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Honeywell International Inc. (NYSE:HON)
Economic Value Added (EVA)
Advanced level
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
| 12 months ended | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (filing date: 2020-02-14), 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).
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
= – × =
| 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 increased from 2017 to 2018 but then slightly decreased from 2018 to 2019. |
Net Operating Profit after Taxes (NOPAT)
Honeywell International Inc., NOPAT calculation
US$ in millions
Based on: 10-K (filing date: 2020-02-14), 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).
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 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
9 2019 Calculation
Tax benefit of interest and other financial charges = Adjusted interest and other financial charges × Statutory income tax rate
= × 21.00% =
10 Addition of after taxes interest expense to net income attributable to Honeywell.
11 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
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 increased from 2017 to 2018 but then slightly decreased from 2018 to 2019. |
Cash Operating Taxes
Honeywell International Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (filing date: 2020-02-14), 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).
| 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 decreased from 2017 to 2018 and from 2018 to 2019. |
Invested Capital
Honeywell International Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (filing date: 2020-02-14), 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).
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 2017 to 2018 and from 2018 to 2019. |
Cost of Capital
Honeywell International Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Total: | |||||||||||||
Based on: 10-K (filing date: 2020-02-14).
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) |
= | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) |
= | ||||||||
| Total: | |||||||||||||
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 »
Economic Spread Ratio
Honeywell International Inc., economic spread ratio calculation
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
Based on: 10-K (filing date: 2020-02-14), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
| 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. | Honeywell International Inc.’s economic spread ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019. |
Economic Profit Margin
Honeywell International Inc., economic profit margin calculation
Based on: 10-K (filing date: 2020-02-14), 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).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × ÷ =
| 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. | Honeywell International Inc.’s economic profit margin improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019. |