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
Hewlett Packard Enterprise Co., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,752 – 13.82% × 43,254 = -3,227
The analysis of the financial data from October 31, 2018, to October 31, 2023, reveals a consistent failure to generate positive economic profit, indicating that the company has not created economic value above its cost of capital throughout the observed period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibits significant volatility over the six-year period. After a period of stability in 2018 and 2019, a sharp decline occurred in 2020, with profits dropping to 77 million. A strong recovery followed in 2021, reaching a peak of 3,529 million, before another substantial decrease to 818 million in 2022. By 2023, NOPAT recovered again to 2,752 million. This inconsistency suggests instability in operating performance or external market shocks impacting profitability.
- Cost of Capital and Invested Capital
- Invested capital remained relatively stable, fluctuating within a narrow range between 41,543 million and 44,277 million. Concurrently, the cost of capital experienced a slight U-shaped trend, dipping to a low of 10.72% in 2020 before rising steadily to a period high of 13.82% in 2023. The combination of a large, stable capital base and a rising cost of capital has increased the financial hurdle required to achieve positive economic profit.
- Economic Profit Trends
- Economic profit remained negative for every year analyzed, signaling persistent value destruction. The most significant losses occurred in 2020 (-4,472 million) and 2022 (-4,717 million), coinciding with the lowest NOPAT figures. The narrowest deficit was recorded in 2021 (-1,730 million), driven by the peak in NOPAT. Despite fluctuations in operating profit, the NOPAT has consistently failed to exceed the capital charge (the product of invested capital and the cost of capital), preventing the transition to positive economic value added.
In summary, the persistent negative economic profit is primarily driven by a capital charge that consistently outweighs the net operating profit. While NOPAT shows signs of recovery in the final year, the increasing cost of capital places additional pressure on the company's ability to generate a return that exceeds its financing costs.
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Net Operating Profit after Taxes (NOPAT)
Hewlett Packard Enterprise Co., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).
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 liability.
5 Addition of increase (decrease) in accrued restructuring.
6 Addition of increase (decrease) in equity equivalents to net earnings (loss) attributable to HPE.
7 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,160 × 3.80% = 44
8 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 370 × 21.00% = 78
9 Addition of after taxes interest expense to net earnings (loss) attributable to HPE.
10 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 0 × 21.00% = 0
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
The financial performance from 2018 to 2023 is characterized by significant volatility in both net earnings and Net Operating Profit After Taxes (NOPAT). A notable cyclical pattern is observed, featuring a severe contraction in 2020, a peak in 2021, a subsequent decline in 2022, and a strong recovery by the end of 2023.
- NOPAT Trends and Operational Profitability
- Net operating profit after taxes exhibited a general upward trend between 2018 and 2019, rising from 2,346 million to 2,514 million US dollars. A sharp decline followed in 2020, where NOPAT fell to 77 million US dollars, indicating a near-total erosion of operational profitability. This was followed by a rapid surge to a period peak of 3,529 million US dollars in 2021. Despite a significant drop to 818 million US dollars in 2022, the metric recovered robustly in 2023, reaching 2,752 million US dollars.
- Net Earnings Volatility
- Net earnings attributable to the company mirrored the volatility of NOPAT but displayed more extreme fluctuations. After declining from 1,908 million US dollars in 2018 to 1,049 million US dollars in 2019, the company realized a net loss of 322 million US dollars in 2020. A substantial recovery occurred in 2021, with net earnings peaking at 3,427 million US dollars, before falling to 868 million US dollars in 2022 and rebounding to 2,025 million US dollars in 2023.
- Comparative Analysis of Operational vs. Bottom-Line Results
- A divergence between operational profitability and net results is evident in 2020; while NOPAT remained positive at 77 million US dollars, net earnings turned negative, suggesting that non-operating expenses or tax adjustments exceeded the operating profit. In contrast, during the 2021 peak, NOPAT and net earnings converged closely, indicating that operational performance was the primary driver of the bottom line. The consistent recovery of NOPAT above net earnings in 2023 suggests a strengthening of core operational efficiency relative to the total net income.
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Cash Operating Taxes
Hewlett Packard Enterprise Co., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).
An analysis of the tax metrics reveals a significant transition in the cash tax position over the six-year period ending October 31, 2023. The most prominent trend is the shift from substantial tax benefits to consistent cash tax outflows, which directly impacts the calculation of Economic Value Added (EVA) by altering the after-tax operating profit.
- Cash Operating Tax Transition
- A sharp reversal in cash operating taxes occurred between 2018 and 2020. The period began with a substantial tax benefit of US$ 1,594 million in 2018 and a further benefit of US$ 483 million in 2019. By 2020, this trend inverted, resulting in a cash tax payment of US$ 249 million. This transition suggests a movement from a period of significant tax recovery or credits to a period of regular tax expenditure.
- Analysis of Tax Provision Volatility
- The provision for taxes exhibits high volatility compared to the cash operating taxes. Significant fluctuations are observed, such as the shift from a US$ 1,744 million benefit in 2018 to a US$ 504 million provision in 2019, followed by a return to a benefit of US$ 120 million in 2020. This divergence between accrual-based provisions and actual cash outflows indicates the presence of temporary differences and deferred tax assets or liabilities affecting the financial statements.
- Normalization of Tax Outflows (2020-2023)
- Following the volatility of the 2018-2019 period, cash operating taxes entered a phase of relative stabilization. From 2020 through 2023, annual cash tax payments remained within a range of US$ 249 million to US$ 394 million. The peak outflow occurred in 2021 at US$ 394 million, followed by a slight decrease to US$ 318 million in 2022 and a modest increase to US$ 350 million in 2023.
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Invested Capital
Hewlett Packard Enterprise Co., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).
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 liability.
6 Addition of accrued restructuring.
7 Addition of equity equivalents to total HPE stockholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of available-for-sale investments.
Invested capital has demonstrated significant stability over the observed six-year period, fluctuating within a narrow range between 41,543 million and 44,277 million. Despite volatility in the individual components of the capital structure, the total amount of capital invested in the business remained remarkably consistent, ending the period in 2023 at a level nearly identical to that of 2019.
- Debt and Lease Trends
- Total reported debt and leases peaked in 2019 at 17,169 million. Following this peak, a consistent downward trend was observed through 2022, when debt reached a period low of 13,484 million. The value remained largely stagnant moving into 2023, closing at 13,515 million.
- Stockholders' Equity Trends
- Equity exhibited a U-shaped trajectory. A sharp contraction occurred between 2018 and 2020, with values falling from 21,239 million to 16,049 million. This was followed by a recovery phase starting in 2021, with equity returning to 21,182 million by October 31, 2023, effectively recovering most of the losses experienced in the prior years.
- Capital Structure Relationship
- An inverse correlation is evident between the movement of debt and equity. During 2019 and 2020, the decrease in stockholders' equity was offset by an increase in reported debt. Conversely, the recovery of equity from 2021 through 2023 coincided with a reduction in debt levels. This balancing mechanism suggests a deliberate management of the capital mix to maintain a stable base of invested capital while shifting the financing weight from debt toward equity.
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Cost of Capital
Hewlett Packard Enterprise Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,217) | 22,217) | ÷ | 35,577) | = | 0.62 | 0.62 | × | 19.93% | = | 12.44% | ||
| Short-term and long-term debt3 | 12,200) | 12,200) | ÷ | 35,577) | = | 0.34 | 0.34 | × | 4.73% × (1 – 21.00%) | = | 1.28% | ||
| Operating lease liability4 | 1,160) | 1,160) | ÷ | 35,577) | = | 0.03 | 0.03 | × | 3.80% × (1 – 21.00%) | = | 0.10% | ||
| Total: | 35,577) | 1.00 | 13.82% | ||||||||||
Based on: 10-K (reporting date: 2023-10-31).
1 US$ in millions
2 Equity. See details »
3 Short-term and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,881) | 20,881) | ÷ | 34,100) | = | 0.61 | 0.61 | × | 19.93% | = | 12.20% | ||
| Short-term and long-term debt3 | 12,200) | 12,200) | ÷ | 34,100) | = | 0.36 | 0.36 | × | 3.70% × (1 – 21.00%) | = | 1.05% | ||
| Operating lease liability4 | 1,019) | 1,019) | ÷ | 34,100) | = | 0.03 | 0.03 | × | 3.20% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 34,100) | 1.00 | 13.32% | ||||||||||
Based on: 10-K (reporting date: 2022-10-31).
1 US$ in millions
2 Equity. See details »
3 Short-term and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,673) | 19,673) | ÷ | 35,403) | = | 0.56 | 0.56 | × | 19.93% | = | 11.07% | ||
| Short-term and long-term debt3 | 14,600) | 14,600) | ÷ | 35,403) | = | 0.41 | 0.41 | × | 3.49% × (1 – 21.00%) | = | 1.14% | ||
| Operating lease liability4 | 1,130) | 1,130) | ÷ | 35,403) | = | 0.03 | 0.03 | × | 2.70% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 35,403) | 1.00 | 12.28% | ||||||||||
Based on: 10-K (reporting date: 2021-10-31).
1 US$ in millions
2 Equity. See details »
3 Short-term and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,677) | 15,677) | ÷ | 33,863) | = | 0.46 | 0.46 | × | 19.93% | = | 9.23% | ||
| Short-term and long-term debt3 | 17,100) | 17,100) | ÷ | 33,863) | = | 0.50 | 0.50 | × | 3.58% × (1 – 21.00%) | = | 1.43% | ||
| Operating lease liability4 | 1,086) | 1,086) | ÷ | 33,863) | = | 0.03 | 0.03 | × | 2.60% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 33,863) | 1.00 | 10.72% | ||||||||||
Based on: 10-K (reporting date: 2020-10-31).
1 US$ in millions
2 Equity. See details »
3 Short-term and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,726) | 20,726) | ÷ | 38,674) | = | 0.54 | 0.54 | × | 19.93% | = | 10.68% | ||
| Short-term and long-term debt3 | 14,600) | 14,600) | ÷ | 38,674) | = | 0.38 | 0.38 | × | 3.84% × (1 – 21.00%) | = | 1.15% | ||
| Operating lease liability4 | 3,349) | 3,349) | ÷ | 38,674) | = | 0.09 | 0.09 | × | 3.84% × (1 – 21.00%) | = | 0.26% | ||
| Total: | 38,674) | 1.00 | 12.09% | ||||||||||
Based on: 10-K (reporting date: 2019-10-31).
1 US$ in millions
2 Equity. See details »
3 Short-term and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,477) | 20,477) | ÷ | 36,066) | = | 0.57 | 0.57 | × | 19.93% | = | 11.31% | ||
| Short-term and long-term debt3 | 12,200) | 12,200) | ÷ | 36,066) | = | 0.34 | 0.34 | × | 3.98% × (1 – 23.30%) | = | 1.03% | ||
| Operating lease liability4 | 3,389) | 3,389) | ÷ | 36,066) | = | 0.09 | 0.09 | × | 3.98% × (1 – 23.30%) | = | 0.29% | ||
| Total: | 36,066) | 1.00 | 12.63% | ||||||||||
Based on: 10-K (reporting date: 2018-10-31).
1 US$ in millions
2 Equity. See details »
3 Short-term and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Hewlett Packard Enterprise Co., economic spread ratio calculation, comparison to benchmarks
| Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Oct 31, 2020 | Oct 31, 2019 | Oct 31, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (3,227) | (4,717) | (1,730) | (4,472) | (2,718) | (3,247) | |
| Invested capital2 | 43,254) | 41,543) | 42,837) | 42,440) | 43,287) | 44,277) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -7.46% | -11.35% | -4.04% | -10.54% | -6.28% | -7.33% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Apple Inc. | 138.73% | 200.23% | 196.59% | — | — | — | |
| Arista Networks Inc. | 20.64% | 16.17% | 31.22% | — | — | — | |
| Cisco Systems Inc. | 3.38% | 3.36% | 2.60% | — | — | — | |
| Dell Technologies Inc. | -0.70% | 3.17% | -1.36% | — | — | — | |
| Lumentum Holdings Inc. | -19.00% | -6.33% | 5.99% | — | — | — | |
| Super Micro Computer Inc. | -1.42% | -9.62% | -18.07% | — | — | — | |
Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -3,227 ÷ 43,254 = -7.46%
4 Click competitor name to see calculations.
The analysis of economic value creation from 2018 to 2023 reveals a consistent inability to generate positive economic profit. Throughout the observed period, the company operated with a negative economic spread, indicating that the returns on invested capital were insufficient to cover the cost of that capital, resulting in a continuous destruction of shareholder value.
- Economic Profit Trends
- Economic profit remained negative for all six years, exhibiting significant volatility. The most favorable result occurred in 2021, where the deficit was narrowed to 1,730 million USD. However, this was followed by a sharp decline in 2022, reaching a period low of negative 4,717 million USD. By 2023, a partial recovery was observed as the economic profit improved to negative 3,227 million USD.
- Invested Capital Stability
- Invested capital demonstrated relative stability, fluctuating within a narrow range between 41,543 million USD and 44,277 million USD. A gradual downward trend was evident from 2018 through 2022, after which a slight increase to 43,254 million USD was recorded in 2023.
- Economic Spread Ratio Analysis
- The economic spread ratio consistently remained in negative territory, mirroring the trend of economic profit. The ratio peaked at -4.04% in 2021, representing the point of lowest economic value destruction. The most significant divergence occurred in 2022, when the ratio dropped to -11.35%, signaling a substantial gap between the return on invested capital and the weighted average cost of capital. The period concluded with a ratio of -7.46% in 2023.
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Economic Profit Margin
Hewlett Packard Enterprise Co., economic profit margin calculation, comparison to benchmarks
| Oct 31, 2023 | Oct 31, 2022 | Oct 31, 2021 | Oct 31, 2020 | Oct 31, 2019 | Oct 31, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (3,227) | (4,717) | (1,730) | (4,472) | (2,718) | (3,247) | |
| Net revenue | 29,135) | 28,496) | 27,784) | 26,982) | 29,135) | 30,852) | |
| Add: Increase (decrease) in deferred revenue | 533) | 26) | 165) | 230) | 162) | 208) | |
| Adjusted net revenue | 29,668) | 28,522) | 27,949) | 27,212) | 29,297) | 31,060) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -10.88% | -16.54% | -6.19% | -16.43% | -9.28% | -10.45% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Apple Inc. | 21.82% | 23.66% | 22.84% | — | — | — | |
| Arista Networks Inc. | 15.58% | 11.14% | 18.28% | — | — | — | |
| Cisco Systems Inc. | 3.37% | 3.77% | 2.90% | — | — | — | |
| Dell Technologies Inc. | -0.39% | 1.66% | -1.17% | — | — | — | |
| Lumentum Holdings Inc. | -31.18% | -9.25% | 6.75% | — | — | — | |
| Super Micro Computer Inc. | -0.48% | -4.09% | -6.51% | — | — | — | |
Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenue
= 100 × -3,227 ÷ 29,668 = -10.88%
3 Click competitor name to see calculations.
The analysis of financial performance from October 2018 through October 2023 indicates a persistent inability to generate positive economic value. Throughout the period, the company consistently reported negative economic profit, suggesting that returns were insufficient to cover the cost of capital. This trend is characterized by high volatility, with periods of improvement followed by significant regressions.
- Economic Profit Trajectory
- Economic profit stayed negative for the entire duration, with the most significant loss occurring in 2022 at US$ 4,717 million. The most favorable result was recorded in 2021, when the loss was reduced to US$ 1,730 million. By October 2023, the economic profit stood at a loss of US$ 3,227 million, reflecting an incomplete recovery from the 2022 low.
- Adjusted Net Revenue Trends
- A downward trend in adjusted net revenue was observed from 2018 to 2020, dropping from US$ 31,060 million to US$ 27,212 million. A subsequent period of steady growth followed, with revenue increasing annually from 2021 through 2023 to reach US$ 29,668 million. Despite this growth, revenue levels did not return to the 2018 peak.
- Economic Profit Margin Volatility
- The economic profit margin remained in negative territory, fluctuating between a peak of -6.19% in 2021 and a trough of -16.54% in 2022. The inconsistency of the margin indicates that revenue growth has not been effectively leveraged to improve economic efficiency or offset capital costs, as evidenced by the margin ending at -10.88% in 2023.
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