Stock Analysis on Net

General Dynamics Corp. (NYSE:GD)

$22.49

This company has been moved to the archive! The financial data has not been updated since October 28, 2020.

Economic Value Added (EVA)

Microsoft Excel

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Economic Profit

General Dynamics Corp., economic profit calculation

US$ in millions

Microsoft Excel
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
= × =


Net Operating Profit After Taxes (NOPAT)
The net operating profit after taxes shows a generally upward trend over the analyzed period. Starting at 3,237 million US dollars in 2015, NOPAT increased steadily to 3,563 million in 2016, followed by a slight decline to 3,393 million in 2017. After this dip, the profit continued to rise, reaching 3,683 million in 2018 and peaking at 4,114 million in 2019. This indicates an overall improvement in operating profitability despite minor fluctuations.
Cost of Capital
The cost of capital fluctuates moderately within the range of approximately 13.1% to 15.0% during the period. It began at 14.7% in 2015, experienced a slight increase to 14.98% in 2017, then declined to 13.11% by 2018 before settling at 13.28% in 2019. The downward trend in the last three years suggests a decreasing expense of financing or a favorable adjustment in the company’s capital structure.
Invested Capital
Invested capital shows a substantial increase over the five years analyzed. It started at 18,175 million US dollars in 2015 and grew steadily to 19,539 million in 2016 and 19,772 million in 2017. A more pronounced jump is observed in 2018, with invested capital climbing to 29,939 million, followed by a further increase to 31,608 million in 2019. This marked expansion could reflect strategic investments or asset growth, significantly raising the capital base.
Economic Profit
Economic profit exhibits a declining trajectory during the period. It began positively at 565 million US dollars in 2015, increasing to 652 million in 2016, but then experienced a sharp drop to 431 million in 2017. The value turned negative in 2018 with a loss of 242 million and slightly improved to a negative 85 million in 2019. This deterioration indicates that the returns on invested capital have been falling behind the cost of capital in recent years, undermining value creation despite rising operating profits.

Net Operating Profit after Taxes (NOPAT)

General Dynamics Corp., NOPAT calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net earnings
Deferred income tax expense (benefit)1
Increase (decrease) in product warranty liabilities2
Increase (decrease) in equity equivalents3
Interest expense
Interest expense, operating lease liability4
Adjusted interest expense
Tax benefit of interest expense5
Adjusted interest expense, after taxes6
Interest income
Investment income, before taxes
Tax expense (benefit) of investment income7
Investment income, after taxes8
(Income) loss from discontinued operations, net of tax9
Net operating profit after taxes (NOPAT)

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

Microsoft Excel
12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Provision for income taxes, net
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense
Less: Tax imposed on investment income
Cash operating taxes

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

Microsoft Excel
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
Long-term debt, excluding current portion
Operating lease liability1
Total reported debt & leases
Shareholders’ equity
Net deferred tax (assets) liabilities2
Product warranty liabilities3
Equity equivalents4
Accumulated other comprehensive (income) loss, net of tax5
Adjusted shareholders’ equity
Construction in process6
Invested capital

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

Microsoft Excel
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 profit exhibited a declining trend over the analyzed periods. Starting at a positive figure of 565 million US dollars in 2015, it increased to 652 million in 2016, then decreased to 431 million in 2017. Subsequently, it dropped into negative territory, reaching negative 242 million in 2018 and slightly improving to negative 85 million in 2019.

The invested capital consistently increased throughout the timeframe. It grew steadily from 18,175 million US dollars in 2015 to 19,539 million in 2016 and 19,772 million in 2017. A more significant rise occurred in 2018, with invested capital increasing to 29,939 million, followed by a further increase to 31,608 million in 2019.

The economic spread ratio, which is an indicator of the company's ability to generate returns above the cost of capital, mirrored the trend of economic profit. Initially positive, it rose from 3.11% in 2015 to a peak of 3.34% in 2016, but then declined to 2.18% in 2017. In 2018 and 2019, the ratio turned negative at -0.81% and -0.27%, respectively, reflecting the negative economic profit during these years.

Summary of Trends
The overall financial indicators demonstrate growing investment in capital assets, as evidenced by the steady increase in invested capital. However, the company's ability to generate economic profit deteriorated over the period, transitioning from positive gains to losses in the final two years. This decline in economic profit is also reflected in the economic spread ratio turning negative, signaling reduced efficiency in generating returns over the invested capital cost.

Economic Profit Margin

General Dynamics Corp., economic profit margin calculation, comparison to benchmarks

Microsoft Excel
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 data reveals significant variations in economic profit and revenue over the five-year period. Revenue shows an overall upward trajectory, increasing from approximately 31.5 billion USD in 2015 to about 39.4 billion USD by the end of 2019. This indicates a consistent growth rate in top-line sales despite minor fluctuations.

In contrast, economic profit exhibits a markedly different pattern. It starts relatively strong at 565 million USD in 2015 and peaks at 652 million USD in 2016, followed by a decline to 431 million USD in 2017. From 2018 onward, economic profit shifts into negative territory, recording losses of 242 million USD and 85 million USD in 2018 and 2019, respectively. This transition from positive to negative economic profit suggests increased costs, diminished operational efficiency, or other factors negatively impacting the firm’s profitability beyond accounting profit.

The economic profit margin aligns with the economic profit figures, reflecting the same trend. Initially, the margin increases from 1.8% in 2015 to 2.08% in 2016, indicating improved profitability relative to revenue. However, it declines thereafter, dropping to 1.39% in 2017 and turning negative in the subsequent years (-0.67% in 2018 and -0.21% in 2019). This decline further confirms worsening economic profitability, with the company generating less value over and above its capital costs despite growing revenues.

Overall, the financial pattern suggests that while revenue has been growing, underlying profitability, as measured by economic profit and its margin, has deteriorated significantly since 2016. This divergence signals potential challenges in managing expenses or investments that could be eroding value creation.