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Microsoft Excel LibreOffice Calc

Honeywell International Inc. (HON)


Economic Value Added (EVA)

Difficulty: Advanced

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

Honeywell International Inc., economic profit calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net operating profit after taxes (NOPAT)1 hidden hidden hidden hidden hidden
Cost of capital2 hidden hidden hidden hidden hidden
Invested capital3 hidden hidden hidden hidden hidden
Economic profit4 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 NOPAT. See Details »

2 Cost of capital. See Details »

3 Invested capital. See Details »

4 Economic profit = NOPAT – Cost of capital × Invested capital
= hiddenhidden × hidden = hidden

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. Honeywell International Inc.’s economic profit declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Net Operating Profit after Taxes (NOPAT)

Honeywell International Inc., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income attributable to Honeywell hidden hidden hidden hidden hidden
Deferred income tax expense (benefit)1 hidden hidden hidden hidden hidden
Increase (decrease) in allowance for doubtful accounts2 hidden hidden hidden hidden hidden
Increase (decrease) in LIFO reserve3 hidden hidden hidden hidden hidden
Increase (decrease) in customer advances and deferred income4 hidden hidden hidden hidden hidden
Increase (decrease) in obligations for product warranties and product performance guarantees5 hidden hidden hidden hidden hidden
Increase (decrease) in repositioning reserves6 hidden hidden hidden hidden hidden
Increase (decrease) in equity equivalents7 hidden hidden hidden hidden hidden
Interest and other financial charges hidden hidden hidden hidden hidden
Interest expense, operating lease liability8 hidden hidden hidden hidden hidden
Adjusted interest and other financial charges hidden hidden hidden hidden hidden
Tax benefit of interest and other financial charges9 hidden hidden hidden hidden hidden
Adjusted interest and other financial charges, after taxes10 hidden hidden hidden hidden hidden
(Gain) loss on marketable securities hidden hidden hidden hidden hidden
Interest income hidden hidden hidden hidden hidden
Investment income, before taxes hidden hidden hidden hidden hidden
Tax expense (benefit) of investment income11 hidden hidden hidden hidden hidden
Investment income, after taxes12 hidden hidden hidden hidden hidden
Net income (loss) attributable to noncontrolling interest hidden hidden hidden hidden hidden
Net operating profit after taxes (NOPAT) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Elimination of deferred tax expense. See Details »

2 Addition of increase (decrease) in allowance for doubtful accounts.

3 Addition of increase (decrease) in LIFO reserve. See Details »

4 Addition of increase (decrease) in customer advances and deferred income.

5 Addition of increase (decrease) in obligations for product warranties and product performance guarantees.

6 Addition of increase (decrease) in repositioning reserves.

7 Addition of increase (decrease) in equity equivalents to net income attributable to Honeywell.

8 Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

9 Tax benefit of interest and other financial charges = Adjusted interest and other financial charges × Statutory income tax rate
= hidden × 21.00% = hidden

10 Addition of after taxes interest expense to net income attributable to Honeywell.

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

12 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. Honeywell International Inc.’s NOPAT declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Cash Operating Taxes

Honeywell International Inc., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Tax expense hidden hidden hidden hidden hidden
Less: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Add: Tax savings from interest and other financial charges hidden hidden hidden hidden hidden
Less: Tax imposed on investment income hidden hidden hidden hidden hidden
Cash operating taxes hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

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. Honeywell International Inc.’s cash operating taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Invested Capital

Honeywell International Inc., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Commercial paper and other short-term borrowings hidden hidden hidden hidden hidden
Current maturities of long-term debt hidden hidden hidden hidden hidden
Long-term debt, excluding current maturities hidden hidden hidden hidden hidden
Operating lease liability1 hidden hidden hidden hidden hidden
Total reported debt & leases hidden hidden hidden hidden hidden
Total Honeywell shareowners’ equity hidden hidden hidden hidden hidden
Net deferred tax (assets) liabilities2 hidden hidden hidden hidden hidden
Allowance for doubtful accounts3 hidden hidden hidden hidden hidden
LIFO reserve4 hidden hidden hidden hidden hidden
Customer advances and deferred income5 hidden hidden hidden hidden hidden
Obligations for product warranties and product performance guarantees6 hidden hidden hidden hidden hidden
Repositioning reserves7 hidden hidden hidden hidden hidden
Equity equivalents8 hidden hidden hidden hidden hidden
Accumulated other comprehensive (income) loss, net of tax9 hidden hidden hidden hidden hidden
Redeemable noncontrolling interest hidden hidden hidden hidden hidden
Noncontrolling interest hidden hidden hidden hidden hidden
Adjusted total Honeywell shareowners’ equity hidden hidden hidden hidden hidden
Construction in progress10 hidden hidden hidden hidden hidden
Available for sale investments11 hidden hidden hidden hidden hidden
Invested capital hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

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 LIFO reserve. See Details »

5 Addition of customer advances and deferred income.

6 Addition of obligations for product warranties and product performance guarantees.

7 Addition of repositioning reserves.

8 Addition of equity equivalents to total Honeywell shareowners’ equity.

9 Removal of accumulated other comprehensive income.

10 Subtraction of construction in progress.

11 Subtraction of available for sale investments.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Honeywell International Inc.’s invested capital increased from 2016 to 2017 and from 2017 to 2018.

Cost of Capital

Honeywell International Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 21.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 21.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2019-02-08).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2018-02-09).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2017-02-10).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2016-02-12).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2015-02-13).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »


Economic Spread

Honeywell International Inc., economic spread calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Economic profit1 hidden hidden hidden hidden hidden
Invested capital2 hidden hidden hidden hidden hidden
Ratio
Economic spread3 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Economic spread The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Honeywell International Inc.’s economic spread deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Economic Profit Margin

Honeywell International Inc., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Economic profit1 hidden hidden hidden hidden hidden
Net sales hidden hidden hidden hidden hidden
Add: Increase (decrease) in customer advances and deferred income hidden hidden hidden hidden hidden
Adjusted net sales hidden hidden hidden hidden hidden
Ratio
Economic profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Economic profit. See Details »

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

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. Honeywell International Inc.’s economic profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.