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
Home Depot Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2026 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 16,839 – 15.80% × 82,289 = 3,840
The financial trajectory from 2021 to 2026 is characterized by a significant contraction in economic profit, despite a relative stabilization in operating profitability. While the company experienced a peak in value creation in 2022, a subsequent and consistent decline is observed, primarily driven by a substantial expansion of the invested capital base that has not been matched by proportional growth in operating income.
- Net Operating Profit After Taxes (NOPAT)
- Operating profitability experienced a sharp increase between 2021 and 2022, rising from 14,172 million to 18,148 million. Following a period of stability in 2023, a contraction occurred in 2024, with NOPAT falling to 16,384 million. From 2025 through 2026, a modest recovery trend is evident, with values reaching 16,839 million, although these levels remain below the 2022 peak.
- Invested Capital Trends
- The capital base remained relatively stable between 2021 and 2022, followed by a steady increase through 2024. A significant acceleration in capital investment is observed starting in 2025, where invested capital jumped to 72,841 million, continuing to 82,289 million by 2026. This represents a substantial increase in the resources deployed to generate operating returns.
- Cost of Capital Stability
- The cost of capital has remained remarkably stable throughout the period, fluctuating within a narrow range between 15.80% and 16.40%. This consistency indicates that the decline in economic profit is not a result of increasing financing costs or higher risk premiums, but rather a function of capital efficiency.
- Economic Profit Erosion
- Economic profit reached a maximum of 10,350 million in 2022 but has since entered a sustained downward trend, falling to 3,840 million by 2026. This decline is directly attributable to the widening gap between the growth of invested capital and the growth of NOPAT. As the capital charge—calculated as the product of invested capital and the cost of capital—increased rapidly, it eroded the surplus created by operating profits, leading to a diminished capacity for economic value addition.
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Net Operating Profit after Taxes (NOPAT)
Home Depot Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
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 2026 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 9,578 × 4.20% = 402
5 2026 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 2,814 × 21.00% = 591
6 Addition of after taxes interest expense to net earnings.
Net earnings and net operating profit after taxes (NOPAT) exhibited generally positive performance between 2021 and 2025, followed by a slight decline into 2026. NOPAT consistently exceeded net earnings throughout the observed period. A detailed examination of the NOPAT figures reveals specific trends worthy of note.
- NOPAT Trend (2021-2026)
- NOPAT demonstrated a consistent upward trajectory from 2021 to 2023, increasing from US$14,172 million to US$18,170 million. This represents a substantial growth of approximately 28.2% over the two-year period. A moderate decrease was then observed in 2024, with NOPAT falling to US$16,384 million. This decline was partially recovered in 2025, reaching US$16,730 million, and continued slightly into 2026, reaching US$16,839 million.
- Growth Rate Analysis
- The most significant growth in NOPAT occurred between 2021 and 2022, with an increase of approximately 28.0%. The growth rate slowed considerably between 2022 and 2023, at approximately 0.1%. The decline from 2023 to 2024 was approximately 10.4%, while the subsequent increases from 2024 to 2025 and 2025 to 2026 were relatively modest, at 2.1% and 0.6% respectively.
- Relationship to Net Earnings
- Throughout the period, NOPAT consistently exceeded net earnings. The difference between the two figures varied, but generally remained within a range of approximately US$1,000 to US$2,000 million annually. This suggests that non-operating items, such as interest expense or gains/losses on investments, have a notable impact on reported net earnings.
In summary, while NOPAT experienced strong growth in the initial years of the period, the rate of increase slowed and a slight decline occurred in 2024, followed by a modest recovery in 2025 and 2026. The consistent difference between NOPAT and net earnings indicates the importance of considering non-operating factors when assessing overall profitability.
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Cash Operating Taxes
Home Depot Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
The provision for income taxes and cash operating taxes exhibited distinct patterns over the observed six-year period. Both metrics initially increased, then demonstrated a leveling off, followed by a decline in more recent years.
- Provision for Income Taxes
- The provision for income taxes increased from US$4,112 million in 2021 to US$5,372 million in 2023, representing a compound annual growth rate of approximately 8.8%. Subsequently, the provision decreased, reaching US$4,446 million in 2026. This suggests a potential shift in taxable income or changes in applicable tax rates. The decrease from the 2023 peak to 2026 represents a decline of approximately 17.3%.
- Cash Operating Taxes
- Cash operating taxes followed a similar trajectory to the provision for income taxes. An increase was observed from US$5,040 million in 2021 to US$5,876 million in 2022, followed by a peak of US$5,622 million in 2023. A subsequent decline was noted, with cash operating taxes falling to US$4,542 million in 2026. This represents a decrease of approximately 19.2% from the 2023 value. The fluctuations in cash operating taxes may be influenced by timing differences between taxable income and accounting income, as well as changes in tax payments.
The convergence of decreasing trends in both the provision for income taxes and cash operating taxes from 2023 to 2026 warrants further investigation. Potential contributing factors could include changes in profitability, tax planning strategies, or alterations in the tax legislative environment. The relatively consistent values between the provision for income taxes and cash operating taxes suggest a limited impact from significant temporary differences.
- Relationship between Metrics
- The cash operating taxes consistently exceeded the provision for income taxes throughout the period. This difference likely reflects the impact of items such as deferred taxes and tax credits. The difference between the two metrics remained relatively stable between approximately US$900 million and US$1,200 million for most of the period, narrowing slightly in the later years.
Overall, the observed trends indicate a period of initial tax expense growth followed by a recent decline. Continued monitoring of these metrics is recommended to assess the sustainability of the downward trend and its potential impact on future financial performance.
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Invested Capital
Home Depot Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
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.
The reported invested capital demonstrates a fluctuating pattern over the observed period. Initially, a slight decrease is noted, followed by a period of growth, and then a more substantial increase in later years. A closer examination of the components contributing to invested capital reveals further insights.
- Total Reported Debt & Leases
- Total reported debt and leases consistently increased throughout the period, rising from US$43,422 million in 2021 to US$65,350 million in 2026. The rate of increase accelerated between 2024 and 2025, and again between 2025 and 2026, suggesting a potential shift in financing strategy or increased investment in debt-funded projects.
- Stockholders’ Equity (Deficit)
- Stockholders’ equity experienced significant volatility. A deficit was recorded in 2022 at US$-1,696 million, indicating a period where liabilities exceeded assets from an equity perspective. However, equity recovered to positive values in subsequent years, culminating in US$12,813 million in 2026. This recovery suggests improved profitability, share repurchases, or other factors bolstering equity.
- Invested Capital Trend
- Invested capital decreased slightly from US$49,973 million in 2021 to US$48,299 million in 2022. A subsequent increase was observed, reaching US$55,111 million in 2023 and US$55,884 million in 2024. The most significant growth occurred between 2024 and 2026, with invested capital reaching US$72,841 million and then US$82,289 million. This substantial increase in later years is likely driven by the combined effect of rising debt and recovering stockholders’ equity.
The interplay between debt and equity significantly influences the overall trend in invested capital. While debt consistently increased, the fluctuations in stockholders’ equity introduced volatility. The substantial growth in invested capital observed in the final years of the period suggests a period of increased investment and/or financing activity.
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Cost of Capital
Home Depot Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 329,610) | 329,610) | ÷ | 391,865) | = | 0.84 | 0.84 | × | 18.19% | = | 15.30% | ||
| Debt3 | 52,677) | 52,677) | ÷ | 391,865) | = | 0.13 | 0.13 | × | 3.88% × (1 – 21.00%) | = | 0.41% | ||
| Operating lease liability4 | 9,578) | 9,578) | ÷ | 391,865) | = | 0.02 | 0.02 | × | 4.20% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 391,865) | 1.00 | 15.80% | ||||||||||
Based on: 10-K (reporting date: 2026-02-01).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 349,054) | 349,054) | ÷ | 407,112) | = | 0.86 | 0.86 | × | 18.19% | = | 15.60% | ||
| Debt3 | 49,151) | 49,151) | ÷ | 407,112) | = | 0.12 | 0.12 | × | 3.90% × (1 – 21.00%) | = | 0.37% | ||
| Operating lease liability4 | 8,907) | 8,907) | ÷ | 407,112) | = | 0.02 | 0.02 | × | 4.00% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 407,112) | 1.00 | 16.04% | ||||||||||
Based on: 10-K (reporting date: 2025-02-02).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 375,585) | 375,585) | ÷ | 425,480) | = | 0.88 | 0.88 | × | 18.19% | = | 16.06% | ||
| Debt3 | 41,763) | 41,763) | ÷ | 425,480) | = | 0.10 | 0.10 | × | 3.65% × (1 – 21.00%) | = | 0.28% | ||
| Operating lease liability4 | 8,132) | 8,132) | ÷ | 425,480) | = | 0.02 | 0.02 | × | 3.70% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 425,480) | 1.00 | 16.40% | ||||||||||
Based on: 10-K (reporting date: 2024-01-28).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 292,277) | 292,277) | ÷ | 341,270) | = | 0.86 | 0.86 | × | 18.19% | = | 15.58% | ||
| Debt3 | 41,822) | 41,822) | ÷ | 341,270) | = | 0.12 | 0.12 | × | 3.61% × (1 – 21.00%) | = | 0.35% | ||
| Operating lease liability4 | 7,171) | 7,171) | ÷ | 341,270) | = | 0.02 | 0.02 | × | 3.20% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 341,270) | 1.00 | 15.99% | ||||||||||
Based on: 10-K (reporting date: 2023-01-29).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 327,624) | 327,624) | ÷ | 377,475) | = | 0.87 | 0.87 | × | 18.19% | = | 15.79% | ||
| Debt3 | 43,668) | 43,668) | ÷ | 377,475) | = | 0.12 | 0.12 | × | 3.48% × (1 – 21.00%) | = | 0.32% | ||
| Operating lease liability4 | 6,183) | 6,183) | ÷ | 377,475) | = | 0.02 | 0.02 | × | 2.70% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 377,475) | 1.00 | 16.14% | ||||||||||
Based on: 10-K (reporting date: 2022-01-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 315,312) | 315,312) | ÷ | 365,551) | = | 0.86 | 0.86 | × | 18.19% | = | 15.69% | ||
| Debt3 | 44,055) | 44,055) | ÷ | 365,551) | = | 0.12 | 0.12 | × | 3.68% × (1 – 21.00%) | = | 0.35% | ||
| Operating lease liability4 | 6,184) | 6,184) | ÷ | 365,551) | = | 0.02 | 0.02 | × | 2.90% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 365,551) | 1.00 | 16.08% | ||||||||||
Based on: 10-K (reporting date: 2021-01-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Home Depot Inc., economic spread ratio calculation, comparison to benchmarks
| Feb 1, 2026 | Feb 2, 2025 | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 3,840) | 5,046) | 7,219) | 9,360) | 10,350) | 6,135) | |
| Invested capital2 | 82,289) | 72,841) | 55,884) | 55,111) | 48,299) | 49,973) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 4.67% | 6.93% | 12.92% | 16.98% | 21.43% | 12.28% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Amazon.com Inc. | — | -1.64% | -5.28% | -10.80% | -21.75% | -1.98% | |
| Lowe’s Cos. Inc. | 7.88% | 15.94% | 18.71% | 13.71% | 21.68% | 9.23% | |
| TJX Cos. Inc. | 8.50% | 7.56% | 7.29% | 4.35% | 4.36% | -12.49% | |
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2026 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 3,840 ÷ 82,289 = 4.67%
4 Click competitor name to see calculations.
The financial trajectory indicates a significant decline in value creation efficiency over the observed period. While a peak in economic performance was achieved in 2022, subsequent years show a consistent deterioration in the ability to generate returns above the cost of capital, characterized by a divergence between increasing capital investment and decreasing economic profit.
- Economic Spread Ratio
- A volatile trend is observed in the economic spread ratio, which reached a peak of 21.43% in January 2022. Following this peak, the ratio entered a period of sustained contraction, declining to 12.92% by January 2024 and further eroding to 4.67% by February 2026. This downward trend signifies a narrowing gap between the return on invested capital and the cost of that capital, indicating a reduction in the company's competitive economic advantage.
- Economic Profit
- Economic profit experienced a sharp increase from 6,135 million US$ in January 2021 to a maximum of 10,350 million US$ in January 2022. However, this was followed by a steady and continuous decline over the next four years, ending at 3,840 million US$ in February 2026. This trend demonstrates that the absolute amount of value created in excess of the required return has diminished significantly since 2022.
- Invested Capital
- Invested capital exhibits a strong growth pattern, particularly in the final stages of the period. After relative stability between 2021 and 2022, the capital base expanded to 55,884 million US$ in January 2024 and accelerated rapidly to 82,289 million US$ by February 2026. The fact that invested capital increased while economic profit decreased suggests that recent capital expenditures and investments have failed to generate proportional increases in economic value.
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Economic Profit Margin
Home Depot Inc., economic profit margin calculation, comparison to benchmarks
| Feb 1, 2026 | Feb 2, 2025 | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 3,840) | 5,046) | 7,219) | 9,360) | 10,350) | 6,135) | |
| Net sales | 164,683) | 159,514) | 152,669) | 157,403) | 151,157) | 132,110) | |
| Add: Increase (decrease) in deferred revenue | (35) | (152) | (302) | (532) | 773) | 707) | |
| Adjusted net sales | 164,648) | 159,362) | 152,367) | 156,871) | 151,930) | 132,817) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 2.33% | 3.17% | 4.74% | 5.97% | 6.81% | 4.62% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Amazon.com Inc. | — | -1.09% | -3.09% | -6.09% | -11.35% | -0.85% | |
| Lowe’s Cos. Inc. | 3.36% | 5.01% | 5.62% | 3.50% | 5.90% | 2.92% | |
| TJX Cos. Inc. | 3.52% | 3.03% | 2.84% | 1.77% | 1.77% | -8.70% | |
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 Economic profit. See details »
2 2026 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × 3,840 ÷ 164,648 = 2.33%
3 Click competitor name to see calculations.
Analysis of the financial metrics from 2021 to 2026 reveals a significant divergence between revenue growth and the generation of economic value. While adjusted net sales exhibited a general upward trajectory, both economic profit and the corresponding profit margin experienced a peak in 2022 followed by a consistent multi-year decline.
- Economic Profit Trends
- Economic profit increased from 6,135 million USD in 2021 to a peak of 10,350 million USD in 2022. Following this peak, a sustained period of contraction occurred, with figures decreasing to 9,360 million USD in 2023, 7,219 million USD in 2024, and reaching 3,840 million USD by February 2026. This trend indicates a substantial reduction in the company's ability to generate returns above its cost of capital over the latter half of the period.
- Adjusted Net Sales Performance
- Adjusted net sales demonstrated a general growth pattern. Starting at 132,817 million USD in 2021, sales rose to 156,871 million USD by 2023. Despite a marginal dip to 152,367 million USD in 2024, the growth trend resumed, peaking at 164,648 million USD in 2026. The overall increase in sales suggests an expansion in top-line volume that failed to correlate with economic value creation.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the trajectory of absolute economic profit, peaking at 6.81% in 2022. Subsequently, the margin entered a steady decline, falling to 5.97% in 2023, 4.74% in 2024, 3.17% in 2025, and ending at 2.33% in 2026. The consistent erosion of this margin, occurring simultaneously with rising net sales, suggests a decline in capital efficiency or an increase in the capital charge relative to operating performance.
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