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General Dynamics Corp. (NYSE:GD)

Economic Value Added (EVA)

Advanced level

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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Economic Profit

General Dynamics Corp., economic profit calculation

US$ in millions

	12 months ended	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2020-02-10), 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	General Dynamics Corp.’s economic profit decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Net Operating Profit after Taxes (NOPAT)

General Dynamics Corp., NOPAT calculation

US$ in millions

	12 months ended	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	Net earnings
	Deferred income tax expense (benefit)¹
	Increase (decrease) in product warranty liabilities²
	Increase (decrease) in equity equivalents³
	Interest expense
	Interest expense, operating lease liability⁴
	Adjusted interest expense
	Tax benefit of interest expense⁵
	Adjusted interest expense, after taxes⁶
	Interest income
	Investment income, before taxes
	Tax expense (benefit) of investment income⁷
	Investment income, after taxes⁸
	(Income) loss from discontinued operations, net of tax⁹
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2020-02-10), 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in product warranty liabilities.

³ Addition of increase (decrease) in equity equivalents to net earnings.

⁴ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =

⁵ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =

⁶ Addition of after taxes interest expense to net earnings.

⁷ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =

⁸ Elimination of after taxes investment income.

⁹ Elimination of discontinued operations.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	General Dynamics Corp.’s NOPAT increased from 2017 to 2018 and from 2018 to 2019.

Cash Operating Taxes

General Dynamics Corp., cash operating taxes calculation

US$ in millions

	12 months ended	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	Provision for income taxes, net
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 10-K (filing date: 2020-02-10), 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	General Dynamics Corp.’s cash operating taxes increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Invested Capital

General Dynamics Corp., invested capital calculation (financing approach)

US$ in millions

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	Short-term debt and current portion of long-term debt
	Long-term debt, excluding current portion
	Operating lease liability¹
	Total reported debt & leases
	Shareholders’ equity
	Net deferred tax (assets) liabilities²
	Product warranty liabilities³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Adjusted shareholders’ equity
	Construction in process⁶
	Invested capital

Based on: 10-K (filing date: 2020-02-10), 10-K (filing date: 2019-02-13), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of product warranty liabilities.

⁴ Addition of equity equivalents to shareholders’ equity.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of construction in process.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	General Dynamics Corp.’s invested capital increased from 2017 to 2018 and from 2018 to 2019.

Cost of Capital

General Dynamics Corp., cost of capital calculations


Equity²	÷	=	×		=
Short- and long-term debt principal³	÷	=	×	× (1 – 21.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 21.00%)	=
Total:

Based on: 10-K (filing date: 2020-02-10).

¹ US$ in millions

² Equity. See details »