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.
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Economic Profit
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 | |||||||
| Cost of capital2 | |||||||
| Invested capital3 | |||||||
| Economic profit4 | |||||||
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
= – × =
The financial data reveals several notable trends over the six-year period analyzed. Net operating profit after taxes (NOPAT) initially increased from 2013 to 2014, reaching a peak before experiencing a decline over the following years. Specifically, NOPAT grew from 4,258 million US dollars in 2013 to 4,693 million in 2014 but then decreased significantly to 2,027 million by 2018. This indicates a weakening in operating profitability over the latter part of the period.
Conversely, the cost of capital shows an overall upward trend. It increased from 15.82% in 2013 to 18.84% in 2018, with some fluctuations. This rising cost of capital suggests growing risk or capital expense associated with the business, which could negatively impact economic value generation.
The invested capital figures, measured in millions of US dollars, exhibit unusual patterns. While the invested capital was stable around 67,000 to 71,500 million from 2013 through 2015, there is a dramatic and likely anomalous drop to roughly 9,000 million in 2016, followed by marginal increases but remaining below the earlier levels. Such a sharp decline in invested capital could be due to accounting changes, divestitures, or data inconsistencies and warrants further investigation for confirmation.
Economic profit mirrors some aspects of the previous metrics but shows a recovery phase. It was deeply negative in 2013 and 2014, with values of -6,413 million and -6,769 million respectively, indicating value destruction. This negative trend improved substantially by 2016, turning positive at 1,405 million dollars and maintaining positive but diminishing levels thereafter through 2018. The recovery in economic profit, despite a declining NOPAT and higher cost of capital, might be influenced by the reduced invested capital, but the overall lower economic profit in 2018 compared to 2016 and 2017 suggests challenges in sustaining value creation.
- Profitability and Operating Performance
- After reaching a peak in 2014, NOPAT declined steadily, indicating a decrease in the company's operating effectiveness or profitability over the period.
- Cost of Capital
- The upward trend in cost of capital implies increased financial risk or funding costs, putting additional pressure on profit margins and value creation.
- Invested Capital
- The large drop in invested capital post-2015 signals a major shift, potentially from disposals, restructuring, or accounting reclassification. The stability of this trend at a lower level requires further examination due to its deviation from previous years.
- Economic Profit and Value Generation
- Economic profit remains deeply negative early in the period but improves to positive values from 2016 onward. This reflects a transition from value destruction to value creation, although the declining trend towards 2018 suggests emerging difficulties in maintaining this positive momentum.
Net Operating Profit after Taxes (NOPAT)
HP Inc., NOPAT calculation
US$ in millions
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
= × =
8 2018 Calculation
Tax benefit of interest expense on borrowings = Adjusted interest expense on borrowings × Statutory income tax rate
= × 23.30% =
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
= × 23.30% =
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
- Net earnings
-
Net earnings displayed a downward trend from 2013 through 2016, decreasing from 5,113 million US dollars in 2013 to a low of 2,496 million US dollars in 2016. This was followed by a period of relative stability with a slight increase to 2,526 million US dollars in 2017. In 2018, net earnings sharply rebounded to 5,327 million US dollars, surpassing the 2013 figure.
- Net operating profit after taxes (NOPAT)
-
NOPAT witnessed a decline during the same initial period, dropping from 4,258 million US dollars in 2013 to 2,997 million US dollars in 2016. There was a modest recovery in 2017, reaching 3,064 million US dollars. However, contrary to net earnings, NOPAT decreased significantly in 2018 to 2,027 million US dollars, marking the lowest value in the observed range.
- Overall Analysis
-
The data reveals diverging trends between net earnings and NOPAT in 2018. While net earnings showed a strong recovery, more than doubling relative to the previous year, NOPAT declined sharply, indicating potential changes in operational efficiency, tax effects, or non-operating income components affecting the profitability metrics differently. The earlier period from 2013 to 2016 demonstrates a consistent decline in both metrics, possibly pointing to operational challenges or adverse market conditions during those years.
Cash Operating Taxes
HP Inc., cash operating taxes calculation
US$ in millions
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).
- Provision for (benefit from) taxes on earnings
- The provision for taxes on earnings exhibits significant volatility over the observed period. Starting at $1,397 million in 2013, it increased to $1,544 million in 2014, followed by a sharp decline to $178 million in 2015. In 2016, the amount rose again to $1,095 million, then decreased to $750 million in 2017, before turning into a substantial tax benefit of -$2,314 million in 2018. This fluctuation indicates variability in the company's taxable income or changes in tax strategy and tax regulations over the years.
- Cash operating taxes
- Cash operating taxes show a general downward trend from 2013 to 2017, decreasing from $1,924 million to $612 million. However, there is a notable rebound in 2018 with an increase to $1,398 million. This trend suggests a gradual reduction in actual cash tax payments over the first five years, possibly due to tax planning or changes in profitability, followed by a significant rise in the final year, which could reflect an increase in taxable cash flows or changes in tax payments timing or policies.
Invested Capital
HP Inc., invested capital calculation (financing approach)
US$ in millions
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.
- Total reported debt & leases
- The total reported debt and leases exhibited a fluctuating pattern over the analyzed period. Starting at 25,193 million US dollars in 2013, the figure decreased to 22,206 million in 2014, followed by an increase to 27,126 million in 2015. Subsequently, there was a sharp decline to 7,737 million in 2016, with minor increases to 8,855 million in 2017 and a decrease again to 7,247 million in 2018. This indicates a significant reduction in debt levels from 2015 onwards, possibly reflecting a strategic deleveraging or asset restructuring effort.
- Total HP stockholders’ equity (deficit)
- Stockholders’ equity showed stability and slight growth from 27,269 million in 2013 to 27,768 million in 2015. However, from 2016 onwards, the equity balance turned negative, indicating a deficit position of -3,889 million in 2016. This deficit slightly improved but remained negative at -3,408 million in 2017 and -639 million in 2018. The transition to negative equity suggests significant losses or charges affecting retained earnings or valuation adjustments during this period.
- Invested capital
- Invested capital remained relatively stable and showed a mild upward trend from 67,461 million in 2013 to 71,569 million in 2015. Beginning in 2016, there was a sharp and substantial drop to 9,027 million followed by a slight increase to 9,763 million in 2017 and a decrease again to 7,561 million in 2018. The dramatic decline post-2015 aligns with reduced debt levels and negative equity, possibly reflecting a divestiture of significant assets or a fundamental change in capital structure.
Cost of Capital
HP Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 23.30%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 23.30%) | = | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 »
Economic Spread Ratio
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 | |||||||
| Invested capital2 | |||||||
| Performance Ratio | |||||||
| Economic spread ratio3 | |||||||
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Apple Inc. | |||||||
| Arista Networks Inc. | |||||||
| Cisco Systems Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
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 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit demonstrates a notable shift over the examined period. Initially, the values were deeply negative, starting at -6413 million USD in 2013 and further declining to -6769 million USD in 2014. However, from 2015 onwards, there was a significant improvement, with the figure moving to -4189 million USD and turning positive by 2016 at 1405 million USD. Although it slightly decreased in the following years, it remained positive in 2017 and 2018, suggesting an improvement in value creation.
- Invested Capital
- Invested capital shows a different trend, starting at 67461 million USD in 2013 and experiencing a modest decline to 65787 million USD in 2014. Subsequently, it increased again to 71569 million USD in 2015, followed by a sharp and unusual drop in 2016 to 9027 million USD. After 2016, it slightly increased again but remained considerably lower than the earlier years, ending at 7561 million USD in 2018. This sharp decrease from 2015 to 2016 indicates a substantial reduction in invested capital, which may be linked to a change in accounting practices, asset disposals, or a restructuring.
- Economic Spread Ratio
- The economic spread ratio aligns with the changes seen in economic profit. It was negative from 2013 to 2015, reaching a low of -10.29% in 2014 and improving to -5.85% in 2015. In 2016, the ratio experienced a significant turnaround to 15.57% and stayed positive in subsequent years, though declining to 7.97% by 2018. This indicates an enhanced ability to generate returns above the cost of capital, particularly after 2015.
- Overall Insights
- The data reflects a period of financial challenge and restructuring, with both economic profit and economic spread ratio shifting from negative to positive figures beginning in 2016. The sharp decline in invested capital during the same timeframe suggests strategic changes in capital allocation or asset management. Despite fluctuations, the company demonstrates an improved economic performance in later years, characterized by positive economic profit and economic spread, although the absolute scale of invested capital remains reduced compared to earlier years.
Economic Profit Margin
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 | |||||||
| Net revenue | |||||||
| Add: Increase (decrease) in deferred revenue | |||||||
| Adjusted net revenue | |||||||
| Performance Ratio | |||||||
| Economic profit margin2 | |||||||
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Apple Inc. | |||||||
| Arista Networks Inc. | |||||||
| Cisco Systems Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
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 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- Economic profit showed a negative trend from 2013 through 2015, with values decreasing from -6413 million US dollars in 2013 to -6769 million in 2014 and then improving to -4189 million in 2015. In 2016, a significant positive shift occurred, resulting in a positive economic profit of 1405 million US dollars, which slightly declined to 1307 million in 2017 and further decreased to 603 million in 2018. This indicates a turnaround from losses to profitability starting in 2016, followed by a gradual reduction in economic profit over the subsequent two years.
- Adjusted Net Revenue
- Adjusted net revenue remained relatively stable from 2013 to 2015, with a slight decrease from 111,817 million US dollars in 2013 to 103,853 million in 2015. A notable decrease occurred in 2016, where revenue dropped sharply to 48,159 million US dollars. After 2016, there was a gradual recovery in revenue, with values increasing to 52,205 million in 2017 and 58,639 million in 2018. The abrupt decline in 2016 followed by a rebound indicates a period of significant financial adjustment or restructuring.
- Economic Profit Margin
- The economic profit margin was negative during the first three years, reaching its lowest point at -6.09% in 2014. It showed some improvement in 2015 with a margin of -4.03%. From 2016 onwards, the margin turned positive, reaching 2.92% in 2016, but then declined modestly to 2.5% in 2017 and further to 1.03% in 2018. This pattern reflects the economic profit trend, where profitability was achieved starting in 2016 before experiencing a reduction in profitability margin in the following years.