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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

Home Depot Inc., economic profit calculation

US$ in millions

	12 months ended	Feb 3, 2019	Jan 28, 2018	Jan 29, 2017	Jan 31, 2016	Feb 1, 2015	Feb 2, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

<>⁴ 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
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–

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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.	Home Depot Inc.’s economic profit increased from 2017 to 2018 and from 2018 to 2019.

Home Depot Inc., NOPAT calculation

US$ in millions

	12 months ended	Feb 3, 2019	Jan 28, 2018	Jan 29, 2017	Jan 31, 2016	Feb 1, 2015	Feb 2, 2014
	Net earnings
	Deferred income tax expense (benefit)¹
	Increase (decrease) in deferred revenue²
	Increase (decrease) in equity equivalents³
	Interest expense
	Interest expense, operating lease liability⁴
	Adjusted interest expense
	Tax benefit of interest expense⁵
	Adjusted interest expense, after taxes⁶
	Interest and investment income
	Investment income, before taxes
	Tax expense (benefit) of investment income⁷
	Investment income, after taxes⁸
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in deferred revenue.

³ Addition of increase (decrease) in equity equivalents to net earnings.

⁴ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁵ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= hidden × 21.00% = hidden

⁶ Addition of after taxes interest expense to net earnings.

⁷ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 21.00% = hidden

⁸ Elimination of after taxes investment income.

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.	Home Depot Inc.’s NOPAT increased from 2017 to 2018 and from 2018 to 2019.

Home Depot Inc., cash operating taxes calculation

US$ in millions

	12 months ended	Feb 3, 2019	Jan 28, 2018	Jan 29, 2017	Jan 31, 2016	Feb 1, 2015	Feb 2, 2014
	Provision for income taxes
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

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.	Home Depot Inc.’s cash operating taxes increased from 2017 to 2018 but then declined significantly from 2018 to 2019.

Home Depot Inc., invested capital calculation (financing approach)

US$ in millions

		Feb 3, 2019	Jan 28, 2018	Jan 29, 2017	Jan 31, 2016	Feb 1, 2015	Feb 2, 2014
	Short-term debt
	Current installments of long-term debt
	Long-term debt, excluding current installments
	Operating lease liability¹
	Total reported debt & leases
	Stockholders’ equity (deficit)
	Net deferred tax (assets) liabilities²
	Deferred revenue³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Adjusted stockholders’ equity (deficit)
	Construction in progress⁶
	Invested capital

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of deferred revenue.

⁴ Addition of equity equivalents to stockholders’ equity (deficit).

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of construction in progress.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Home Depot Inc.’s invested capital increased from 2017 to 2018 but then declined significantly from 2018 to 2019.

Home Depot Inc., cost of capital calculations

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 21.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 21.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2019-03-28).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 34.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 34.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2018-03-22).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2017-03-23).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2016-03-24).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2015-03-26).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2014-03-27).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Home Depot Inc., economic spread ratio calculation

		Feb 3, 2019	Jan 28, 2018	Jan 29, 2017	Jan 31, 2016	Feb 1, 2015	Feb 2, 2014
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Invested capital²
	Performance Ratio
	Economic spread ratio³

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

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.	Home Depot Inc.’s economic spread ratio improved from 2017 to 2018 and from 2018 to 2019.

Home Depot Inc., economic profit margin calculation

		Feb 3, 2019	Jan 28, 2018	Jan 29, 2017	Jan 31, 2016	Feb 1, 2015	Feb 2, 2014
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Net sales
	Add: Increase (decrease) in deferred revenue
	Adjusted net sales
	Performance Ratio
	Economic profit margin²

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × hidden ÷ hidden = hidden

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s 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.	Home Depot Inc.’s economic profit margin improved from 2017 to 2018 and from 2018 to 2019.

	Home Depot Inc.	Other companies (not purchased previously)
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Analysis
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Financial Statements
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Relative Valuation
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Long-term Trends
Analysis
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Home Depot Inc. (HD)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Feb 3, 2019

Jan 28, 2018

Jan 29, 2017

Jan 31, 2016

Feb 1, 2015

Feb 2, 2014

Economic Spread Ratio

Economic Profit Margin