, indicating tax provisions rather than benefits, peaking at 1,162 million USD in 2023 before slightly declining to 962 million USD in 2024. This reversal suggests a marked change in tax expense recognition, possibly due to changes in profitability, tax laws, or accounting policies.
Cash operating taxes exhibit a different pattern with a sharp decline from 3,167 million USD in 2020 to 141 million USD in 2021. Subsequently, cash operating taxes increased to 1,464 million USD in 2022, followed by a decrease to 793 million USD in 2023. The figure rose again to 999 million USD in 2024. This volatility indicates considerable variability in actual tax payments, which may be influenced by changes in taxable income, timing differences in tax payments, or adjustments related to previous years.
- Provision (Benefit) for Income Taxes Trends
- From 2020 to 2021, a consistent tax benefit was recorded, indicating either losses or tax credits recognized during this period. The switch to positive tax provisions from 2022 through 2024 suggests an improved profitability or a shift in tax strategy, potentially reflecting increased earnings or changes in deferred tax accounting.
- Cash Operating Taxes Trends
- The significant drop in 2021 cash taxes could reflect timing or recognition differences, possibly due to tax relief measures or payment deferrals. The increases in 2022 and 2024 may indicate higher taxable earnings or reduced tax reliefs. The dip in 2023 contrasts with the increased tax provision for the same year, implying a temporary delay or variance in tax payments versus accruals.
- Overall Tax Expense Insights
- The divergence between provision for income taxes and cash operating taxes, particularly visible in 2023, points to differences in accrual accounting and actual cash outflows. This may impact cash flow management and tax planning strategies. The general trend towards higher tax provisions since 2022 may reflect a return to sustained profitability or changes in the company's tax position.
Invested Capital
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 allowance for doubtful accounts receivable.
4 Addition of deferred income.
5 Addition of liability for product warranties.
6 Addition of equity equivalents to shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of leasehold costs and manufacturing plant under construction.
The financial data reveals several significant trends in the company’s debt, equity, and invested capital over the five-year period from 2020 to 2024.
- Total reported debt & leases
- There is a marked decline in total reported debt and leases, decreasing substantially from US$78,039 million in 2020 to US$20,378 million in 2024. This represents a reduction of almost 74%, indicating a strong deleveraging trend and possibly a strategic focus on reducing financial obligations over the period.
- Shareholders’ equity
- Shareholders’ equity increased from US$35,552 million in 2020 to a peak of US$40,310 million in 2021. After this peak, equity declined steadily each year, reaching US$19,342 million by the end of 2024. This reduction after 2021 suggests challenges in maintaining equity levels, which may be due to factors such as net losses, dividend payments, share repurchases, or other equity-consuming activities.
- Invested capital
- Invested capital significantly decreased from US$117,528 million in 2020 to US$37,678 million in 2024. The decline is pronounced and continuous every year, reflecting both the substantial reduction in debt and the drop in shareholders’ equity. This overall shrinkage in invested capital could indicate divestitures, asset disposals, or a strategic downsizing of the capital base.
Overall, the data suggests a concerted effort to reduce leverage and shrink the invested capital base, while equity levels have faced downward pressure since 2021. The combined trends point to significant restructuring or operational changes impacting the capital structure and financial position across the analyzed timeframe.
Cost of Capital
GE Aerospace, cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Preferred stock | ÷ | = | × | = | |||||||||
Borrowings3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Preferred stock | ÷ | = | × | = | |||||||||
Borrowings3 | ÷ | = | × | × (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 Borrowings. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Preferred stock | ÷ | = | × | = | |||||||||
Borrowings3 | ÷ | = | × | × (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 Borrowings. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Preferred stock | ÷ | = | × | = | |||||||||
Borrowings3 | ÷ | = | × | × (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 Borrowings. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Preferred stock | ÷ | = | × | = | |||||||||
Borrowings3 | ÷ | = | × | × (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 Borrowings. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
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 | ||||||
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
Boeing Co. | ||||||
Caterpillar Inc. | ||||||
Eaton Corp. plc | ||||||
Honeywell International Inc. | ||||||
Lockheed Martin Corp. | ||||||
RTX Corp. |
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 × ÷ =
4 Click competitor name to see calculations.
The financial data reveals several significant trends over the five-year period under consideration. Initially, the economic profit was negative, indicating losses, but shows a notable shift to positive values in the more recent years.
- Economic profit
- Starting at a substantial loss of -5,526 million USD in 2020, the economic profit deteriorated further to -10,653 million USD in 2021, reflecting an increased negative performance. In 2022, there was an improvement, though still negative at -6,564 million USD. The year 2023 marks a turning point with a positive economic profit of 3,081 million USD, followed by a slight decrease but still positive at 1,731 million USD in 2024. This indicates a recovery trend and an improvement in value creation in the most recent years.
- Invested capital
- Over the period, invested capital consistently decreased from 117,528 million USD in 2020 to 37,678 million USD in 2024. The most significant reductions occurred between 2020 and 2021 and continued steadily throughout the subsequent years. This decline suggests a substantial reduction in the capital base, possibly through divestitures, asset sales, or other capital efficiency measures.
- Economic spread ratio
- The economic spread ratio, which reflects the return on invested capital relative to its cost, was negative throughout the first three years, worsening from -4.7% in 2020 to -14.79% in 2021 and improving slightly to -9.82% in 2022. In 2023, the ratio turned positive at 6.14%, showing that the company began generating returns above its cost of capital. This positive trend slightly declined in 2024 but remained favorable at 4.59%. The turnaround in economic spread aligns with the increase in economic profit in the latter years, indicating improved operational efficiency or profitability.
Overall, the data indicates that while the company faced considerable challenges with negative economic profit and returns relative to capital cost in the early years, it has managed to improve its performance sharply since 2022. The reduction in invested capital, coupled with positive economic profit and spread in the last two years, reflects a strategic shift towards higher value creation and better capital utilization.
Economic Profit Margin
Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Sales of equipment and services | ||||||
Add: Increase (decrease) in deferred income | ||||||
Adjusted sales of equipment and services | ||||||
Performance Ratio | ||||||
Economic profit margin2 | ||||||
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
Boeing Co. | ||||||
Caterpillar Inc. | ||||||
Eaton Corp. plc | ||||||
Honeywell International Inc. | ||||||
Lockheed Martin Corp. | ||||||
RTX Corp. |
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 sales of equipment and services
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited a significant decline from 2020 to 2021, dropping from -5,526 million USD to -10,653 million USD. This negative trend partially reversed in 2022, improving to -6,564 million USD, followed by a notable recovery in 2023 and 2024 with positive values of 3,081 million USD and 1,731 million USD, respectively. This pattern indicates that after substantial losses in 2020-2021, the company managed to move into profitability by the end of 2023, although the economic profit decreased slightly in 2024 compared to 2023.
- Adjusted Sales of Equipment and Services
- Sales values fluctuated over the period. Starting at 73,538 million USD in 2020, sales slightly decreased to 71,356 million USD in 2021, then increased to 73,736 million USD in 2022. A sharp decline was observed in 2023, dropping to 64,504 million USD, followed by a drastic reduction to 35,098 million USD in 2024. This downward trajectory in recent years suggests considerable challenges in revenue generation from equipment and services.
- Economic Profit Margin
- The economic profit margin mirrored the trend in economic profit. The margin decreased from -7.51% in 2020 to -14.93% in 2021, improving to -8.9% in 2022. It turned positive in 2023 at 4.78% and remained slightly higher at 4.93% in 2024. This turnaround indicates an improvement in profitability relative to sales despite the severe sales decline in the last two years.
- Overall Analysis
- The data describes a period of financial stress through 2020 and 2021, with marked losses and declining profitability margins despite relatively stable sales initially. The transition to positive economic profit and margin in 2023 and 2024 suggests successful cost management or other efficiency gains. However, the sharp fall in adjusted sales in the latter years highlights potential issues in market demand or competitive positioning that may warrant further investigation.