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 – 16.31% × 3,771,373 = 26,355
The financial performance from 2017 to 2021 is characterized by strong growth in operational profitability alongside a significant expansion of the capital base. While operating profits increased consistently, the economic profit exhibited volatility, reflecting a period of value destruction between 2019 and 2020 before returning to positive territory in 2021.
- Net Operating Profit After Taxes (NOPAT)
- A sustained upward trajectory is evident in NOPAT, which grew from 230,606 thousand US dollars in 2017 to 641,346 thousand US dollars by 2021. The most substantial acceleration occurred between 2020 and 2021, where profit increased by approximately 51.7%, indicating a significant improvement in operational efficiency or market demand during the final year of the period.
- Invested Capital and Cost of Capital
- Invested capital expanded aggressively, more than doubling from 1,710,524 thousand US dollars in 2017 to 3,771,373 thousand US dollars in 2021. Concurrently, the cost of capital trended upward, rising from 12.68% in 2017 to a peak of 16.47% in 2020, before stabilizing slightly at 16.31% in 2021. This simultaneous increase in both the volume of capital employed and the rate required to service that capital increased the financial hurdle for achieving positive economic profit.
- Economic Profit Analysis
- Economic profit experienced significant fluctuations, oscillating between value creation and value destruction. After an initial increase from 13,771 thousand US dollars in 2017 to 40,867 thousand US dollars in 2018, the figure turned negative in 2019 (-24,640 thousand US dollars) and remained negative in 2020 (-20,224 thousand US dollars). This indicates that during these two years, the NOPAT was insufficient to cover the total capital charge. However, a recovery was achieved in 2021, with economic profit returning to 26,355 thousand US dollars, driven by the surge in NOPAT which finally outpaced the growth in invested capital and 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..
Between 2017 and 2021, a consistent and accelerating growth trend is observed in both core operational profitability and net earnings. The upward trajectory indicates a period of sustained expansion in operational efficiency and scale.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited uninterrupted growth over the five-year period, rising from US$ 230,606 thousand in 2017 to US$ 641,346 thousand by 2021. The most significant expansion occurred between 2020 and 2021, where the figure increased by approximately 52%, signaling a substantial acceleration in operational performance.
- Net Income Attributable to Generac Holdings Inc.
- Net income followed a similar upward trajectory, increasing from US$ 159,386 thousand in 2017 to US$ 550,494 thousand in 2021. This represents a total growth of approximately 245% over the analyzed period, with the most pronounced surge appearing in the 2021 fiscal year.
- Relationship Between NOPAT and Net Income
- A consistent positive variance is maintained between NOPAT and net income throughout the period. The fact that NOPAT remains higher than net income suggests that non-operating items—likely interest expenses associated with the company's capital structure—reduce the final net earnings, although the core operational engine continues to generate increasing value.
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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).
An analysis of the tax expenditures from 2017 to 2021 reveals a sustained upward trajectory in both the provision for income taxes and cash operating taxes. The growth in these figures suggests a significant increase in taxable income and associated cash outflows over the five-year period.
- Provision for Income Taxes Trend
- The provision for income taxes grew from 43,553 thousand US dollars in 2017 to 134,957 thousand US dollars by 2021. While a marginal decline occurred in 2019, where the value dipped to 67,299 thousand US dollars from 69,856 thousand US dollars in 2018, the overall trend remained bullish, particularly with a sharp acceleration between 2020 and 2021.
- Cash Operating Taxes Trend
- Cash operating taxes exhibited a consistent year-over-year increase throughout the analyzed period. Starting at 39,500 thousand US dollars in 2017, the outflows grew steadily to 86,003 thousand US dollars by 2020, before experiencing a substantial surge to 143,731 thousand US dollars in 2021. This represents a total increase of approximately 264% over the five-year span.
- Relationship Between Accrual and Cash Taxes
- For the majority of the period between 2017 and 2020, cash operating taxes remained lower than the provision for income taxes, indicating that tax accruals exceeded actual cash payments. However, a reversal occurred in 2021, where cash operating taxes (143,731 thousand US dollars) exceeded the provision for income taxes (134,957 thousand US dollars), signaling a shift in the timing of tax settlements or a reduction in deferred tax assets.
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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.
Invested capital exhibited a consistent and accelerating growth trajectory between 2017 and 2021, increasing from 1,710,524 thousand US$ to 3,771,373 thousand US$. This expansion indicates a significant increase in the total capital employed by the organization to generate economic value over the five-year period.
- Invested Capital Growth Patterns
- A continuous upward trend is observed, with the pace of growth accelerating in the latter years. The most substantial increase occurred between 2020 and 2021, where invested capital rose by approximately 40%, marking the largest single-year expansion in the analyzed timeframe.
- Equity Contribution
- Stockholders' equity attributable to Generac Holdings Inc. acted as the primary driver of the overall increase in invested capital. Equity grew from 559,552 thousand US$ in 2017 to 2,213,774 thousand US$ in 2021, reflecting a robust accumulation of capital through retained earnings or additional equity financing.
- Debt and Lease Obligations
- Total reported debt and leases remained relatively stable from 2017 to 2020, experiencing a slight overall decline before stabilizing. A pivot occurred in 2021, with debt and leases increasing to 1,083,975 thousand US$, suggesting a tactical increase in leverage to supplement the growing capital base.
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Cost of Capital
Generac Holdings Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 18,016,968) | 18,016,968) | ÷ | 19,115,749) | = | 0.94 | 0.94 | × | 16.96% | = | 15.99% | ||
| Borrowings and finance lease obligation3 | 994,862) | 994,862) | ÷ | 19,115,749) | = | 0.05 | 0.05 | × | 7.43% × (1 – 21.00%) | = | 0.31% | ||
| Operating lease liability4 | 103,919) | 103,919) | ÷ | 19,115,749) | = | 0.01 | 0.01 | × | 3.58% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 19,115,749) | 1.00 | 16.31% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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% | = | 14.85% | ||
| 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 | 15.61% | ||||||||||
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% | = | 12.68% | ||
| 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 | 12.68% | ||||||||||
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 | 26,355) | (20,224) | (24,640) | 40,867) | 13,771) | |
| 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% | -1.10% | 2.07% | 0.81% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -19.05% | — | — | — | — | |
| Caterpillar Inc. | -5.74% | — | — | — | — | |
| Eaton Corp. plc | -9.35% | — | — | — | — | |
| GE Aerospace | -18.68% | — | — | — | — | |
| Honeywell International Inc. | -2.01% | — | — | — | — | |
| Lockheed Martin Corp. | 15.22% | — | — | — | — | |
| RTX Corp. | -4.20% | — | — | — | — | |
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 × 26,355 ÷ 3,771,373 = 0.70%
4 Click competitor name to see calculations.
The financial trajectory from 2017 to 2021 reflects a period of significant volatility in economic value creation, characterized by a steady expansion of the capital base contrasted with fluctuating returns above the cost of capital.
- Economic Profit Trends
- Economic profit exhibited a non-linear progression, peaking in 2018 at 40,867 thousand US dollars before entering a two-year period of value destruction. In 2019 and 2020, economic profit turned negative, reaching a low of -24,640 thousand US dollars. A recovery occurred in 2021, with economic profit returning to a positive value of 26,355 thousand US dollars.
- Invested Capital Expansion
- There is a consistent and aggressive upward trend in invested capital throughout the analyzed period. The capital base 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, growing more than twofold over the five-year span.
- Economic Spread Ratio Performance
- The economic spread ratio mirrors the volatility of the economic profit, indicating the degree to which the return on invested capital exceeded the cost of capital. After an initial increase from 0.81% in 2017 to a peak of 2.07% in 2018, the ratio declined into negative territory, hitting -1.10% in 2019. While a gradual recovery was observed in 2020 (-0.75%) and 2021 (0.70%), the ratio remained below the 2018 peak despite the significant increase in invested capital.
The divergence between the steadily increasing invested capital and the fluctuating economic spread ratio suggests that the expansion of the capital base did not immediately translate into proportional increases in economic value. The return to a positive spread in 2021 indicates a restoration of value creation, although the efficiency of capital utilization relative to the cost of capital remains lower than the levels observed in 2018.
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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 | 26,355) | (20,224) | (24,640) | 40,867) | 13,771) | |
| 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% | 0.81% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.13% | — | — | — | — | |
| Caterpillar Inc. | -6.62% | — | — | — | — | |
| Eaton Corp. plc | -14.04% | — | — | — | — | |
| GE Aerospace | -18.85% | — | — | — | — | |
| Honeywell International Inc. | -2.80% | — | — | — | — | |
| Lockheed Martin Corp. | 6.50% | — | — | — | — | |
| RTX Corp. | -7.30% | — | — | — | — | |
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 × 26,355 ÷ 3,759,043 = 0.70%
3 Click competitor name to see calculations.
The analysis of economic value creation from 2017 through 2021 reveals a volatile performance trend characterized by a temporary period of value destruction followed by a recovery, occurring against a backdrop of consistent revenue growth.
- Economic Profit Volatility
- Economic profit experienced significant fluctuations over the five-year period. After an initial increase from 13,771 thousand US dollars in 2017 to a peak of 40,867 thousand US dollars in 2018, the figure shifted to a deficit, reaching its lowest point in 2019 at -24,640 thousand US dollars. A gradual recovery occurred in 2020, followed by a return to positive value creation in 2021 with an economic profit of 26,355 thousand US dollars.
- Adjusted Net Sales Trajectory
- In contrast to the volatility of economic profit, adjusted net sales demonstrated a continuous and accelerating upward trend. Revenue grew steadily from 1,692,306 thousand US dollars in 2017 to 2,496,250 thousand US dollars by 2020, culminating in a substantial increase to 3,759,043 thousand US dollars in 2021.
- Economic Profit Margin Fluctuations
- The economic profit margin mirrors the volatility of the absolute economic profit. The margin expanded from 0.81% in 2017 to a peak of 2.01% in 2018. A subsequent contraction led to negative margins of -1.11% in 2019 and -0.81% in 2020, indicating that the cost of capital exceeded the net operating profit after tax during those years. By 2021, the margin returned to a positive state of 0.70%.
The divergence between the consistent growth in adjusted net sales and the fluctuating economic profit suggests that the expansion in scale did not immediately translate into proportional economic value creation. The period between 2019 and 2020 represents a phase where capital charges outweighed profit gains, although the 2021 results indicate a restoration of the ability to generate returns above the cost of capital.
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