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 – 16.21% × 3,771,373 = 30,015
The financial performance from 2017 to 2021 exhibits a period of significant operational expansion accompanied by volatility in economic value creation. While absolute profitability grew consistently, the ability to generate returns above the cost of capital fluctuated, resulting in periods of economic loss before a recovery in the final year of the period.
- Net Operating Profit After Taxes (NOPAT)
- A consistent and strong upward trend is observed in NOPAT, which grew from 230,606 thousand US$ in 2017 to 641,346 thousand US$ by 2021. The most substantial increase occurred between 2020 and 2021, where profit rose by approximately 51.7%, suggesting a significant scaling of operational efficiency or market demand.
- Invested Capital and Cost of Capital
- Invested capital grew steadily throughout the five-year period, increasing from 1,710,524 thousand US$ in 2017 to 3,771,373 thousand US$ in 2021. Simultaneously, the cost of capital experienced a rising trend, climbing from 12.60% in 2017 to a peak of 16.37% in 2020, before stabilizing slightly at 16.21% in 2021. This indicates that the hurdle rate for generating value increased as the company expanded its capital base.
- Economic Profit Analysis
- Economic profit demonstrated significant volatility, transitioning from positive values in 2017 and 2018 to negative values in 2019 and 2020. The negative economic profit in 2019 (-22,614 thousand US$) and 2020 (-17,581 thousand US$) indicates that during these years, the NOPAT was insufficient to cover the imputed cost of the invested capital, resulting in a destruction of shareholder value despite positive accounting profits. A reversal occurred in 2021, with economic profit returning to a positive 30,015 thousand US$, driven by the surge in NOPAT which finally outpaced the increased cost of capital.
In summary, the period was characterized by aggressive growth in both invested capital and operating profit. However, the rising cost of capital created a valuation gap between 2019 and 2020, where the return on invested capital fell below the required threshold. The recovery in 2021 suggests that the operational growth eventually scaled sufficiently to overcome the elevated cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Generac Holdings Inc., NOPAT calculation
US$ 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 | × | 16.86% | = | 15.89% | ||
| 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 | 16.21% | ||||||||||
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 | × | 16.86% | = | 16.12% | ||
| 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 | 16.37% | ||||||||||
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 | × | 16.86% | = | 14.76% | ||
| 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 | 15.52% | ||||||||||
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 | × | 16.86% | = | 13.00% | ||
| 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 | 13.92% | ||||||||||
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 | × | 16.86% | = | 12.60% | ||
| 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 | 12.60% | ||||||||||
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 | 30,015) | (17,581) | (22,614) | 42,432) | 15,087) | |
| Invested capital2 | 3,771,373) | 2,684,660) | 2,246,986) | 1,970,846) | 1,710,524) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.80% | -0.65% | -1.01% | 2.15% | 0.88% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -19.02% | — | — | — | — | |
| Caterpillar Inc. | -5.78% | — | — | — | — | |
| Eaton Corp. plc | -9.31% | — | — | — | — | |
| GE Aerospace | -18.68% | — | — | — | — | |
| Honeywell International Inc. | -1.91% | — | — | — | — | |
| Lockheed Martin Corp. | 15.48% | — | — | — | — | |
| RTX Corp. | -4.01% | — | — | — | — | |
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 × 30,015 ÷ 3,771,373 = 0.80%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a consistent expansion of the capital base contrasted with significant volatility in economic value creation. While the company successfully returned to generating positive economic profit by 2021, the period was marked by a notable interval of value destruction between 2019 and 2020.
- Invested Capital Trend
- A steady and uninterrupted upward trajectory is observed in invested capital, which grew from 1,710,524 thousand US dollars in 2017 to 3,771,373 thousand US dollars by 2021. This represents a substantial increase in the resources deployed to generate returns, indicating an aggressive expansion of the operational base over the five-year period.
- Economic Profit Fluctuations
- Economic profit exhibited high volatility, peaking in 2018 at 42,432 thousand US dollars. This was followed by a sharp decline into negative territory, reaching a low of -22,614 thousand US dollars in 2019. Although a recovery began in 2020, the figure remained negative at -17,581 thousand US dollars before returning to a positive position of 30,015 thousand US dollars in 2021.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility of the economic profit, reflecting the difference between the return on invested capital and the cost of capital. The ratio peaked at 2.15% in 2018, indicating optimal value creation. However, the ratio turned negative in 2019 (-1.01%) and 2020 (-0.65%), signaling that the returns generated were insufficient to cover the cost of the capital employed. By 2021, the ratio recovered to 0.80%, confirming a return to positive economic value added, although this level remains below the 2018 peak despite the significantly larger capital base.
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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 | 30,015) | (17,581) | (22,614) | 42,432) | 15,087) | |
| 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 | 0.80% | -0.70% | -1.02% | 2.09% | 0.89% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.10% | — | — | — | — | |
| Caterpillar Inc. | -6.67% | — | — | — | — | |
| Eaton Corp. plc | -13.98% | — | — | — | — | |
| GE Aerospace | -18.86% | — | — | — | — | |
| Honeywell International Inc. | -2.67% | — | — | — | — | |
| Lockheed Martin Corp. | 6.61% | — | — | — | — | |
| RTX Corp. | -6.96% | — | — | — | — | |
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 × 30,015 ÷ 3,759,043 = 0.80%
3 Click competitor name to see calculations.
The financial performance from 2017 through 2021 is characterized by consistent growth in adjusted net sales contrasted with significant volatility in economic profit. While revenue expanded steadily throughout the period, the ability to generate returns exceeding the cost of capital fluctuated, resulting in periods of both value creation and value destruction.
- Adjusted Net Sales Trend
- A continuous upward trajectory is observed in adjusted net sales, which grew from 1,692,306 thousand US$ in 2017 to 3,759,043 thousand US$ by 2021. The most substantial increase occurred between 2020 and 2021, where sales rose by approximately 50%, indicating a significant expansion in market reach or demand during the final year of the analyzed period.
- Economic Profit Volatility
- Economic profit exhibited a non-linear trend. After an initial increase from 15,087 thousand US$ in 2017 to a peak of 42,432 thousand US$ in 2018, the company entered a period of economic loss. Economic profit turned negative in 2019 and 2020, reaching -22,614 thousand US$ and -17,581 thousand US$ respectively. A recovery was noted in 2021, with economic profit returning to a positive value of 30,015 thousand US$.
- Economic Profit Margin Analysis
- The economic profit margin mirrors the volatility of the absolute economic profit. The margin peaked at 2.09% in 2018 before contracting to -1.02% in 2019 and -0.70% in 2020. By 2021, the margin returned to positive territory at 0.80%. Notably, despite the record high sales in 2021, the economic profit margin remained below the 2018 peak, suggesting that the efficiency of value creation relative to sales did not fully recover to its previous high point.
Overall, the analysis indicates that while the company successfully scaled its operations, the relationship between revenue growth and economic value was inconsistent. The transition from negative margins in 2019 and 2020 back to a positive margin in 2021 suggests a restoration of profitability above the cost of capital, though the magnitude of this value creation has not kept pace with the scale of sales growth.
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