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
HCA Healthcare Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 9,050 – 17.73% × 36,837 = 2,519
The analysis of financial performance from 2017 to 2021 reveals a volatile trajectory in value creation, characterized by a period of instability followed by a significant surge in economic profit. While the company expanded its invested capital base consistently, the ability to generate returns exceeding the cost of capital fluctuated, resulting in a temporary period of value destruction before achieving a peak in the final year of the period.
- Net Operating Profit After Taxes (NOPAT)
- A general upward trend is observed in NOPAT, which grew from 4,332 million in 2017 to 9,050 million in 2021. Growth was strong between 2017 and 2019, followed by a slight contraction in 2020 to 5,607 million. However, 2021 marked a substantial recovery, with NOPAT increasing by approximately 61% over the previous year.
- Cost of Capital and Invested Capital
- Invested capital experienced uninterrupted growth over the five-year period, rising from 27,635 million in 2017 to 36,837 million in 2021. During this same interval, the cost of capital trended upward, increasing from 14.25% to 17.73%. This simultaneous increase in both the volume of capital deployed and the cost of that capital placed higher pressure on the operating profits to generate positive economic value.
- Economic Profit and Value Creation
- Economic profit exhibited significant volatility, reflecting the interplay between rising operating profits and an increasing cost of capital. Value creation grew from 393 million in 2017 to 903 million in 2018, before declining over the next two years. In 2020, economic profit turned negative, reaching -327 million, indicating that the NOPAT was insufficient to cover the weighted cost of the invested capital. This trend reversed sharply in 2021, with economic profit surging to 2,519 million, the highest level in the observed period.
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Net Operating Profit after Taxes (NOPAT)
HCA Healthcare Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in equity equivalents to net income attributable to HCA Healthcare, Inc..
3 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,147 × 4.40% = 94
4 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,660 × 21.00% = 349
5 Addition of after taxes interest expense to net income attributable to HCA Healthcare, Inc..
Between 2017 and 2021, a strong upward trajectory is evident in both Net Operating Profit After Taxes (NOPAT) and net income attributable to shareholders. Both metrics experienced a substantial surge in the final year of the period, indicating a significant expansion in operational efficiency and overall profitability.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited steady growth from 2017 to 2019, rising from 4,332 million to 5,941 million. A slight contraction occurred in 2020, where values decreased to 5,607 million, followed by a sharp increase to 9,050 million by the end of 2021. This represents a total increase of approximately 108.9% over the five-year period.
- Net Income Performance
- Net income demonstrated higher relative volatility compared to NOPAT. Following a significant increase in 2018, a marginal decline was noted in 2019. However, the period concluded with a dramatic rise to 6,956 million in 2021, more than tripling the 2017 baseline of 2,216 million.
- Analysis of Operational versus Bottom-Line Profitability
- A consistent and substantial positive variance is observed between NOPAT and net income across all reported years. The fact that NOPAT remained significantly higher than net income indicates that non-operating expenses, specifically interest obligations related to the capital structure, significantly reduce the final net profit. This spread remained relatively stable over the period, fluctuating between approximately 1,853 million and 2,436 million, suggesting a consistent cost of debt relative to operating performance.
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Cash Operating Taxes
HCA Healthcare Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
Analysis of the tax expenditures from 2017 to 2021 reveals a fluctuating trend in cash operating taxes, characterized by an initial decline followed by a significant acceleration. Cash operating taxes decreased from US$ 1,829 million in 2017 to a period low of US$ 1,225 million in 2019, before rising sharply to US$ 2,444 million by 2021.
- Cash Operating Tax Volatility
- A contraction is observed between 2017 and 2019, with expenditures dropping by approximately 33%. This trend reversed in 2020 and culminated in a peak in 2021, where cash taxes reached the highest level in the five-year sequence, representing a nearly 100% increase from the 2019 trough.
- Variance Between Cash Taxes and Provisions
- Cash operating taxes consistently exceeded the provision for income taxes throughout the entire period. The disparity was most pronounced in 2020, when cash taxes were US$ 462 million higher than the tax provision. In 2021, both metrics exhibited a strong upward correlation, with the provision for income taxes increasing to US$ 2,112 million, paralleling the surge in cash tax outflows.
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Invested Capital
HCA Healthcare Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of equity equivalents to stockholders’ equity (deficit) attributable to HCA Healthcare, Inc..
4 Removal of accumulated other comprehensive income.
5 Subtraction of construction in progress.
Invested capital exhibited a consistent upward trajectory between 2017 and 2021, increasing from 27,635 million US$ to 36,837 million US$. This sustained growth indicates a continuous expansion of the company's capital base employed to generate operational returns.
- Invested Capital Trends
- A steady year-over-year increase is observed throughout the five-year period. The most significant growth occurred between 2018 and 2019, where invested capital rose by approximately 12.8%, reflecting a substantial increase in the resources deployed into the business.
- Stockholders' Equity Volatility
- Equity attributable to the company was characterized by a deficit for the majority of the analyzed period. A recovery trend was evident from 2017 to 2020, as the deficit narrowed from 6,806 million US$ to a positive balance of 572 million US$. However, this trend reversed in 2021, with equity returning to a deficit of 933 million US$.
- Debt and Capital Structure
- Total reported debt and leases remained relatively stable, ranging from 33,056 million US$ to 36,726 million US$. The growth in invested capital despite the prevailing equity deficits suggests a capital structure heavily reliant on debt financing. The peak in invested capital in 2021 aligns with the period's highest level of reported debt, indicating that recent capital expansions have been primarily funded through borrowing.
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Cost of Capital
HCA Healthcare Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 74,109) | 74,109) | ÷ | 114,797) | = | 0.65 | 0.65 | × | 25.47% | = | 16.44% | ||
| Long-term debt3 | 38,541) | 38,541) | ÷ | 114,797) | = | 0.34 | 0.34 | × | 4.60% × (1 – 21.00%) | = | 1.22% | ||
| Operating lease liability4 | 2,147) | 2,147) | ÷ | 114,797) | = | 0.02 | 0.02 | × | 4.40% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 114,797) | 1.00 | 17.73% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 60,291) | 60,291) | ÷ | 98,157) | = | 0.61 | 0.61 | × | 25.47% | = | 15.65% | ||
| Long-term debt3 | 35,814) | 35,814) | ÷ | 98,157) | = | 0.36 | 0.36 | × | 5.00% × (1 – 21.00%) | = | 1.44% | ||
| Operating lease liability4 | 2,052) | 2,052) | ÷ | 98,157) | = | 0.02 | 0.02 | × | 4.80% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 98,157) | 1.00 | 17.17% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 50,124) | 50,124) | ÷ | 88,999) | = | 0.56 | 0.56 | × | 25.47% | = | 14.35% | ||
| Long-term debt3 | 37,026) | 37,026) | ÷ | 88,999) | = | 0.42 | 0.42 | × | 5.20% × (1 – 21.00%) | = | 1.71% | ||
| Operating lease liability4 | 1,849) | 1,849) | ÷ | 88,999) | = | 0.02 | 0.02 | × | 5.30% × (1 – 21.00%) | = | 0.09% | ||
| Total: | 88,999) | 1.00 | 16.14% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 48,621) | 48,621) | ÷ | 83,216) | = | 0.58 | 0.58 | × | 25.47% | = | 14.88% | ||
| Long-term debt3 | 32,887) | 32,887) | ÷ | 83,216) | = | 0.40 | 0.40 | × | 5.50% × (1 – 21.00%) | = | 1.72% | ||
| Operating lease liability4 | 1,708) | 1,708) | ÷ | 83,216) | = | 0.02 | 0.02 | × | 5.50% × (1 – 21.00%) | = | 0.09% | ||
| Total: | 83,216) | 1.00 | 16.69% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 35,284) | 35,284) | ÷ | 71,698) | = | 0.49 | 0.49 | × | 25.47% | = | 12.53% | ||
| Long-term debt3 | 34,689) | 34,689) | ÷ | 71,698) | = | 0.48 | 0.48 | × | 5.20% × (1 – 35.00%) | = | 1.64% | ||
| Operating lease liability4 | 1,725) | 1,725) | ÷ | 71,698) | = | 0.02 | 0.02 | × | 5.20% × (1 – 35.00%) | = | 0.08% | ||
| Total: | 71,698) | 1.00 | 14.25% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
HCA Healthcare Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 2,519) | (327) | 529) | 903) | 393) | |
| Invested capital2 | 36,837) | 34,570) | 33,534) | 29,729) | 27,635) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 6.84% | -0.95% | 1.58% | 3.04% | 1.42% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Abbott Laboratories | -1.95% | — | — | — | — | |
| Elevance Health Inc. | 1.46% | — | — | — | — | |
| Intuitive Surgical Inc. | 12.41% | — | — | — | — | |
| Medtronic PLC | -6.71% | — | — | — | — | |
| UnitedHealth Group Inc. | 3.91% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 2,519 ÷ 36,837 = 6.84%
4 Click competitor name to see calculations.
The analysis of the economic spread ratio and associated metrics indicates a period of significant volatility in value creation, punctuated by a substantial recovery in 2021. While the capital base expanded consistently throughout the period, the efficiency of that capital in generating returns above the cost of capital varied considerably.
- Invested Capital Trends
- A consistent upward trajectory in invested capital is observed, increasing from 27,635 million US dollars in 2017 to 36,837 million US dollars by 2021. This represents a steady and uninterrupted expansion of the total capital deployed in the business.
- Economic Profit Performance
- Economic profit exhibited high volatility over the five-year horizon. Following a peak of 903 million US dollars in 2018, a downward trend emerged, resulting in a negative economic profit of -327 million US dollars in 2020. This decline was followed by a sharp reversal in 2021, where economic profit surged to 2,519 million US dollars, marking the highest level of absolute value creation in the sequence.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrors the volatility of economic profit, reflecting the company's ability to generate a return exceeding its weighted average cost of capital. The ratio fluctuated from 1.42% in 2017 to a high of 3.04% in 2018, before contracting to -0.95% in 2020. The negative ratio in 2020 signifies a period of economic value destruction. The period concluded with a significant expansion to 6.84% in 2021, indicating a substantial increase in the efficiency of capital utilization and a strong recovery in value generation.
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Economic Profit Margin
HCA Healthcare Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 2,519) | (327) | 529) | 903) | 393) | |
| Revenues | 58,752) | 51,533) | 51,336) | 46,677) | 43,614) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 4.29% | -0.63% | 1.03% | 1.94% | 0.90% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Abbott Laboratories | -2.81% | — | — | — | — | |
| Elevance Health Inc. | 0.68% | — | — | — | — | |
| Intuitive Surgical Inc. | 9.76% | — | — | — | — | |
| Medtronic PLC | -16.09% | — | — | — | — | |
| UnitedHealth Group Inc. | 1.92% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × 2,519 ÷ 58,752 = 4.29%
3 Click competitor name to see calculations.
The analysis of financial performance between 2017 and 2021 indicates a period of consistent revenue expansion contrasted by significant volatility in economic value creation. While revenues increased steadily each year, the economic profit margin experienced a non-linear trajectory, culminating in a substantial peak in the final year of the period.
- Revenue Trajectory
- Revenues demonstrated a consistent upward trend, growing from US$ 43,614 million in 2017 to US$ 58,752 million in 2021. This reflects a steady increase in the scale of operations and top-line growth throughout the five-year window.
- Economic Profit Fluctuations
- Economic profit exhibited high variability, starting at US$ 393 million in 2017 and reaching a peak of US$ 2,519 million in 2021. A notable decline occurred between 2018 and 2020, with the figure dropping from US$ 903 million to a negative value of US$ 327 million in 2020, signifying a period where the returns did not exceed the cost of capital.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit. The margin rose from 0.90% in 2017 to 1.94% in 2018, before contracting to -0.63% in 2020. The subsequent recovery in 2021 was substantial, with the margin reaching 4.29%. This indicates a significant increase in the efficiency of value generation relative to total revenue by the end of the analyzed period.
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