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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

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	4,114)	3,683)	3,393)	3,563)	3,237)
Cost of capital²	12.22%	12.06%	13.75%	13.67%	13.49%
Invested capital³	31,608)	29,939)	19,772)	19,539)	18,175)

Economic profit⁴	253)	73)	676)	893)	785)

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
= 4,114 – 12.22% × 31,608 = 253

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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. economic profit decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

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	3,484)	3,345)	2,912)	2,955)	2,965)
Deferred income tax expense (benefit)¹	92)	(3)	401)	376)	167)
Increase (decrease) in product warranty liabilities²	139)	13)	(7)	50)	37)
Increase (decrease) in equity equivalents³	231)	10)	394)	426)	204)
Interest expense	472)	374)	117)	99)	98)
Interest expense, operating lease liability⁴	45)	43)	32)	24)	22)
Adjusted interest expense	517)	417)	149)	123)	120)
Tax benefit of interest expense⁵	(109)	(88)	(52)	(43)	(42)
Adjusted interest expense, after taxes⁶	409)	329)	97)	80)	78)
Interest income	(12)	(18)	(14)	(8)	(15)
Investment income, before taxes	(12)	(18)	(14)	(8)	(15)
Tax expense (benefit) of investment income⁷	3)	4)	5)	3)	5)
Investment income, after taxes⁸	(9)	(14)	(9)	(5)	(10)
(Income) loss from discontinued operations, net of tax⁹	—)	13)	—)	107)	—)
Net operating profit after taxes (NOPAT)	4,114)	3,683)	3,393)	3,563)	3,237)

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
= 1,503 × 3.00% = 45

⁵ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 517 × 21.00% = 109

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
= 12 × 21.00% = 3

⁸ Elimination of after taxes investment income.

⁹ Elimination of discontinued operations.

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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. NOPAT increased from 2017 to 2018 and from 2018 to 2019.

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	718)	727)	1,165)	1,169)	1,137)
Less: Deferred income tax expense (benefit)	92)	(3)	401)	376)	167)
Add: Tax savings from interest expense	109)	88)	52)	43)	42)
Less: Tax imposed on investment income	3)	4)	5)	3)	5)
Cash operating taxes	732)	814)	811)	833)	1,007)

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).

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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. cash operating taxes increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

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	2,920)	973)	2)	900)	501)
Long-term debt, excluding current portion	9,010)	11,444)	3,980)	2,988)	2,898)
Operating lease liability¹	1,503)	1,465)	1,206)	1,070)	946)
Total reported debt & leases	13,433)	13,882)	5,188)	4,958)	4,345)
Shareholders’ equity	13,577)	11,732)	11,435)	10,976)	10,738)
Net deferred tax (assets) liabilities²	448)	539)	169)	(37)	(371)
Product warranty liabilities³	619)	480)	467)	515)	465)
Equity equivalents⁴	1,067)	1,019)	636)	478)	94)
Accumulated other comprehensive (income) loss, net of tax⁵	4,219)	3,778)	2,820)	3,396)	3,286)
Adjusted shareholders’ equity	18,863)	16,529)	14,891)	14,850)	14,118)
Construction in process⁶	(688)	(472)	(307)	(269)	(288)
Invested capital	31,608)	29,939)	19,772)	19,539)	18,175)

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.

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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. invested capital increased from 2017 to 2018 and from 2018 to 2019.

General Dynamics Corp., cost of capital calculations

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	53,943)	53,943)	÷	67,785)	=	0.80	0.80	×	14.75%	=	11.74%
Short- and long-term debt principal³	12,339)	12,339)	÷	67,785)	=	0.18	0.18	×	2.97% × (1 – 21.00%)	=	0.43%
Operating lease liability⁴	1,503)	1,503)	÷	67,785)	=	0.02	0.02	×	3.00% × (1 – 21.00%)	=	0.05%
Total:	67,785)					1.00					12.22%

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 »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	50,003)	50,003)	÷	63,814)	=	0.78	0.78	×	14.75%	=	11.56%
Short- and long-term debt principal³	12,346)	12,346)	÷	63,814)	=	0.19	0.19	×	2.94% × (1 – 21.00%)	=	0.45%
Operating lease liability⁴	1,465)	1,465)	÷	63,814)	=	0.02	0.02	×	2.94% × (1 – 21.00%)	=	0.05%
Total:	63,814)					1.00					12.06%

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 »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	62,217)	62,217)	÷	67,397)	=	0.92	0.92	×	14.75%	=	13.61%
Short- and long-term debt principal³	3,974)	3,974)	÷	67,397)	=	0.06	0.06	×	2.62% × (1 – 35.00%)	=	0.10%
Operating lease liability⁴	1,206)	1,206)	÷	67,397)	=	0.02	0.02	×	2.62% × (1 – 35.00%)	=	0.03%
Total:	67,397)					1.00					13.75%

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 »

Dec 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	55,414)	55,414)	÷	60,333)	=	0.92	0.92	×	14.75%	=	13.55%
Short- and long-term debt principal³	3,849)	3,849)	÷	60,333)	=	0.06	0.06	×	2.28% × (1 – 35.00%)	=	0.09%
Operating lease liability⁴	1,070)	1,070)	÷	60,333)	=	0.02	0.02	×	2.28% × (1 – 35.00%)	=	0.03%
Total:	60,333)					1.00					13.67%

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 »

Dec 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	41,154)	41,154)	÷	45,481)	=	0.90	0.90	×	14.75%	=	13.35%
Short- and long-term debt principal³	3,381)	3,381)	÷	45,481)	=	0.07	0.07	×	2.36% × (1 – 35.00%)	=	0.11%
Operating lease liability⁴	946)	946)	÷	45,481)	=	0.02	0.02	×	2.36% × (1 – 35.00%)	=	0.03%
Total:	45,481)					1.00					13.49%

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 »

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	253)	73)	676)	893)	785)
Invested capital²	31,608)	29,939)	19,772)	19,539)	18,175)
Performance Ratio
Economic spread ratio³	0.80%	0.24%	3.42%	4.57%	4.32%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-19.84%	—	—	—	—
Caterpillar Inc.	1.19%	—	—	—	—
Cummins Inc.	4.70%	—	—	—	—
Eaton Corp. plc	-3.78%	—	—	—	—
General Electric Co.	-6.50%	—	—	—	—
Honeywell International Inc.	3.07%	—	—	—	—
Lockheed Martin Corp.	18.14%	—	—	—	—
RTX Corp.	0.25%	—	—	—	—

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 × 253 ÷ 31,608 = 0.80%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	General Dynamics Corp. economic spread ratio deteriorated from 2017 to 2018 but then slightly improved from 2018 to 2019.

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	253)	73)	676)	893)	785)
Revenue	39,350)	36,193)	30,973)	31,353)	31,469)
Performance Ratio
Economic profit margin²	0.64%	0.20%	2.18%	2.85%	2.50%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-9.21%	—	—	—	—
Caterpillar Inc.	1.29%	—	—	—	—
Cummins Inc.	3.01%	—	—	—	—
Eaton Corp. plc	-5.22%	—	—	—	—
General Electric Co.	-9.66%	—	—	—	—
Honeywell International Inc.	3.57%	—	—	—	—
Lockheed Martin Corp.	7.79%	—	—	—	—
RTX Corp.	0.33%	—	—	—	—

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 × 253 ÷ 39,350 = 0.64%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	General Dynamics Corp. economic profit margin deteriorated from 2017 to 2018 but then slightly improved from 2018 to 2019.

General Dynamics Corp. (NYSE:GD)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin