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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

HP Inc., economic profit calculation

US$ in millions

12 months ended:	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Net operating profit after taxes (NOPAT)¹	2,027)	3,064)	2,997)	3,947)	4,693)	4,258)
Cost of capital²	17.12%	16.36%	16.04%	10.44%	15.83%	14.41%
Invested capital³	7,561)	9,763)	9,027)	71,569)	65,787)	67,461)

Economic profit⁴	733)	1,467)	1,549)	(3,524)	(5,725)	(5,461)

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,027 – 17.12% × 7,561 = 733

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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.	HP Inc. economic profit decreased from 2016 to 2017 and from 2017 to 2018.

HP Inc., NOPAT calculation

US$ in millions

12 months ended:	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Net earnings	5,327)	2,526)	2,496)	4,554)	5,013)	5,113)
Deferred income tax expense (benefit)¹	(3,654)	239)	403)	(701)	(33)	(410)
Increase (decrease) in allowance for doubtful accounts²	28)	(6)	27)	(43)	(100)	(132)
Increase (decrease) in deferred revenue³	167)	149)	(79)	498)	(310)	(481)
Increase (decrease) in product warranty liabilities⁴	17)	(82)	(204)	(248)	(75)	(139)
Increase (decrease) in restructuring plans, accrued balance⁵	(49)	50)	(5)	(309)	(3)	90)
Increase (decrease) in equity equivalents⁶	(3,491)	350)	142)	(803)	(521)	(1,072)
Interest expense on borrowings	312)	309)	273)	327)	344)	426)
Interest expense, operating lease liability⁷	58)	46)	42)	103)	102)	106)
Adjusted interest expense on borrowings	370)	355)	315)	430)	446)	532)
Tax benefit of interest expense on borrowings⁸	(86)	(124)	(110)	(151)	(156)	(186)
Adjusted interest expense on borrowings, after taxes⁹	284)	230)	205)	280)	290)	345)
(Gain) loss on marketable securities	(5)	—)	—)	—)	(1)	(49)
Interest income	(116)	(66)	(24)	(129)	(136)	(148)
Investment income, before taxes	(121)	(66)	(24)	(129)	(137)	(197)
Tax expense (benefit) of investment income¹⁰	28)	23)	8)	45)	48)	69)
Investment income, after taxes¹¹	(93)	(43)	(16)	(84)	(89)	(128)
(Income) loss from discontinued operations, net of tax¹²	—)	—)	170)	—)	—)	—)
Net operating profit after taxes (NOPAT)	2,027)	3,064)	2,997)	3,947)	4,693)	4,258)

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in deferred revenue.

⁴ Addition of increase (decrease) in product warranty liabilities.

⁵ Addition of increase (decrease) in restructuring plans, accrued balance.

⁶ Addition of increase (decrease) in equity equivalents to net earnings.

⁷ 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,260 × 4.60% = 58

⁸ 2018 Calculation
Tax benefit of interest expense on borrowings = Adjusted interest expense on borrowings × Statutory income tax rate
= 370 × 23.30% = 86

⁹ Addition of after taxes interest expense to net earnings.

¹⁰ 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 121 × 23.30% = 28

¹¹ Elimination of after taxes investment income.

¹² Elimination of discontinued operations.

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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.	HP Inc. NOPAT increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.

HP Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Provision for (benefit from) taxes on earnings	(2,314)	750)	1,095)	178)	1,544)	1,397)
Less: Deferred income tax expense (benefit)	(3,654)	239)	403)	(701)	(33)	(410)
Add: Tax savings from interest expense on borrowings	86)	124)	110)	151)	156)	186)
Less: Tax imposed on investment income	28)	23)	8)	45)	48)	69)
Cash operating taxes	1,398)	612)	794)	984)	1,685)	1,924)

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

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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.	HP Inc. cash operating taxes decreased from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

HP Inc., invested capital calculation (financing approach)

US$ in millions

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Notes payable and short-term borrowings	1,463)	1,072)	78)	2,885)	3,486)	5,979)
Long-term debt, excluding current portion	4,524)	6,747)	6,758)	21,780)	16,039)	16,608)
Operating lease liability¹	1,260)	1,036)	901)	2,461)	2,681)	2,606)
Total reported debt & leases	7,247)	8,855)	7,737)	27,126)	22,206)	25,193)
Total HP stockholders’ equity (deficit)	(639)	(3,408)	(3,889)	27,768)	26,731)	27,269)
Net deferred tax (assets) liabilities²	(2,331)	1,068)	862)	(2,650)	(2,086)	(2,196)
Allowance for doubtful accounts³	129)	101)	107)	189)	232)	332)
Deferred revenue⁴	2,100)	1,933)	1,784)	10,572)	10,074)	10,384)
Product warranty liabilities⁵	915)	898)	980)	1,708)	1,956)	2,031)
Restructuring plans, accrued balance⁶	59)	108)	58)	805)	1,114)	1,117)
Equity equivalents⁷	872)	4,108)	3,791)	10,624)	11,290)	11,668)
Accumulated other comprehensive (income) loss, net of tax⁸	845)	1,418)	1,438)	6,302)	5,881)	3,778)
Non-controlling interests	—)	—)	—)	383)	396)	387)
Adjusted total HP stockholders’ equity (deficit)	1,078)	2,118)	1,340)	45,077)	44,298)	43,102)
Available-for-sale investments⁹	(764)	(1,210)	(50)	(634)	(717)	(834)
Invested capital	7,561)	9,763)	9,027)	71,569)	65,787)	67,461)

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

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 deferred revenue.

⁵ Addition of product warranty liabilities.

⁶ Addition of restructuring plans, accrued balance.

⁷ Addition of equity equivalents to total HP stockholders’ equity (deficit).

⁸ Removal of accumulated other comprehensive income.

⁹ Subtraction of available-for-sale investments.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	HP Inc. invested capital increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.

HP Inc., cost of capital calculations

Oct 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	34,627)	34,627)	÷	41,888)	=	0.83	0.83	×	19.97%	=	16.51%
Short- and long-term debt³	6,000)	6,000)	÷	41,888)	=	0.14	0.14	×	4.60% × (1 – 23.30%)	=	0.51%
Operating lease liability⁴	1,260)	1,260)	÷	41,888)	=	0.03	0.03	×	4.60% × (1 – 23.30%)	=	0.11%
Total:	41,888)					1.00					17.12%

Based on: 10-K (reporting date: 2018-10-31).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt. See details »

⁴ Operating lease liability. See details »

Oct 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	34,122)	34,122)	÷	43,258)	=	0.79	0.79	×	19.97%	=	15.75%
Short- and long-term debt³	8,100)	8,100)	÷	43,258)	=	0.19	0.19	×	4.40% × (1 – 35.00%)	=	0.54%
Operating lease liability⁴	1,036)	1,036)	÷	43,258)	=	0.02	0.02	×	4.40% × (1 – 35.00%)	=	0.07%
Total:	43,258)					1.00					16.36%

Based on: 10-K (reporting date: 2017-10-31).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt. See details »

⁴ Operating lease liability. See details »

Oct 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	26,452)	26,452)	÷	34,452)	=	0.77	0.77	×	19.97%	=	15.33%
Short- and long-term debt³	7,100)	7,100)	÷	34,452)	=	0.21	0.21	×	4.69% × (1 – 35.00%)	=	0.63%
Operating lease liability⁴	901)	901)	÷	34,452)	=	0.03	0.03	×	4.69% × (1 – 35.00%)	=	0.08%
Total:	34,452)					1.00					16.04%

Based on: 10-K (reporting date: 2016-10-31).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt. See details »

⁴ Operating lease liability. See details »

Oct 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	21,968)	21,968)	÷	49,129)	=	0.45	0.45	×	19.97%	=	8.93%
Short- and long-term debt³	24,700)	24,700)	÷	49,129)	=	0.50	0.50	×	4.20% × (1 – 35.00%)	=	1.37%
Operating lease liability⁴	2,461)	2,461)	÷	49,129)	=	0.05	0.05	×	4.20% × (1 – 35.00%)	=	0.14%
Total:	49,129)					1.00					10.44%

Based on: 10-K (reporting date: 2015-10-31).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt. See details »

⁴ Operating lease liability. See details »

Oct 31, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	73,033)	73,033)	÷	95,614)	=	0.76	0.76	×	19.97%	=	15.25%
Short- and long-term debt³	19,900)	19,900)	÷	95,614)	=	0.21	0.21	×	3.79% × (1 – 35.00%)	=	0.51%
Operating lease liability⁴	2,681)	2,681)	÷	95,614)	=	0.03	0.03	×	3.79% × (1 – 35.00%)	=	0.07%
Total:	95,614)					1.00					15.83%

Based on: 10-K (reporting date: 2014-10-31).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt. See details »

⁴ Operating lease liability. See details »

Oct 31, 2013

	Capital (fair value)¹	Weights					Cost of capital
Equity²	53,579)	53,579)	÷	78,885)	=	0.68	0.68	×	19.97%	=	13.56%
Short- and long-term debt³	22,700)	22,700)	÷	78,885)	=	0.29	0.29	×	4.05% × (1 – 35.00%)	=	0.76%
Operating lease liability⁴	2,606)	2,606)	÷	78,885)	=	0.03	0.03	×	4.05% × (1 – 35.00%)	=	0.09%
Total:	78,885)					1.00					14.41%

Based on: 10-K (reporting date: 2013-10-31).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt. See details »

⁴ Operating lease liability. See details »

HP Inc., economic spread ratio calculation, comparison to benchmarks

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Selected Financial Data (US$ in millions)
Economic profit¹	733)	1,467)	1,549)	(3,524)	(5,725)	(5,461)
Invested capital²	7,561)	9,763)	9,027)	71,569)	65,787)	67,461)
Performance Ratio
Economic spread ratio³	9.69%	15.02%	17.17%	-4.92%	-8.70%	-8.10%
Benchmarks
Economic Spread Ratio, Competitors⁴
Apple Inc.	81.54%	—	—	—	—	—
Arista Networks Inc.	—	—	—	—	—	—
Cisco Systems Inc.	-9.27%	—	—	—	—	—
Super Micro Computer Inc.	-2.04%	—	—	—	—	—

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 733 ÷ 7,561 = 9.69%

⁴ Click competitor name to see calculations.

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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.	HP Inc. economic spread ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

HP Inc., economic profit margin calculation, comparison to benchmarks

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Selected Financial Data (US$ in millions)
Economic profit¹	733)	1,467)	1,549)	(3,524)	(5,725)	(5,461)

Net revenue	58,472)	52,056)	48,238)	103,355)	111,454)	112,298)
Add: Increase (decrease) in deferred revenue	167)	149)	(79)	498)	(310)	(481)
Adjusted net revenue	58,639)	52,205)	48,159)	103,853)	111,144)	111,817)
Performance Ratio
Economic profit margin²	1.25%	2.81%	3.22%	-3.39%	-5.15%	-4.88%
Benchmarks
Economic Profit Margin, Competitors³
Apple Inc.	8.10%	—	—	—	—	—
Arista Networks Inc.	—	—	—	—	—	—
Cisco Systems Inc.	-9.22%	—	—	—	—	—
Super Micro Computer Inc.	-0.66%	—	—	—	—	—

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

¹ Economic profit. See details »

² 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenue
= 100 × 733 ÷ 58,639 = 1.25%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company 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.	HP Inc. economic profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.

HP Inc. (NYSE:HPQ)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin