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.
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Generac Holdings Inc. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2010
- Operating Profit Margin since 2010
- Return on Equity (ROE) since 2010
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Economic Profit
Generac Holdings Inc., economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The period under review demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) generally increased over the five years, while the cost of capital and invested capital also exhibited upward trends. However, the interplay between these factors resulted in periods of both positive and negative economic profit.
- NOPAT Trend
- NOPAT increased significantly from US$230.606 million in 2017 to US$641.346 million in 2021. Growth was particularly strong between 2020 and 2021. This indicates improving operational efficiency and profitability.
- Cost of Capital Trend
- The cost of capital rose steadily from 12.61% in 2017 to 16.39% in 2020, before decreasing slightly to 16.22% in 2021. This increase likely reflects changes in market interest rates, risk premiums, or the company’s capital structure. The slight decrease in 2021 may indicate improved investor confidence or a more favorable financing environment.
- Invested Capital Trend
- Invested capital increased consistently throughout the period, rising from US$1,710.524 million in 2017 to US$3,771.373 million in 2021. This growth suggests ongoing investment in assets and operations to support expansion and increased NOPAT.
- Economic Profit Analysis
- Economic profit was positive in 2017 and 2018, reaching US$42.236 million in 2018. However, it turned negative in 2019 and 2020, reaching a low of negative US$22.868 million in 2019 and negative US$17.912 million in 2020. This indicates that, during those years, the company’s returns did not exceed its cost of capital. Economic profit returned to a positive value in 2021, reaching US$29.556 million, driven by the substantial increase in NOPAT.
- The negative economic profit in 2019 and 2020, despite increasing NOPAT, suggests that the growth in invested capital and the rising cost of capital outpaced the gains in operating profit. The positive economic profit in 2021 demonstrates a successful alignment of NOPAT growth with efficient capital management.
Overall, the financial performance shows a company capable of generating increasing operating profits, but one that faces challenges in consistently achieving returns exceeding its cost of capital. The recent positive economic profit in 2021 is a favorable development, but continued monitoring of the cost of capital and invested capital relative to NOPAT will be crucial.
Net Operating Profit after Taxes (NOPAT)
Generac Holdings Inc., NOPAT calculation
US$ 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
= × =
7 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
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 $641,346 thousand in 2021. The increase in NOPAT aligns with the trend seen in net income, and the largest annual increments occurred from 2019 onward.
Overall, the data indicates strong financial performance with expanding profitability. The acceleration in growth after 2019 suggests successful operational improvements or favorable market conditions during this period. Both net income and NOPAT exhibit similar patterns, reinforcing the company’s capacity to convert operating results into net earnings effectively.
Cash Operating Taxes
Generac Holdings Inc., cash operating taxes calculation
US$ 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 $143.73 million in 2021. Similar to the provision for income taxes, the growth in cash operating taxes accelerated particularly after 2019, with a marked increase from 2019 to 2020 and again into 2021.
The parallel upward movement of both provision and cash operating taxes suggests increasing profitability or taxable events impacting the company's tax obligations. The faster growth in cash operating taxes relative to the provision, especially after 2019, might indicate changes in tax payment timing or adjustments to deferred tax assets or liabilities.
Overall, the data points to escalating tax expenses over the period, which could affect net profitability and cash flow management, meriting further analysis to understand the underlying drivers such as revenue growth, changes in tax legislation, or tax strategy adjustments.
Invested Capital
Generac Holdings Inc., invested capital calculation (financing approach)
US$ 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.
Cost of Capital
Generac Holdings Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Borrowings and finance lease obligation3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings and finance lease obligation3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings and finance lease obligation3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings and finance lease obligation3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Borrowings and finance lease obligation3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited considerable fluctuation between 2017 and 2021. Initially positive, it experienced a period of negative values before returning to a positive level. This movement correlates with changes in economic profit and invested capital over the same period.
- Economic Spread Ratio Trend
- In 2017, the economic spread ratio stood at 0.87%. This increased substantially to 2.14% in 2018, indicating an improved ability to generate returns exceeding the cost of capital. However, the ratio turned negative in 2019, reaching -1.02%, and remained negative in 2020 at -0.67%. A recovery was observed in 2021, with the ratio rising to 0.78%, suggesting a renewed capacity to create economic value.
The economic spread ratio’s negative values in 2019 and 2020 align with periods of negative economic profit. This suggests that, during those years, returns generated were insufficient to cover the cost of invested capital. The return to positive economic profit in 2021 is mirrored by the positive economic spread ratio observed in that year.
- Relationship to Invested Capital
- Invested capital consistently increased throughout the period, rising from US$1,710,524 thousand in 2017 to US$3,771,373 thousand in 2021. While the economic spread ratio was positive in 2017 and 2018, the subsequent increases in invested capital, coupled with negative economic profit, contributed to the negative spread ratios in 2019 and 2020. The recovery in 2021 suggests that the increase in economic profit outpaced the growth in invested capital, leading to an improved spread.
The volatility in the economic spread ratio highlights the sensitivity of value creation to both profitability and capital deployment. Continued monitoring of this ratio, alongside its underlying components, is recommended to assess the company’s long-term financial performance and efficiency in utilizing capital.
Economic Profit Margin
Generac Holdings Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Net sales | ||||||
| Add: Increase (decrease) in deferred revenue related to extended warranties | ||||||
| Adjusted net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited considerable fluctuation between 2017 and 2021. Initial positive values transitioned to negative figures before recovering towards the end of the period. A detailed examination of the trends is presented below.
- Economic Profit Margin
- The economic profit margin began at 0.88% in 2017, indicating that for every dollar of sales, the company generated 0.88 cents of economic profit. This margin increased substantially to 2.08% in 2018, suggesting improved profitability and efficient capital utilization. However, a significant reversal occurred in 2019, with the margin declining to -1.03%. This indicates that the company’s return on capital was less than its cost of capital, resulting in economic loss. The negative trend continued in 2020, with the margin reaching -0.72%. A recovery was observed in 2021, as the economic profit margin rose to 0.79%, approaching the level seen in 2017.
The economic profit margin’s movement closely mirrors that of economic profit itself. The substantial increase in economic profit from 2017 to 2018 is reflected in the margin’s growth. The subsequent declines in economic profit in 2019 and 2020 directly correlate with the negative and decreasing margins. The return to positive economic profit in 2021 is similarly reflected in the margin’s positive value.
- Relationship to Adjusted Net Sales
- Adjusted net sales demonstrated consistent growth throughout the period, increasing from US$1,692,306 thousand in 2017 to US$3,759,043 thousand in 2021. Despite this consistent revenue growth, the economic profit margin did not consistently benefit. The period of increasing sales between 2017 and 2018 coincided with margin improvement. However, the continued sales growth from 2019 to 2020 did not prevent margin deterioration. The margin’s recovery in 2021 occurred alongside a particularly large increase in adjusted net sales, suggesting a potential link between sales volume and profitability.
In summary, while adjusted net sales consistently increased, the economic profit margin experienced volatility. The company’s ability to translate revenue growth into economic profit varied significantly over the five-year period, indicating potential fluctuations in cost of capital, operational efficiency, or investment effectiveness.