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 – 15.69% × 31,608 = -846
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 losses over the observed timeframe.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT generally increased from 2015 to 2019, with values of $3,237 million, $3,563 million, $3,393 million, $3,683 million, and $4,114 million respectively. While there was a slight decrease between 2016 and 2017, the overall trend indicates growth in operational profitability.
- Cost of Capital
- The cost of capital decreased from 17.44% in 2015 to 15.69% in 2019. A noticeable decline occurred between 2017 and 2018, falling from 17.78% to 15.48%. This suggests a decreasing risk profile or improved financing conditions over the period.
- Invested Capital
- Invested capital exhibited a substantial increase, particularly between 2018 and 2019. Starting at $18,175 million in 2015, it rose to $19,539 million in 2016, $19,772 million in 2017, then significantly to $29,939 million in 2018, and finally to $31,608 million in 2019. This indicates considerable investment in the business.
- Economic Profit
- Economic profit initially showed positive values in 2015 and 2016, at $67 million and $109 million respectively. However, it turned negative in 2017 with a loss of $122 million, and deteriorated significantly in subsequent years, reaching losses of $952 million in 2018 and $846 million in 2019. This decline is attributable to the combination of increasing invested capital and, despite a decreasing cost of capital, insufficient NOPAT growth to offset the capital employed.
The substantial increase in invested capital, coupled with the relatively slower growth of NOPAT, appears to be the primary driver of the negative economic profit observed in the later years. While the cost of capital decreased, it was not enough to compensate for the increased capital base and maintain positive economic profit.
AI Ask an analyst for more
Net Operating Profit after Taxes (NOPAT)
General Dynamics Corp., NOPAT calculation
US$ 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.
AI Ask an analyst for more
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.
AI Ask an analyst for more
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 $31,608 million in 2019. This suggests significant investment or expansion activities starting in 2018, funded in part by increased debt levels.
Overall, the data indicate a period of relative stability from 2015 through 2017, followed by a substantial increase in leverage and total invested capital beginning in 2018. The company’s equity base grew steadily throughout, providing a solid foundation despite the sharp increase in debt. This pattern may reflect a strategic shift toward accelerated growth or capital-intensive initiatives in the latter years of the period analyzed.
AI Ask an analyst for more
Cost of Capital
General Dynamics Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 53,943) | 53,943) | ÷ | 67,785) | = | 0.80 | 0.80 | × | 19.12% | = | 15.21% | ||
| Short- and long-term debt principal3 | 12,339) | 12,339) | ÷ | 67,785) | = | 0.18 | 0.18 | × | 2.97% × (1 – 21.00%) | = | 0.43% | ||
| Operating lease liability4 | 1,503) | 1,503) | ÷ | 67,785) | = | 0.02 | 0.02 | × | 3.00% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 67,785) | 1.00 | 15.69% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ 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 | × | 19.12% | = | 14.98% | ||
| 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 | 15.48% | ||||||||||
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 | × | 19.12% | = | 17.65% | ||
| 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 | 17.78% | ||||||||||
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 | × | 19.12% | = | 17.56% | ||
| 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 | 17.68% | ||||||||||
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 | × | 19.12% | = | 17.30% | ||
| 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 | 17.44% | ||||||||||
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 | (846) | (952) | (122) | 109) | 67) | |
| Invested capital2 | 31,608) | 29,939) | 19,772) | 19,539) | 18,175) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -2.68% | -3.18% | -0.62% | 0.56% | 0.37% | |
| 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 × -846 ÷ 31,608 = -2.68%
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 substantial decrease in economic profit and a consistent increase in invested capital over the period.
- Economic Spread Ratio
- In 2015, the economic spread ratio stood at 0.37%, suggesting that the company generated returns exceeding its cost of capital. This ratio increased to 0.56% in 2016, representing an improvement in profitability relative to invested capital. However, a significant reversal occurred in 2017, with the ratio falling to -0.62%. This negative value indicates that returns were no longer sufficient to cover the cost of capital. The ratio continued to deteriorate, reaching -3.18% in 2018 and -2.68% in 2019, demonstrating a worsening trend in value creation.
- Economic Profit
- Economic profit began at US$67 million in 2015 and increased to US$109 million in 2016. However, it then experienced a dramatic decline, becoming negative in 2017 at -US$122 million. This negative trend accelerated in subsequent years, reaching -US$952 million in 2018 and -US$846 million in 2019. The substantial decrease in economic profit is a primary driver of the declining economic spread ratio.
- Invested Capital
- Invested capital consistently increased throughout the period, rising from US$18,175 million in 2015 to US$31,608 million in 2019. While increasing invested capital can support future growth, the simultaneous decline in economic profit suggests that these investments were not generating sufficient returns to offset their cost. The growing capital base, coupled with diminishing profitability, contributed to the negative economic spread ratio observed in later years.
The combined effect of decreasing economic profit and increasing invested capital resulted in a substantial decline in the economic spread ratio. The transition from positive to negative values indicates a weakening of the company’s ability to create economic value.
AI Ask an analyst for more
Economic Profit Margin
General Dynamics Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (846) | (952) | (122) | 109) | 67) | |
| Revenue | 39,350) | 36,193) | 30,973) | 31,353) | 31,469) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -2.15% | -2.63% | -0.39% | 0.35% | 0.21% | |
| 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 × -846 ÷ 39,350 = -2.15%
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 in the most recent year.
- Economic Profit Margin
- In 2015, the economic profit margin was 0.21%, indicating that for every dollar of revenue, the company generated 0.21 cents of economic profit. This margin increased to 0.35% in 2016, suggesting improved profitability relative to the cost of capital. However, a significant shift occurred in 2017, with the margin declining to -0.39%. This indicates that the company’s economic profit was negative, meaning its return on capital was less than its cost of capital.
- The decline continued sharply in 2018, with the economic profit margin reaching -2.63%, representing a substantial erosion of economic profit. While the margin improved slightly in 2019 to -2.15%, it remained negative, signifying continued underperformance relative to the cost of capital. The magnitude of the negative margin suggests that the company’s investments were not generating sufficient returns to cover the cost of financing those investments.
The trend in economic profit mirrors the economic profit margin. Positive economic profit was observed in 2015 and 2016, followed by negative economic profit in the subsequent years. The negative economic profit values in 2017, 2018, and 2019 align with the declining and negative economic profit margins, reinforcing the observation of diminishing economic value creation.
Revenue demonstrated an overall upward trend, increasing from US$31,469 million in 2015 to US$39,350 million in 2019. However, this revenue growth did not translate into positive economic profit, as evidenced by the consistently negative economic profit margin in the later years of the period. This suggests that while the company was increasing sales, it was not doing so efficiently enough to cover its cost of capital.
AI Ask an analyst for more