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
Hilton Worldwide Holdings Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
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
= 1,514 – 17.96% × 10,493 = -370
The financial performance from 2019 to 2023 reflects a period of significant volatility followed by a recovery phase, although the company has consistently failed to generate positive economic profit. The primary driver of value fluctuations has been the volatility of Net Operating Profit After Taxes (NOPAT), which experienced a severe contraction in 2020 before rebounding. Despite the recovery in operating profits, the high cost of capital has acted as a persistent barrier to achieving positive economic value added.
- Net Operating Profit After Taxes (NOPAT) Trends
- A sharp decline in NOPAT is observed between 2019 and 2020, where profits fell from US$ 1,213 million to a loss of US$ 279 million. A subsequent recovery occurred through 2022, reaching a peak of US$ 1,814 million. However, a slight contraction is noted in 2023, with NOPAT decreasing to US$ 1,514 million, suggesting a stabilization of operating earnings following the post-crisis surge.
- Capital Efficiency and Cost of Capital
- Invested capital peaked in 2020 at US$ 12,956 million, coinciding with the period of lowest profitability, before trending downward to US$ 10,493 million by 2023. This reduction in the capital base indicates a contraction or optimization of the investment footprint. Concurrently, the cost of capital has exhibited a steady upward trend, rising from 15.67% in 2020 to 17.96% in 2023, which increases the financial hurdle required to generate economic value.
- Economic Profit Analysis
- Economic profit remained negative throughout the entire five-year period, indicating that the company did not generate returns in excess of its cost of capital. The deficit reached its maximum in 2020 at negative US$ 2,309 million. While a significant recovery was observed by 2022, where the economic loss narrowed to US$ 182 million, the figure widened again to negative US$ 370 million in 2023. The persistent negative economic profit reveals a structural gap between the operating returns and the cost of the capital employed.
In summary, while the company successfully restored its operating profitability following the 2020 downturn, the simultaneous increase in the cost of capital and the magnitude of the invested capital base have prevented the transition to positive economic profit. The recovery seen in 2022 was partially offset in 2023 by a combination of declining NOPAT and a rising cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Hilton Worldwide Holdings Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in deferred revenues.
4 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Hilton stockholders.
5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 924 × 4.33% = 40
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 504 × 21.00% = 106
7 Addition of after taxes interest expense to net income (loss) attributable to Hilton stockholders.
The financial trajectory between 2019 and 2023 is characterized by a significant volatility cycle, featuring a sharp contraction followed by a robust recovery and a subsequent period of stabilization. Both net income and net operating profit after taxes (NOPAT) exhibit a synchronized V-shaped pattern, reflecting a systemic shock in 2020 and a subsequent return to profitability.
- Net Operating Profit After Taxes (NOPAT) Performance
- NOPAT experienced a substantial decline from 1,213 million US dollars in 2019 to a deficit of 279 million US dollars in 2020. A recovery phase began in 2021, with NOPAT rising to 614 million US dollars, before accelerating to a peak of 1,814 million US dollars in 2022. By 2023, a slight moderation occurred, with the figure settling at 1,514 million US dollars, though this remains significantly higher than pre-2020 levels.
- Net Income Trends and Volatility
- Net income attributable to stockholders showed more extreme variance than NOPAT. The decline from 881 million US dollars in 2019 to a loss of 715 million US dollars in 2020 represents a more severe contraction than that seen in operating profit. The subsequent recovery saw net income reach 410 million US dollars in 2021 and peak at 1,255 million US dollars in 2022, before slightly decreasing to 1,141 million US dollars in 2023.
- Comparative Analysis of Operating Profit vs. Net Income
- A consistent gap is observed between NOPAT and net income in all profitable years. NOPAT remained consistently higher than net income, particularly in 2022 and 2023, indicating that the core operating performance is stronger than the final bottom-line profit. This divergence suggests that non-operating expenses, such as interest payments on debt, have a material impact on the net income figures, whereas NOPAT provides a clearer view of the operational efficiency independent of capital structure.
- Recovery and Stabilization Patterns
- The transition from 2020 to 2022 demonstrates a rapid operational rebound. The surge in NOPAT from 614 million US dollars in 2021 to 1,814 million US dollars in 2022 indicates a period of aggressive growth or efficiency gains. The slight decrease in both metrics in 2023 suggests a shift from a rapid recovery phase to a period of stabilization.
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Cash Operating Taxes
Hilton Worldwide Holdings Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
The analysis of tax-related expenditures from 2019 to 2023 reveals a period of significant volatility followed by a strong recovery and expansion. Both cash operating taxes and income tax provisions experienced a substantial contraction in 2020, subsequently climbing to levels that exceeded pre-pandemic figures by the end of the period.
- Cash Operating Taxes Trend
- Cash operating taxes exhibited a sharp decline in 2020, falling from 474 million USD to 130 million USD. Following this trough, a consistent and accelerating increase is observed, with expenditures rising to 249 million USD in 2021, 539 million USD in 2022, and reaching a peak of 911 million USD in 2023. This represents an increase of approximately 92% over the 2019 baseline.
- Provision for Income Taxes Analysis
- The provision for income taxes showed extreme variance, shifting from a 358 million USD expense in 2019 to a benefit of 204 million USD in 2020. A steady recovery phase followed, with the provision returning to a positive expense of 153 million USD in 2021 and increasing to 541 million USD by 2023.
- Comparative Tax Dynamics
- A notable divergence is observed between the cash-basis tax payments and the accounting provisions. While both metrics trended upward after 2020, the growth in cash operating taxes has significantly outpaced the growth in provisions. By 2023, cash operating taxes were approximately 68% higher than the reported provision for income taxes, indicating a substantial increase in actual cash outflows for tax purposes relative to the recognized accounting expense.
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Invested Capital
Hilton Worldwide Holdings Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
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 revenues.
5 Addition of equity equivalents to total Hilton stockholders’ deficit.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction-in-progress.
Invested capital exhibited a peak in 2020 before entering a period of steady decline through 2023. The initial increase from 11,409 million US dollars in 2019 to 12,956 million US dollars in 2020 represents the highest level of capital commitment within the observed period, followed by a consistent contraction to 10,493 million US dollars by the end of 2023.
- Total Reported Debt and Leases
- A significant increase in debt and lease obligations occurred in 2020, rising to 11,628 million US dollars from 9,163 million US dollars in 2019. Following this spike, obligations decreased through 2021 and 2022 before showing a modest increase to 10,120 million US dollars in 2023.
- Stockholders' Deficit
- A persistent negative equity position is observed across the five-year duration. The stockholders' deficit expanded significantly, moving from 482 million US dollars in 2019 to 2,360 million US dollars in 2023. This widening deficit indicates a substantial increase in negative shareholders' equity over the period.
- Invested Capital Dynamics
- The fluctuation in invested capital appears closely tied to the volatility in debt levels, particularly the 2020 surge. However, the trend from 2021 to 2023 shows a divergence where invested capital declined despite a slight rebound in debt in the final year, coinciding with a sharp acceleration in the stockholders' deficit.
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Cost of Capital
Hilton Worldwide Holdings Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 49,431) | 49,431) | ÷ | 59,263) | = | 0.83 | 0.83 | × | 20.70% | = | 17.27% | ||
| Long-term debt3 | 8,908) | 8,908) | ÷ | 59,263) | = | 0.15 | 0.15 | × | 5.40% × (1 – 21.00%) | = | 0.64% | ||
| Operating lease liability4 | 924) | 924) | ÷ | 59,263) | = | 0.02 | 0.02 | × | 4.33% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 59,263) | 1.00 | 17.96% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
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 | 40,181) | 40,181) | ÷ | 49,234) | = | 0.82 | 0.82 | × | 20.70% | = | 16.89% | ||
| Long-term debt3 | 8,109) | 8,109) | ÷ | 49,234) | = | 0.16 | 0.16 | × | 4.92% × (1 – 21.00%) | = | 0.64% | ||
| Operating lease liability4 | 944) | 944) | ÷ | 49,234) | = | 0.02 | 0.02 | × | 4.22% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 49,234) | 1.00 | 17.60% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
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 | 43,641) | 43,641) | ÷ | 53,664) | = | 0.81 | 0.81 | × | 20.70% | = | 16.83% | ||
| Long-term debt3 | 9,013) | 9,013) | ÷ | 53,664) | = | 0.17 | 0.17 | × | 3.65% × (1 – 21.00%) | = | 0.48% | ||
| Operating lease liability4 | 1,010) | 1,010) | ÷ | 53,664) | = | 0.02 | 0.02 | × | 3.87% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 53,664) | 1.00 | 17.38% | ||||||||||
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 | 30,934) | 30,934) | ÷ | 43,005) | = | 0.72 | 0.72 | × | 20.70% | = | 14.89% | ||
| Long-term debt3 | 10,930) | 10,930) | ÷ | 43,005) | = | 0.25 | 0.25 | × | 3.49% × (1 – 21.00%) | = | 0.70% | ||
| Operating lease liability4 | 1,141) | 1,141) | ÷ | 43,005) | = | 0.03 | 0.03 | × | 3.82% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 43,005) | 1.00 | 15.67% | ||||||||||
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 | 31,335) | 31,335) | ÷ | 40,831) | = | 0.77 | 0.77 | × | 20.70% | = | 15.89% | ||
| Long-term debt3 | 8,326) | 8,326) | ÷ | 40,831) | = | 0.20 | 0.20 | × | 4.36% × (1 – 21.00%) | = | 0.70% | ||
| Operating lease liability4 | 1,170) | 1,170) | ÷ | 40,831) | = | 0.03 | 0.03 | × | 3.76% × (1 – 21.00%) | = | 0.09% | ||
| Total: | 40,831) | 1.00 | 16.67% | ||||||||||
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 »
Economic Spread Ratio
Hilton Worldwide Holdings Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (370) | (182) | (1,399) | (2,309) | (689) | |
| Invested capital2 | 10,493) | 11,342) | 11,581) | 12,956) | 11,409) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -3.53% | -1.60% | -12.08% | -17.82% | -6.04% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Airbnb Inc. | 9.38% | 11.02% | -11.09% | — | — | |
| Booking Holdings Inc. | 14.66% | 3.80% | -13.64% | — | — | |
| Chipotle Mexican Grill Inc. | 7.02% | 2.82% | -1.67% | — | — | |
| DoorDash, Inc. | -39.42% | -53.20% | -39.71% | — | — | |
| McDonald’s Corp. | 8.64% | 5.84% | 8.26% | — | — | |
| Starbucks Corp. | 5.21% | 2.81% | 4.06% | -8.49% | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -370 ÷ 10,493 = -3.53%
4 Click competitor name to see calculations.
The analysis of economic value creation from 2019 to 2023 reveals a period of consistent economic loss, characterized by negative economic profit and a negative economic spread ratio throughout the entire duration. A significant volatility peak occurred in 2020, followed by a substantial recovery trend that peaked in 2022, before experiencing a slight reversal in 2023.
- Economic Profit Trends
- Economic profit remained negative for all five years, indicating that the returns generated were insufficient to cover the cost of invested capital. The most severe contraction occurred in 2020, where losses widened to 2,309 million US dollars. A recovery phase followed, with losses narrowing to 1,399 million US dollars in 2021 and reaching a period low of 182 million US dollars in 2022. However, this recovery stalled in 2023 as losses increased slightly to 370 million US dollars.
- Invested Capital Dynamics
- Invested capital exhibited an initial increase, peaking at 12,956 million US dollars in 2020. Following this peak, a consistent downward trend is observed, with capital reducing annually to 10,493 million US dollars by the end of 2023. This suggests a strategic reduction in the capital base or a systematic optimization of assets during the recovery period.
- Economic Spread Ratio Analysis
- The economic spread ratio reflects the gap between the return on invested capital and the cost of capital. The ratio plummeted to its lowest point of -17.82% in 2020, correlating with the peak in economic losses. A strong upward trajectory followed, with the ratio improving to -12.08% in 2021 and nearly reaching a break-even point of -1.60% in 2022. The ratio deteriorated slightly to -3.53% in 2023, indicating a marginal widening of the spread between actual returns and the required cost of capital.
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Economic Profit Margin
Hilton Worldwide Holdings Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (370) | (182) | (1,399) | (2,309) | (689) | |
| Revenues | 10,235) | 8,773) | 5,788) | 4,307) | 9,452) | |
| Add: Increase (decrease) in deferred revenues | 215) | 173) | (128) | 215) | (17) | |
| Adjusted revenues | 10,450) | 8,946) | 5,660) | 4,522) | 9,435) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -3.54% | -2.03% | -24.71% | -51.06% | -7.31% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Airbnb Inc. | 5.46% | 8.75% | -10.03% | — | — | |
| Booking Holdings Inc. | 7.83% | 3.04% | -18.68% | — | — | |
| Chipotle Mexican Grill Inc. | 4.26% | 1.75% | -1.21% | — | — | |
| DoorDash, Inc. | -23.91% | -42.99% | -25.83% | — | — | |
| McDonald’s Corp. | 16.95% | 11.43% | 16.97% | — | — | |
| Starbucks Corp. | 3.22% | 1.79% | 3.31% | -8.28% | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -370 ÷ 10,450 = -3.54%
3 Click competitor name to see calculations.
The analysis of economic profitability from 2019 to 2023 reveals a period of significant volatility, characterized by a sharp contraction in 2020 followed by a consistent recovery phase. While economic profit remained negative throughout the five-year period, the scale of loss relative to revenue improved substantially between 2020 and 2022.
- Revenue Trajectory
- Adjusted revenues experienced a severe decline in 2020, falling from 9,435 million USD to 4,522 million USD. A steady upward trend followed, with revenues increasing annually to reach 10,450 million USD by December 31, 2023, effectively surpassing pre-2020 levels.
- Economic Profit Performance
- Absolute economic profit reached its lowest point in 2020 at -2,309 million USD. A recovery trend is observed through 2022, where losses narrowed significantly to -182 million USD. However, a slight reversal occurred in 2023, with the economic profit widening to -370 million USD.
- Economic Profit Margin Trends
- The economic profit margin exhibited extreme fluctuation, plummeting from -7.31% in 2019 to a peak deficit of -51.06% in 2020. A strong corrective trend was observed through 2022, as the margin compressed to -2.03%. The subsequent move to -3.54% in 2023 indicates a marginal deterioration in the efficiency of value creation relative to adjusted revenues.
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