Stock Analysis on Net
Stock Analysis on Net
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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

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Net operating profit after taxes (NOPAT)1 4,395  1,994  (19,486) (7,006) 13,899 
Cost of capital2 7.76% 7.53% 7.05% 6.64% 8.53%
Invested capital3 64,102  78,101  135,167  193,260  191,946 
 
Economic profit4 (578) (3,891) (29,019) (19,830) (2,482)

Based on: 10-K (filing date: 2021-02-12), 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).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2020 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 4,395 – 7.76% × 64,102 = -578

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 increased from 2018 to 2019 and from 2019 to 2020.

Net Operating Profit after Taxes (NOPAT)

General Electric Co., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Net earnings (loss) attributable to the Company 5,704  (4,979) (22,355) (5,786) 8,831 
Deferred income tax expense (benefit)1 (2,926) (1,104) (2,464) (4,845) 814 
Increase (decrease) in allowance for losses2 290  204  (69) 215  343 
Increase (decrease) in LIFO reserve3 —  —  —  (133) (176)
Increase (decrease) in liability for product warranties4 (111) (27) 162  444  197 
Increase (decrease) in equity equivalents5 (2,747) (927) (2,371) (4,319) 1,178 
Interest and other financial charges 3,273  4,227  5,059  4,869  5,025 
Interest expense, operating lease liability6 134  155  169  139  107 
Adjusted interest and other financial charges 3,407  4,382  5,228  5,008  5,132 
Tax benefit of interest and other financial charges7 (715) (920) (1,098) (1,753) (1,796)
Adjusted interest and other financial charges, after taxes8 2,691  3,462  4,130  3,255  3,336 
(Gain) loss on marketable securities (1,546) (1,220) (669) (299) (167)
Investment income, before taxes (1,546) (1,220) (669) (299) (167)
Tax expense (benefit) of investment income9 325  256  140  105  58 
Investment income, after taxes10 (1,221) (964) (529) (194) (109)
(Income) loss from discontinued operations, net of tax11 126  5,335  1,726  308  954 
Net income (loss) attributable to noncontrolling interest (158) 67  (88) (270) (291)
Net operating profit after taxes (NOPAT) 4,395  1,994  (19,486) (7,006) 13,899 

Based on: 10-K (filing date: 2021-02-12), 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).

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 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,973 × 4.50% = 134

7 2020 Calculation
Tax benefit of interest and other financial charges = Adjusted interest and other financial charges × Statutory income tax rate
= 3,407 × 21.00% = 715

8 Addition of after taxes interest expense to net earnings (loss) attributable to the Company.

9 2020 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 1,546 × 21.00% = 325

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 increased from 2018 to 2019 and from 2019 to 2020.

Cash Operating Taxes

General Electric Co., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Provision (benefit) for income taxes (474) 726  583  (3,043) (464)
Less: Deferred income tax expense (benefit) (2,926) (1,104) (2,464) (4,845) 814 
Add: Tax savings from interest and other financial charges 715  920  1,098  1,753  1,796 
Less: Tax imposed on investment income 325  256  140  105  58 
Cash operating taxes 2,843  2,494  4,004  3,450  460 

Based on: 10-K (filing date: 2021-02-12), 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).

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 decreased from 2018 to 2019 but then slightly increased from 2019 to 2020.

Invested Capital

General Electric Co., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Short-term borrowings 4,778  23,727  14,724  26,016  31,131 
Long-term borrowings 70,288  67,155  95,234  108,575  105,080 
Operating lease liability1 2,973  3,162  4,974  4,733  3,779 
Total reported debt & leases 78,039  94,044  114,932  139,324  139,990 
Total GE shareholders’ equity 35,552  28,316  30,981  64,263  75,828 
Net deferred tax (assets) liabilities2 (12,081) (9,889) (12,432) (6,207) (1,833)
Allowance for losses3 1,164  874  1,004  1,073  858 
LIFO reserve4 —  —  —  (516) (383)
Liability for product warranties5 2,054  2,165  2,510  2,364  1,920 
Equity equivalents6 (8,863) (6,850) (8,918) (3,286) 562 
Accumulated other comprehensive (income) loss, net of tax7 9,749  11,732  14,414  14,395  18,599 
Redeemable noncontrolling interests —  —  382  3,399  3,025 
Noncontrolling interests 1,521  1,545  20,500  17,723  1,662 
Adjusted total GE shareholders’ equity 37,959  34,743  57,359  96,494  99,676 
Leasehold costs and manufacturing plant under construction8 (2,028) (2,165) (3,289) (3,862) (3,407)
Investment securities9 (49,868) (48,521) (33,835) (38,696) (44,313)
Invested capital 64,102  78,101  135,167  193,260  191,946 

Based on: 10-K (filing date: 2021-02-12), 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).

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 2018 to 2019 and from 2019 to 2020.

Cost of Capital

General Electric Co., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 102,848  102,848  ÷ 197,910  = 0.52 0.52 × 12.43% = 6.46%
Preferred stock 5,918  5,918  ÷ 197,910  = 0.03 0.03 × 5.00% = 0.15%
Borrowings3 86,171  86,171  ÷ 197,910  = 0.44 0.44 × 3.19% × (1 – 21.00%) = 1.10%
Operating lease liability4 2,973  2,973  ÷ 197,910  = 0.02 0.02 × 4.50% × (1 – 21.00%) = 0.05%
Total: 197,910  1.00 7.76%

Based on: 10-K (filing date: 2021-02-12).

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 103,659  103,659  ÷ 210,313  = 0.49 0.49 × 12.43% = 6.12%
Preferred stock 5,738  5,738  ÷ 210,313  = 0.03 0.03 × 5.00% = 0.14%
Borrowings3 97,754  97,754  ÷ 210,313  = 0.46 0.46 × 3.31% × (1 – 21.00%) = 1.22%
Operating lease liability4 3,162  3,162  ÷ 210,313  = 0.02 0.02 × 4.90% × (1 – 21.00%) = 0.06%
Total: 210,313  1.00 7.53%

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 92,796  92,796  ÷ 209,934  = 0.44 0.44 × 12.43% = 5.49%
Preferred stock 5,573  5,573  ÷ 209,934  = 0.03 0.03 × 5.00% = 0.13%
Borrowings3 106,590  106,590  ÷ 209,934  = 0.51 0.51 × 3.40% × (1 – 21.00%) = 1.36%
Operating lease liability4 4,974  4,974  ÷ 209,934  = 0.02 0.02 × 3.40% × (1 – 21.00%) = 0.06%
Total: 209,934  1.00 7.05%

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 125,811  125,811  ÷ 283,546  = 0.44 0.44 × 12.43% = 5.51%
Preferred stock 5,424  5,424  ÷ 283,546  = 0.02 0.02 × 5.00% = 0.10%
Borrowings3 147,579  147,579  ÷ 283,546  = 0.52 0.52 × 2.94% × (1 – 35.00%) = 0.99%
Operating lease liability4 4,733  4,733  ÷ 283,546  = 0.02 0.02 × 2.94% × (1 – 35.00%) = 0.03%
Total: 283,546  1.00 6.64%

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 263,401  263,401  ÷ 419,011  = 0.63 0.63 × 12.43% = 7.81%
Preferred stock 5,283  5,283  ÷ 419,011  = 0.01 0.01 × 5.00% = 0.06%
Borrowings3 146,548  146,548  ÷ 419,011  = 0.35 0.35 × 2.83% × (1 – 35.00%) = 0.64%
Operating lease liability4 3,779  3,779  ÷ 419,011  = 0.01 0.01 × 2.83% × (1 – 35.00%) = 0.02%
Total: 419,011  1.00 8.53%

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 »

Economic Spread Ratio

General Electric Co., economic spread ratio calculation, comparison to benchmarks

Microsoft Excel LibreOffice Calc
Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit1 (578) (3,891) (29,019) (19,830) (2,482)
Invested capital2 64,102  78,101  135,167  193,260  191,946 
Performance Ratio
Economic spread ratio3 -0.90% -4.98% -21.47% -10.26% -1.29%
Benchmarks
Economic Spread Ratio, Competitors4
3M Co. 5.29% 2.59% 7.69% 6.48% 7.39%
Honeywell International Inc. -0.75% 3.54% 6.41% -1.15% 2.01%

Based on: 10-K (filing date: 2021-02-12), 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).

1 Economic profit. See details »

2 Invested capital. See details »

3 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -578 ÷ 64,102 = -0.90%

4 Click competitor name to see calculations.

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 improved from 2018 to 2019 and from 2019 to 2020.

Economic Profit Margin

General Electric Co., economic profit margin calculation, comparison to benchmarks

Microsoft Excel LibreOffice Calc
Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit1 (578) (3,891) (29,019) (19,830) (2,482)
Sales of goods and services 73,022  87,487  113,544  113,192  110,390 
Performance Ratio
Economic profit margin2 -0.79% -4.45% -25.56% -17.52% -2.25%
Benchmarks
Economic Profit Margin, Competitors3
3M Co. 6.38% 3.14% 7.39% 6.61% 7.21%
Honeywell International Inc. -1.11% 4.12% 6.32% -1.14% 2.04%

Based on: 10-K (filing date: 2021-02-12), 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).

1 Economic profit. See details »

2 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales of goods and services
= 100 × -578 ÷ 73,022 = -0.79%

3 Click competitor name to see calculations.

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 improved from 2018 to 2019 and from 2019 to 2020.