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.
Paying user area
Try for free
General Dynamics Corp. pages available for free this week:
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to General Dynamics Corp. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Economic Profit
General Dynamics Corp., economic profit calculation
US$ 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 period under review demonstrates a fluctuating relationship between net operating profit after taxes, cost of capital, and invested capital, resulting in a significant shift in economic profit. Initial positive economic profit transitioned to substantial economic losses over the observed timeframe.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT generally increased from 2015 to 2019, moving from US$3,237 million to US$4,114 million. Growth was observed between 2015 and 2016, a slight decrease between 2016 and 2017, followed by further increases in 2018 and 2019. This indicates improving operational profitability over the period, despite fluctuations.
- Cost of Capital
- The cost of capital decreased from 17.47% in 2015 to 15.72% in 2019. The most substantial decrease occurred between 2017 and 2018, falling from 17.80% to 15.50%. This suggests a reduced risk profile or improved financing conditions over time.
- Invested Capital
- Invested capital exhibited a consistent upward trend, increasing significantly from US$18,175 million in 2015 to US$31,608 million in 2019. The largest increase occurred between 2017 and 2018, rising from US$19,772 million to US$29,939 million. This indicates substantial reinvestment in the business or potentially acquisitions.
- Economic Profit
- Economic profit initially showed positive values in 2015 and 2016 (US$62 million and US$104 million, respectively). However, it became negative in 2017 (US$-127 million) and deteriorated significantly in 2018 and 2019, reaching US$-959 million and US$-853 million. This shift is attributable to the combination of increasing invested capital and, despite a decreasing cost of capital, NOPAT not growing sufficiently to offset the increased capital charge. The substantial increase in invested capital appears to be the primary driver of the negative economic profit trend.
In summary, while operational profitability improved and the cost of capital decreased, the significant expansion of invested capital resulted in a substantial decline in economic profit. The company generated economic losses in the latter part of the period despite positive NOPAT figures.
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.
The economic spread ratio exhibited a declining trend between 2015 and 2019. Initially positive, the ratio transitioned to negative values, indicating a diminishing ability to generate returns exceeding the cost of capital. This shift coincides with a pattern of decreasing economic profit and increasing invested capital over the same period.
- Economic Spread Ratio
- In 2015, the economic spread ratio stood at 0.34%, suggesting the company generated a modest return above its cost of capital. This ratio increased to 0.53% in 2016, representing an improvement in profitability relative to invested capital. However, a significant reversal occurred in 2017, with the ratio falling to -0.64%. This negative value indicates that returns were insufficient to cover the cost of capital. The decline continued sharply in 2018 and 2019, reaching -3.20% and -2.70% respectively, demonstrating a sustained period of value destruction.
Economic profit followed a contrasting trajectory. Positive economic profit of US$62 million and US$104 million was reported in 2015 and 2016, respectively. However, economic profit became negative in 2017, reaching -US$127 million, and deteriorated substantially in subsequent years, culminating in a loss of -US$853 million in 2019. This decline in economic profit directly contributed to the worsening economic spread ratio.
- Invested Capital
- Invested capital consistently increased throughout the period, rising from US$18,175 million in 2015 to US$31,608 million in 2019. This growth in invested capital, coupled with the declining economic profit, exacerbated the negative trend in the economic spread ratio. The increasing capital base required a higher level of profitability to maintain a positive spread, a level that was not achieved.
The combined effect of decreasing economic profit and increasing invested capital resulted in a substantial deterioration of the economic spread ratio. The transition from positive to negative values suggests a weakening of the company’s ability to create economic value for its investors.
Economic Profit Margin
General Dynamics Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 economic profit margin exhibited a volatile pattern over the five-year period. Initially positive, it transitioned to negative values and increased in magnitude before stabilizing. A review of the underlying figures reveals a significant shift in the company’s ability to generate returns exceeding its cost of capital.
- Economic Profit Margin
- In 2015, the economic profit margin stood at 0.20%, indicating that for every dollar of revenue, the company generated 20 cents of economic profit. This margin increased substantially to 0.33% in 2016, suggesting improved profitability relative to the cost of capital. However, a sharp reversal occurred in 2017, with the margin declining to -0.41%. This indicates the company’s economic profit was negative, meaning returns were below the cost of capital. The negative trend continued, with the margin reaching -2.65% in 2018, representing a substantial erosion of economic profitability. While the margin improved slightly in 2019 to -2.17%, it remained negative, signifying continued underperformance relative to the cost of capital.
The economic profit margin’s movement closely mirrors the trend in economic profit. Positive economic profit was observed in 2015 and 2016, corresponding with the positive margins. The subsequent decline in economic profit to negative values in 2017, 2018, and 2019 directly resulted in the observed negative economic profit margins. Revenue increased over the period, but not at a rate sufficient to offset the increasing negative economic profit.
- Revenue Trend
- Revenue demonstrated an overall upward trend, increasing from US$31,469 million in 2015 to US$39,350 million in 2019. However, the growth was not consistent year-over-year, with a slight decrease observed between 2015 and 2016. Despite the revenue increase, the company’s ability to translate revenue into economic profit diminished significantly, as evidenced by the declining and ultimately negative economic profit margin.
The substantial shift from positive to negative economic profit margins warrants further investigation. Factors contributing to this trend could include increased costs of capital, declining operational efficiency, or unfavorable changes in the competitive landscape. The stabilization of the margin at approximately -2.0% in the latest year suggests that the negative trend may have reached a plateau, but continued monitoring is essential.