Economic Value Added (EVA)
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
Generac Holdings Inc., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 641,346 – 16.30% × 3,771,373 = 26,498
The financial performance between 2017 and 2021 is characterized by significant growth in operational earnings, which was partially offset by an increasing cost of capital and a substantial expansion of the invested capital base. While operational profitability trended upward throughout the period, the ability to generate economic profit fluctuated, indicating periods where the returns on invested capital did not exceed the cost of financing those investments.
- Net Operating Profit After Taxes (NOPAT)
- A consistent upward trajectory is observed in NOPAT, which grew from 230,606 thousand US dollars in 2017 to 641,346 thousand US dollars by 2021. The most pronounced increase occurred between 2020 and 2021, where NOPAT rose by approximately 51.7%, signaling a strong acceleration in core operational profitability.
- Invested Capital and Cost of Capital
- Invested capital experienced continuous growth, increasing from 1,710,524 thousand US dollars in 2017 to 3,771,373 thousand US dollars in 2021. Concurrently, the cost of capital rose from 12.67% in 2017 to a peak of 16.47% in 2020, before stabilizing at 16.30% in 2021. The simultaneous increase in both the volume of capital deployed and the percentage cost of that capital created a higher financial hurdle for the organization to achieve positive economic value added.
- Economic Profit Volatility
- Economic profit exhibited significant volatility over the five-year period. Positive economic profit was recorded in 2017 and 2018, peaking at 40,928 thousand US dollars. However, a shift to value destruction occurred in 2019 and 2020, with economic profits falling to -24,560 thousand US dollars and -20,120 thousand US dollars, respectively. This downturn suggests that during these years, the growth in invested capital and the rising cost of capital outpaced the growth in NOPAT. A recovery to positive economic profit was achieved in 2021, reaching 26,498 thousand US dollars, as the surge in NOPAT finally surpassed the capital charge.
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Net Operating Profit after Taxes (NOPAT)
Generac Holdings Inc., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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 revenue related to extended warranties.
4 Addition of increase (decrease) in product warranty liability.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Generac Holdings Inc..
6 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 103,919 × 3.58% = 3,720
7 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 36,673 × 21.00% = 7,701
8 Addition of after taxes interest expense to net income attributable to Generac Holdings Inc..
The annual financial data reveals a consistent upward trend in both net income attributable to Generac Holdings Inc. and net operating profit after taxes (NOPAT) over the five-year period from 2017 to 2021.
- Net Income Attributable to Generac Holdings Inc.
- This metric increased steadily each year, starting at $159,386 thousand in 2017 and reaching $550,494 thousand by the end of 2021. The growth is particularly notable between 2019 and 2021, where net income rose substantially, indicating improved profitability.
- Net Operating Profit After Taxes (NOPAT)
- Likewise, NOPAT demonstrated a positive growth trajectory, increasing from $230,606 thousand in 2017 to $641,346 thousand in 2021. The increase in NOPAT aligns with the trend seen in net income, and the largest annual increments occurred from 2019 onward.
Overall, the data indicates strong financial performance with expanding profitability. The acceleration in growth after 2019 suggests successful operational improvements or favorable market conditions during this period. Both net income and NOPAT exhibit similar patterns, reinforcing the company’s capacity to convert operating results into net earnings effectively.
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Cash Operating Taxes
Generac Holdings Inc., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
The data reveals a consistent upward trend in both the provision for income taxes and cash operating taxes over the five-year period from December 31, 2017, to December 31, 2021.
- Provision for Income Taxes
-
The provision for income taxes increased steadily from $43.6 million in 2017 to $134.96 million in 2021. This represents more than a threefold increase over the five years. Notably, the most significant annual increases were observed between 2019 and 2020, and between 2020 and 2021, indicating a surge in taxable income or changes in tax rates or tax liabilities.
- Cash Operating Taxes
-
Cash operating taxes also showed a consistent rise from $39.5 million in 2017 to $143.73 million in 2021. Similar to the provision for income taxes, the growth in cash operating taxes accelerated particularly after 2019, with a marked increase from 2019 to 2020 and again into 2021.
The parallel upward movement of both provision and cash operating taxes suggests increasing profitability or taxable events impacting the company's tax obligations. The faster growth in cash operating taxes relative to the provision, especially after 2019, might indicate changes in tax payment timing or adjustments to deferred tax assets or liabilities.
Overall, the data points to escalating tax expenses over the period, which could affect net profitability and cash flow management, meriting further analysis to understand the underlying drivers such as revenue growth, changes in tax legislation, or tax strategy adjustments.
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Invested Capital
Generac Holdings Inc., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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 revenue related to extended warranties.
5 Addition of product warranty liability.
6 Addition of equity equivalents to stockholders’ equity attributable to Generac Holdings Inc..
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
- Total Reported Debt & Leases
- The total reported debt and leases showed a relatively stable trend from 2017 to 2020, fluctuating slightly between approximately 935,873 and 972,646 thousand US dollars. However, in 2021, there was a notable increase to 1,083,975 thousand US dollars, representing a rise compared to prior years.
- Stockholders’ Equity Attributable to Generac Holdings Inc.
- Stockholders’ equity exhibited a consistent and substantial growth over the five-year period. Beginning at 559,552 thousand US dollars in 2017, it increased steadily each year, reaching 2,213,774 thousand US dollars in 2021. This growth signifies a strong enhancement of the equity base, more than tripling its initial value.
- Invested Capital
- Invested capital demonstrated an upward trajectory throughout the period analyzed. Starting from 1,710,524 thousand US dollars in 2017, it rose continuously each year, culminating at 3,771,373 thousand US dollars in 2021. The increase indicates ongoing investments or retained earnings contributing to capital growth, with the largest annual rise observed between 2020 and 2021.
- Overall Analysis
- The data indicates that while the company maintained a relatively stable debt level until 2020 with a spike in 2021, it simultaneously experienced pronounced expansion in both equity and invested capital. The substantial growth in equity suggests strong financial health and possibly profitable operations or capital injections, which supported the increase in invested capital. The rise in debt in the latest year may reflect additional financing activities to support expansion or operational needs. Overall, the financial position shows strengthening capital structure and capacity.
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Cost of Capital
Generac Holdings Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 18,016,968) | 18,016,968) | ÷ | 19,115,749) | = | 0.94 | 0.94 | × | 16.96% | = | 15.98% | ||
| Borrowings and finance lease obligation3 | 994,862) | 994,862) | ÷ | 19,115,749) | = | 0.05 | 0.05 | × | 7.43% × (1 – 21.00%) | = | 0.31% | ||
| Operating lease liability4 | 103,919) | 103,919) | ÷ | 19,115,749) | = | 0.01 | 0.01 | × | 3.58% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 19,115,749) | 1.00 | 16.30% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Borrowings and finance lease obligation. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,935,375) | 20,935,375) | ÷ | 21,900,096) | = | 0.96 | 0.96 | × | 16.96% | = | 16.21% | ||
| Borrowings and finance lease obligation3 | 900,971) | 900,971) | ÷ | 21,900,096) | = | 0.04 | 0.04 | × | 7.66% × (1 – 21.00%) | = | 0.25% | ||
| Operating lease liability4 | 63,750) | 63,750) | ÷ | 21,900,096) | = | 0.00 | 0.00 | × | 4.48% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 21,900,096) | 1.00 | 16.47% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Borrowings and finance lease obligation. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 6,714,121) | 6,714,121) | ÷ | 7,670,133) | = | 0.88 | 0.88 | × | 16.96% | = | 14.84% | ||
| Borrowings and finance lease obligation3 | 919,003) | 919,003) | ÷ | 7,670,133) | = | 0.12 | 0.12 | × | 7.83% × (1 – 21.00%) | = | 0.74% | ||
| Operating lease liability4 | 37,009) | 37,009) | ÷ | 7,670,133) | = | 0.00 | 0.00 | × | 4.59% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 7,670,133) | 1.00 | 15.60% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Borrowings and finance lease obligation. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 3,228,876) | 3,228,876) | ÷ | 4,186,010) | = | 0.77 | 0.77 | × | 16.96% | = | 13.08% | ||
| Borrowings and finance lease obligation3 | 915,914) | 915,914) | ÷ | 4,186,010) | = | 0.22 | 0.22 | × | 5.07% × (1 – 21.00%) | = | 0.88% | ||
| Operating lease liability4 | 41,220) | 41,220) | ÷ | 4,186,010) | = | 0.01 | 0.01 | × | 5.07% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 4,186,010) | 1.00 | 14.00% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Borrowings and finance lease obligation. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,879,448) | 2,879,448) | ÷ | 3,852,635) | = | 0.75 | 0.75 | × | 16.96% | = | 12.67% | ||
| Borrowings and finance lease obligation3 | 929,263) | 929,263) | ÷ | 3,852,635) | = | 0.24 | 0.24 | × | 0.00% × (1 – 35.00%) | = | 0.00% | ||
| Operating lease liability4 | 43,924) | 43,924) | ÷ | 3,852,635) | = | 0.01 | 0.01 | × | 0.00% × (1 – 35.00%) | = | 0.00% | ||
| Total: | 3,852,635) | 1.00 | 12.67% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Borrowings and finance lease obligation. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Generac Holdings Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 26,498) | (20,120) | (24,560) | 40,928) | 13,822) | |
| Invested capital2 | 3,771,373) | 2,684,660) | 2,246,986) | 1,970,846) | 1,710,524) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.70% | -0.75% | -1.09% | 2.08% | 0.81% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -19.06% | — | — | — | — | |
| Caterpillar Inc. | -5.79% | — | — | — | — | |
| Eaton Corp. plc | -9.37% | — | — | — | — | |
| GE Aerospace | -18.70% | — | — | — | — | |
| Honeywell International Inc. | -2.00% | — | — | — | — | |
| Lockheed Martin Corp. | 15.29% | — | — | — | — | |
| RTX Corp. | -4.16% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 26,498 ÷ 3,771,373 = 0.70%
4 Click competitor name to see calculations.
The analysis of economic value generation reveals a period of significant volatility in profitability contrasted by a consistent and aggressive expansion of the capital base. While the scale of operations grew steadily over the five-year period, the ability to generate returns exceeding the cost of capital fluctuated, resulting in alternating periods of value creation and value destruction.
- Economic Profit Trends
- Economic profit exhibited a non-linear trajectory, starting at 13,822 thousand USD in 2017 and peaking in 2018 at 40,928 thousand USD. A sharp reversal occurred in 2019, where economic profit fell to negative 24,560 thousand USD, indicating that the returns on invested capital failed to cover the cost of that capital. This negative trend persisted into 2020, albeit with a slight improvement to negative 20,120 thousand USD, before recovering to a positive 26,498 thousand USD by the end of 2021.
- Invested Capital Growth
- Invested capital demonstrated a continuous upward trend throughout the analyzed period. The capital base expanded from 1,710,524 thousand USD in 2017 to 3,771,373 thousand USD in 2021. This represents a substantial increase in the total resources deployed in the business, with the most significant acceleration in capital investment occurring between 2020 and 2021.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the volatility of the economic profit, providing a normalized view of value creation relative to the capital employed. The ratio peaked at 2.08% in 2018, signifying the highest level of efficiency in generating excess returns. The subsequent decline to negative 1.09% in 2019 and negative 0.75% in 2020 confirms a period of value erosion. By 2021, the ratio returned to positive territory at 0.70%, although this remains below the 2017 and 2018 levels, suggesting that while value is again being created, the efficiency of the expanded capital base has not yet returned to its historical peak.
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Economic Profit Margin
Generac Holdings Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 26,498) | (20,120) | (24,560) | 40,928) | 13,822) | |
| Net sales | 3,737,184) | 2,485,200) | 2,204,336) | 2,023,464) | 1,672,445) | |
| Add: Increase (decrease) in deferred revenue related to extended warranties | 21,859) | 11,050) | 10,398) | 10,486) | 19,861) | |
| Adjusted net sales | 3,759,043) | 2,496,250) | 2,214,734) | 2,033,950) | 1,692,306) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 0.70% | -0.81% | -1.11% | 2.01% | 0.82% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.14% | — | — | — | — | |
| Caterpillar Inc. | -6.67% | — | — | — | — | |
| Eaton Corp. plc | -14.06% | — | — | — | — | |
| GE Aerospace | -18.88% | — | — | — | — | |
| Honeywell International Inc. | -2.79% | — | — | — | — | |
| Lockheed Martin Corp. | 6.53% | — | — | — | — | |
| RTX Corp. | -7.22% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × 26,498 ÷ 3,759,043 = 0.70%
3 Click competitor name to see calculations.
An analysis of economic performance between 2017 and 2021 reveals a period of volatility in value creation despite a consistent upward trajectory in adjusted net sales. While revenue grew steadily every year, economic profit fluctuated, indicating that returns on invested capital did not consistently exceed the cost of capital throughout the observed period.
- Adjusted Net Sales Growth
- Adjusted net sales demonstrated uninterrupted annual growth, increasing from 1,692,306 thousand in 2017 to 3,759,043 thousand in 2021. A significant acceleration in revenue is observed between 2020 and 2021, where sales increased by approximately 50%.
- Economic Profit Fluctuations
- Economic profit experienced a sharp increase in 2018, reaching 40,928 thousand, before entering a two-year period of negative value creation. In 2019 and 2020, economic profit fell to -24,560 thousand and -20,120 thousand, respectively, suggesting that the company's net operating profit after tax was insufficient to cover its cost of capital. A return to positive value creation occurred in 2021, with economic profit rising to 26,498 thousand.
- Economic Profit Margin Trends
- The economic profit margin mirrored the volatility of absolute economic profit. The margin peaked at 2.01% in 2018 before declining to its lowest point of -1.11% in 2019. A gradual recovery followed, with the margin improving to -0.81% in 2020 and returning to a positive 0.70% by the end of 2021. The divergence between the steady increase in sales and the fluctuating margin suggests that revenue growth did not automatically translate into proportional economic value during the 2019-2020 period.
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