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General Electric Co. (NYSE:GE)
Economic Value Added (EVA)
Advanced level
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 Electric Co., 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 (filing date: 2020-02-24), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26).
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
= – × =
| 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 Electric Co.’s economic profit decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
Net Operating Profit after Taxes (NOPAT)
General Electric Co., NOPAT calculation
US$ in millions
Based on: 10-K (filing date: 2020-02-24), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for losses.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in liability for product warranties.
5 Addition of increase (decrease) in equity equivalents to net earnings (loss) attributable to the Company.
6 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2019 Calculation
Tax benefit of interest and other financial charges = Adjusted interest and other financial charges × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net earnings (loss) attributable to the Company.
9 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
| 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 Electric Co.’s NOPAT decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
Cash Operating Taxes
General Electric Co., cash operating taxes calculation
US$ in millions
Based on: 10-K (filing date: 2020-02-24), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26).
| 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 Electric Co.’s cash operating taxes increased from 2017 to 2018 but then decreased significantly from 2018 to 2019. |
Invested Capital
General Electric Co., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (filing date: 2020-02-24), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of LIFO reserve. See details »
5 Addition of liability for product warranties.
6 Addition of equity equivalents to total GE shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of leasehold costs and manufacturing plant under construction.
9 Subtraction of investment securities.
| 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 Electric Co.’s invested capital decreased from 2017 to 2018 and from 2018 to 2019. |
Cost of Capital
General Electric Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Preferred stock | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Total: | |||||||||||||
Based on: 10-K (filing date: 2020-02-24).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Preferred stock | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Total: | |||||||||||||
Based on: 10-K (filing date: 2019-02-26).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Preferred stock | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Total: | |||||||||||||
Based on: 10-K (filing date: 2018-02-23).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Preferred stock | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Total: | |||||||||||||
Based on: 10-K (filing date: 2017-02-24).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Preferred stock | ÷ | = | × | = | |||||||||
| Borrowings3 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Total: | |||||||||||||
Based on: 10-K (filing date: 2016-02-26).
1 US$ in millions
2 Equity. See details »
3 Borrowings. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
General Electric Co., economic spread ratio calculation
| 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 | ||||||
Based on: 10-K (filing date: 2020-02-24), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
| 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 Electric Co.’s economic spread ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level. |
Economic Profit Margin
General Electric Co., economic profit margin calculation
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Sales of goods and services | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
Based on: 10-K (filing date: 2020-02-24), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-26).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales of goods and services
= 100 × ÷ =
| Performance ratio | Description | The company |
|---|---|---|
| Economic profit margin | The ratio of economic profit to sales. It is the company’s 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 Electric Co.’s economic profit margin deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level. |