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
General Dynamics Corp., economic profit 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 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 – 15.67% × 31,608 = -840
The financial performance from 2015 to 2019 indicates a transition from positive economic value creation to a period of value destruction. While operational profitability increased over the five-year period, the expansion of the capital base occurred at a rate that far exceeded the growth in operating profits, resulting in a shift toward negative economic profit starting in 2017.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated a general upward trajectory, increasing from 3,237 million USD in 2015 to 4,114 million USD by 2019. Despite a slight contraction in 2017, the overall growth suggests a steady improvement in the company's core operational earning capacity.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, ranging from a high of 17.76% in 2017 to a low of 15.46% in 2018. A slight downward trend was observed after 2017, though the rate remained sufficiently high to place significant pressure on the return requirements of invested capital.
- Invested Capital
- Invested capital experienced a substantial increase, most notably between 2017 and 2018, when it rose from 19,772 million USD to 29,939 million USD. This expansion continued into 2019, reaching 31,608 million USD, indicating a significant increase in the scale of assets deployed in operations.
- Economic Profit
- Economic profit shifted from positive figures in 2015 and 2016 to significant deficits from 2017 through 2019. The decline accelerated sharply in 2018, reaching a low of -947 million USD. This trend indicates that the incremental NOPAT generated was insufficient to offset the capital charge associated with the rapidly growing base of invested capital.
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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
= 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.
- 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.
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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.
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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 $31,608 million in 2019. This suggests significant investment or expansion activities starting in 2018, funded in part by increased debt levels.
Overall, the data indicate a period of relative stability from 2015 through 2017, followed by a substantial increase in leverage and total invested capital beginning in 2018. The company’s equity base grew steadily throughout, providing a solid foundation despite the sharp increase in debt. This pattern may reflect a strategic shift toward accelerated growth or capital-intensive initiatives in the latter years of the period analyzed.
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Cost of Capital
General Dynamics Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 53,943) | 53,943) | ÷ | 67,785) | = | 0.80 | 0.80 | × | 19.09% | = | 15.20% | ||
| Short- and long-term debt principal3 | 12,339) | 12,339) | ÷ | 67,785) | = | 0.18 | 0.18 | × | 2.97% × (1 – 21.00%) | = | 0.43% | ||
| Operating lease liability4 | 1,503) | 1,503) | ÷ | 67,785) | = | 0.02 | 0.02 | × | 3.00% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 67,785) | 1.00 | 15.67% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ 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 | 50,003) | 50,003) | ÷ | 63,814) | = | 0.78 | 0.78 | × | 19.09% | = | 14.96% | ||
| 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 | 15.46% | ||||||||||
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 | 62,217) | 62,217) | ÷ | 67,397) | = | 0.92 | 0.92 | × | 19.09% | = | 17.63% | ||
| 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 | 17.76% | ||||||||||
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 | 55,414) | 55,414) | ÷ | 60,333) | = | 0.92 | 0.92 | × | 19.09% | = | 17.54% | ||
| 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 | 17.66% | ||||||||||
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 | 41,154) | 41,154) | ÷ | 45,481) | = | 0.90 | 0.90 | × | 19.09% | = | 17.28% | ||
| 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 | 17.42% | ||||||||||
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 | (840) | (947) | (118) | 113) | 71) | |
| Invested capital2 | 31,608) | 29,939) | 19,772) | 19,539) | 18,175) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -2.66% | -3.16% | -0.59% | 0.58% | 0.39% | |
| 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 × -840 ÷ 31,608 = -2.66%
4 Click competitor name to see calculations.
A period of transition is evident between 2015 and 2019, characterized by a shift from positive economic value creation to a sustained period of economic loss. While the initial years of the period showed modest value generation, a sharp reversal occurred starting in 2017, which coincided with a substantial expansion of the capital base.
- Economic Profit Trends
- Economic profit remained positive through 2016, peaking at 113 million US dollars. A significant reversal occurred in 2017 as the figure dropped to -118 million US dollars, followed by a steep decline to -947 million US dollars in 2018. A marginal recovery was observed in 2019, with losses narrowing slightly to -840 million US dollars, though the company remained well below the threshold of value creation.
- Invested Capital Growth
- Invested capital exhibited a steady increase from 18,175 million US dollars in 2015 to 19,772 million US dollars in 2017. A substantial escalation occurred in 2018, with invested capital jumping to 29,939 million US dollars, representing a one-year increase of approximately 51%. This upward trend persisted into 2019, closing at 31,608 million US dollars.
- Economic Spread Ratio Analysis
- The economic spread ratio highlights a correlation between the increase in invested capital and the decline in economic efficiency. The ratio moved from a positive 0.39% in 2015 to 0.58% in 2016, before falling into negative territory in 2017 (-0.59%). The ratio reached its lowest point in 2018 at -3.16%, reflecting a significant gap between the return on invested capital and the cost of capital. A slight correction to -2.66% occurred in 2019, indicating a marginal improvement in the spread despite the continued destruction of economic value.
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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 | (840) | (947) | (118) | 113) | 71) | |
| Revenue | 39,350) | 36,193) | 30,973) | 31,353) | 31,469) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -2.14% | -2.62% | -0.38% | 0.36% | 0.22% | |
| 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 × -840 ÷ 39,350 = -2.14%
3 Click competitor name to see calculations.
The financial performance from 2015 to 2019 is characterized by a significant shift from positive economic value creation to a sustained period of economic loss, despite a substantial increase in top-line revenue during the latter half of the period.
- Economic Profit Trends
- Economic profit experienced a modest increase between 2015 and 2016, rising from 71 million to 113 million US dollars. A reversal occurred in 2017, as the figure shifted to a negative 118 million US dollars. This decline accelerated sharply in 2018, reaching a deficit of 947 million US dollars, before slightly moderating to a loss of 840 million US dollars in 2019.
- Revenue Growth and Value Divergence
- Revenue remained relatively stagnant between 2015 and 2017, hovering around 31 billion US dollars. A notable acceleration in growth occurred in 2018 and 2019, with revenue increasing to 36.19 billion and 39.35 billion US dollars, respectively. The observed divergence between rising revenue and falling economic profit indicates that the capital expansion necessary to drive these revenue gains did not generate returns sufficient to exceed the company's cost of capital.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the absolute economic profit trend, moving from a narrow positive margin of 0.22% in 2015 to 0.36% in 2016. The margin entered negative territory in 2017 at -0.38% and deteriorated significantly to -2.62% in 2018. While a marginal recovery to -2.14% was recorded in 2019, the margin remained substantially below the threshold for economic value creation throughout the final three years of the period.
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