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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General Dynamics Corp. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Selected Financial Data since 2005
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
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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 (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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
= – × =
The company's financial indicators present varied trends over the five-year period analyzed.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT demonstrates a generally increasing trend from 2015 to 2019. It rose from $3,237 million in 2015 to $4,114 million in 2019, peaking in 2019. There was a slight dip in 2017 but the overall progression indicates improving operating profitability after tax expenses.
- Cost of Capital
- The cost of capital remained relatively stable over the years with minor fluctuations. It started at 14.89% in 2015 and slightly increased to 15.17% by 2017. Subsequently, it declined to 13.27% in 2018, followed by a marginal increase to 13.44% in 2019. This suggests a decrease in the expense associated with financing the company’s capital after 2017.
- Invested Capital
- Invested capital shows a consistent upward trend throughout the period. It increased substantially from $18,175 million in 2015 to $31,608 million in 2019, with a notable jump between 2017 and 2018. This indicates significant capital investments or asset accumulation during these years.
- Economic Profit
- Economic profit followed a less favorable trend despite the increase in NOPAT. From $532 million in 2015, it rose modestly to $616 million in 2016 but then dropped to $394 million in 2017. After 2017, it turned negative, registering -$289 million in 2018 and further declining to -$135 million in 2019. This suggests that although operating profit increased, it was not sufficient to cover the cost of capital in the latter years, reflecting a decrease in value creation.
In summary, while operating profitability and invested capital both increased over the period, the decline and eventual negative economic profit indicate challenges in generating returns above the cost of capital in recent years. The reduction in cost of capital after 2017 partially offsets this effect but is insufficient to return economic profits to positive territory by 2019.
Net Operating Profit after Taxes (NOPAT)
General Dynamics Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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.
- Net Earnings
- Net earnings remained relatively stable from 2015 to 2017, showing a slight decrease from 2,965 million USD in 2015 to 2,912 million USD in 2017. However, from 2017 onwards, a notable upward trend is observed with earnings increasing to 3,345 million USD in 2018 and further to 3,484 million USD in 2019. This indicates a period of renewed profitability growth in the last two years under review.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT experienced consistent growth over the entire period. Starting at 3,237 million USD in 2015, it increased to 3,563 million USD in 2016. Despite a slight decrease in 2017 to 3,393 million USD, the overall trend resumed upward momentum, reaching 3,683 million USD in 2018 and then significantly climbing to 4,114 million USD in 2019. This illustrates improving operational efficiency and profitability after taxes over the five-year span.
Cash Operating Taxes
General Dynamics Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The provision for income taxes, net, exhibited a generally stable trend between 2015 and 2017, with values of approximately 1137 million, 1169 million, and 1165 million US dollars, respectively. However, there was a notable decline starting in 2018, with the figure dropping significantly to 727 million and further slightly decreasing to 718 million US dollars in 2019. This downward shift after 2017 suggests a reduction in the overall tax burden or possible changes in tax strategies or profitability.
Cash operating taxes showed a downward trajectory over the five-year period. Starting from 1007 million US dollars in 2015, cash operating taxes decreased to 833 million in 2016, and then continued to decline slightly to 811 million in 2017. In 2018, the amount remained relatively stable at 814 million US dollars but then decreased again to 732 million in 2019. This gradual reduction aligns with the trend observed in the provision for income taxes, although the decline in cash taxes began earlier and was more gradual compared to the sharper decrease seen in the provision figures after 2017.
Overall, both tax-related metrics demonstrate a significant reduction in the company’s income tax liabilities from 2017 onwards, with cash taxes showing a steady decline throughout the entire period. This pattern may reflect changes in taxable income, effective tax rates, tax planning measures, or adjustments in accounting for tax provisions.
Invested Capital
General Dynamics Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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.
The analysis of the financial data over the five-year period reveals several noteworthy trends in the company's debt levels, equity base, and invested capital.
- Total Reported Debt & Leases
- The total reported debt and leases exhibited a generally increasing trend from 2015 to 2017, rising from $4,345 million to $5,188 million. A significant jump occurred between 2017 and 2018, with debt surging dramatically to $13,882 million, followed by a slight decrease in 2019 to $13,433 million. This suggests a substantial increase in leverage starting in 2018, which may reflect a strategic decision to finance growth, acquisitions, or other investments during this time.
- Shareholders’ Equity
- Shareholders’ equity steadily increased over the analyzed periods, moving from $10,738 million in 2015 to $13,577 million in 2019. The growth was relatively consistent, indicating ongoing accumulation of retained earnings and/or capital contributions. The equity growth rate appears moderate and stable compared to the more volatile changes observed in total debt.
- Invested Capital
- Invested capital increased from $18,175 million in 2015 to $19,772 million by 2017, which is a moderate growth. However, a sharp rise occurred between 2017 and 2018, coinciding with the surge in reported debt and leases, with invested capital reaching $29,939 million in 2018 and further increasing to $31,608 million in 2019. This suggests significant investment or expansion activities starting in 2018, funded in part by increased debt levels.
Overall, the data indicate a period of relative stability from 2015 through 2017, followed by a substantial increase in leverage and total invested capital beginning in 2018. The company’s equity base grew steadily throughout, providing a solid foundation despite the sharp increase in debt. This pattern may reflect a strategic shift toward accelerated growth or capital-intensive initiatives in the latter years of the period analyzed.
Cost of Capital
General Dynamics Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt principal3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt principal. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt principal3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt principal. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt principal3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt principal. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt principal3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt principal. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt principal3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt principal. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
General Dynamics Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited a declining trend over the period. Beginning at 532 million USD in 2015, it increased to 616 million USD in 2016 but then decreased significantly to 394 million USD in 2017. The trend turned negative thereafter, with economic profit dropping to -289 million USD in 2018 and slightly improving to -135 million USD in 2019, indicating a shift from positive value creation to economic losses in the latter years.
- Invested Capital
- Invested capital consistently increased throughout the period. Starting at 18,175 million USD in 2015, it rose steadily each year, reaching 31,608 million USD by the end of 2019. This growth suggests continued investment in assets or operations.
- Economic Spread Ratio
- The economic spread ratio showed a declining pattern from a positive spread in 2015 and 2016 to negative values in subsequent years. It decreased from 2.93% in 2015 to 3.15% in 2016, then dropped significantly to 2% in 2017. Following this, the ratio turned negative at -0.96% in 2018 and -0.43% in 2019, indicating that the returns on invested capital fell below the cost of capital in the later years.
Economic Profit Margin
General Dynamics Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenue | ||||||
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
The analysis of the economic profit and revenue over the five-year period reveals several key trends and insights.
- Economic Profit
- The economic profit shows a fluctuating pattern with a positive trend initially, peaking in 2016 at 616 million US dollars. Subsequently, there is a notable decline in 2017 to 394 million US dollars, followed by a significant negative shift in 2018 and 2019, reaching losses of 289 million and 135 million US dollars respectively. This transition from profitability to economic loss indicates a substantial change in the company's value creation ability during the latter years.
- Revenue
- Revenue demonstrates a generally increasing trend throughout the period, starting at 31,469 million US dollars in 2015 and rising steadily each year to reach 39,350 million US dollars in 2019. This consistent growth in revenue contrasts with the declining economic profit, suggesting potential issues with cost management or increasing expenses affecting profitability.
- Economic Profit Margin
- The economic profit margin aligns with the pattern observed in economic profit, showing an initial increase from 1.69% in 2015 to a peak of 1.97% in 2016. Afterwards, the margin declines sharply to 1.27% in 2017 and becomes negative in the last two years, with -0.8% in 2018 and -0.34% in 2019. This shift to negative margins indicates the company was unable to generate returns above its cost of capital during these years, despite rising revenues.
In summary, while revenue experienced steady growth, the company's economic profit and profit margins deteriorated significantly after 2016. The data suggests increasing challenges in maintaining profitability, perhaps due to rising costs, investment requirements, or other operational factors that diminished economic value generation in 2018 and 2019.