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 – 16.36% × 3,771,373 = 24,293
The analysis of economic profit from 2017 to 2021 reveals a volatile trend in value creation, characterized by an initial period of growth, a two-year interval of value destruction, and a subsequent recovery in the final period.
- Net Operating Profit After Taxes (NOPAT)
- A consistent upward trajectory is observed in NOPAT, which grew from 230,606 thousand US$ in 2017 to 641,346 thousand US$ in 2021. The most significant acceleration occurred between 2020 and 2021, where profit increased by approximately 52%, indicating a substantial improvement in operational profitability.
- Invested Capital and Cost of Capital
- Invested capital expanded steadily throughout the period, rising from 1,710,524 thousand US$ to 3,771,373 thousand US$. Simultaneously, the cost of capital experienced a general increase, climbing from 12.72% in 2017 to a peak of 16.53% in 2020, before stabilizing slightly at 16.36% in 2021. The concurrent rise in both the capital base and the required rate of return increased the threshold for achieving positive economic profit.
- Economic Profit Performance
- Economic profit exhibited significant fluctuations. After a peak of 39,985 thousand US$ in 2018, the figure turned negative in 2019 (-25,781 thousand US$) and remained negative in 2020 (-21,712 thousand US$). This indicates that during these years, the operating returns were insufficient to cover the cost of the capital employed. However, a reversal occurred in 2021, with economic profit returning to a positive 24,293 thousand US$, driven by the surge in NOPAT which finally outpaced the combined effect of the increased investment base and the high cost of capital.
Overall, the results indicate that while operational growth was constant, the company struggled to maintain a return on invested capital that exceeded its cost of capital between 2019 and 2020. The recovery in 2021 suggests a return to genuine economic value addition.
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Net Operating Profit after Taxes (NOPAT)
Generac Holdings Inc., NOPAT calculation
US$ 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 | × | 17.02% | = | 16.04% | ||
| 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 | 16.36% | ||||||||||
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 | × | 17.02% | = | 16.27% | ||
| 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 | 16.53% | ||||||||||
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 | × | 17.02% | = | 14.90% | ||
| 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 | 15.66% | ||||||||||
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 | × | 17.02% | = | 13.13% | ||
| 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 | 14.04% | ||||||||||
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 | × | 17.02% | = | 12.72% | ||
| 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 | 12.72% | ||||||||||
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 | 24,293) | (21,712) | (25,781) | 39,985) | 13,029) | |
| Invested capital2 | 3,771,373) | 2,684,660) | 2,246,986) | 1,970,846) | 1,710,524) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.64% | -0.81% | -1.15% | 2.03% | 0.76% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -19.10% | — | — | — | — | |
| Caterpillar Inc. | -5.84% | — | — | — | — | |
| Eaton Corp. plc | -9.42% | — | — | — | — | |
| GE Aerospace | -18.75% | — | — | — | — | |
| Honeywell International Inc. | -2.05% | — | — | — | — | |
| Lockheed Martin Corp. | 15.25% | — | — | — | — | |
| 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 × 24,293 ÷ 3,771,373 = 0.64%
4 Click competitor name to see calculations.
The financial performance between 2017 and 2021 is characterized by a consistent expansion of the capital base contrasted with significant volatility in economic value creation.
- Invested Capital Trends
- A steady and uninterrupted increase in invested capital is observed, rising from US$ 1,710,524 thousand in 2017 to US$ 3,771,373 thousand in 2021. This sustained growth indicates a substantial commitment of resources to the balance sheet, with the capital base more than doubling over the five-year period.
- Economic Profit Fluctuations
- Economic profit demonstrated a non-linear trend, beginning with a positive value of US$ 13,029 thousand in 2017 and peaking at US$ 39,985 thousand in 2018. A significant downturn occurred in 2019 and 2020, where economic profit turned negative, reaching a low of negative US$ 25,781 thousand in 2019. Value creation returned to positive territory in 2021, ending the period at US$ 24,293 thousand.
- Economic Spread Ratio Analysis
- The economic spread ratio closely mirrored the trajectory of economic profit. The ratio peaked at 2.03% in 2018, indicating a period of optimal value creation relative to the cost of capital. However, the ratio contracted into negative figures for 2019 (-1.15%) and 2020 (-0.81%), signifying that the returns generated on invested capital were lower than the required cost of that capital. A recovery was noted in 2021 as the ratio returned to 0.64%, although this level remained below the 2018 peak despite the significantly larger scale of invested capital.
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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 | 24,293) | (21,712) | (25,781) | 39,985) | 13,029) | |
| 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 | 0.65% | -0.87% | -1.16% | 1.97% | 0.77% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.17% | — | — | — | — | |
| Caterpillar Inc. | -6.73% | — | — | — | — | |
| Eaton Corp. plc | -14.15% | — | — | — | — | |
| GE Aerospace | -18.93% | — | — | — | — | |
| Honeywell International Inc. | -2.87% | — | — | — | — | |
| Lockheed Martin Corp. | 6.51% | — | — | — | — | |
| RTX Corp. | -7.29% | — | — | — | — | |
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 × 24,293 ÷ 3,759,043 = 0.65%
3 Click competitor name to see calculations.
The analysis of economic value added reveals a period of volatility in economic profit despite a consistent and significant upward trajectory in adjusted net sales between 2017 and 2021.
- Revenue Growth Trends
- Adjusted net sales demonstrated uninterrupted growth throughout the five-year period, increasing from 1,692,306 thousand US$ in 2017 to 3,759,043 thousand US$ in 2021. The most substantial acceleration in growth occurred between 2020 and 2021, where sales increased by approximately 50%.
- Economic Profit Volatility
- Economic profit exhibited significant fluctuations, starting at 13,029 thousand US$ in 2017 and peaking at 39,985 thousand US$ in 2018. This was followed by a sharp reversal into negative territory, with deficits of 25,781 thousand US$ in 2019 and 21,712 thousand US$ in 2020, before returning to a positive value of 24,293 thousand US$ in 2021.
- Economic Profit Margin Performance
- The economic profit margin mirrored the volatility of absolute economic profit. The margin peaked at 1.97% in 2018, declined to a low of -1.16% in 2019, and improved to 0.65% by the end of 2021. The divergence between rising sales and negative margins in 2019 and 2020 suggests that the cost of capital exceeded the net operating profit after tax during those years, despite the expansion of the revenue base.
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