Name: Hubbell Inc. (NYSE:HUBB) | Economic Value Added (EVA)
Creator: Stock Analysis on Net

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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

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Hubbell Inc., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net operating profit after taxes (NOPAT)¹	597,801)	458,435)	403,273)	472,549)	591,651)
Cost of capital²	16.78%	16.14%	15.65%	15.59%	14.92%
Invested capital³	4,504,100)	4,298,100)	4,325,800)	4,209,500)	4,206,535)

Economic profit⁴	(157,909)	(235,214)	(273,841)	(183,585)	(36,128)

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 597,801 – 16.78% × 4,504,100 = -157,909

The financial performance from 2018 to 2022 is characterized by a persistent inability to generate positive economic profit, although a recovery trend in operating profitability emerged toward the end of the period.

Net Operating Profit After Taxes (NOPAT): A U-shaped trend is observed in NOPAT, which declined from US$ 591.7 million in 2018 to a period low of US$ 403.3 million in 2020. This decline was followed by a consistent recovery, with NOPAT rising to US$ 597.8 million by 2022, effectively restoring the operating profit levels seen at the start of the analysis period.
Cost of Capital: The cost of capital exhibited a continuous and steady upward trajectory throughout the five-year period, increasing from 14.92% in 2018 to 16.78% in 2022. This rising trend indicates an increasing hurdle rate, which makes the achievement of positive economic profit more challenging as the required return on invested capital grows.
Invested Capital: Invested capital remained relatively stable between 2018 and 2021, fluctuating within a narrow range between US$ 4.2 billion and US$ 4.3 billion. However, a notable increase was recorded in 2022, with invested capital rising to US$ 4.5 billion, suggesting a higher allocation of resources into the business base.
Economic Profit: Economic profit remained negative for the entire duration, signaling that the company did not generate returns in excess of its cost of capital. The economic loss widened significantly from -US$ 36.1 million in 2018 to a peak deficit of -US$ 273.8 million in 2020. Although a recovery trend began in 2021, the economic profit remained negative at -US$ 157.9 million by the end of 2022.

The analysis indicates that while operational improvements led to a strong rebound in NOPAT by 2022, these gains were offset by a concurrently rising cost of capital and an expansion of the invested capital base. Consequently, the company has not yet reached the threshold required to create positive economic value.

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Hubbell Inc., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income attributable to Hubbell Incorporated	545,900)	399,500)	351,200)	400,900)	360,200)
Deferred income tax expense (benefit)¹	(27,800)	9,200)	3,300)	6,100)	49,000)
Increase (decrease) in allowance for doubtful accounts²	3,700)	—)	4,800)	2,900)	200)
Increase (decrease) in LIFO reserve³	50,100)	56,800)	(2,500)	8,000)	20,200)
Increase (decrease) in contract liabilities, deferred revenue⁴	29,100)	(13,100)	(100)	3,300)	17,500)
Increase (decrease) in accrued warranties⁵	(19,900)	(6,600)	(1,600)	(10,600)	78,700)
Increase (decrease) in accrued liabilities for restructuring actions⁶	3,700)	(4,000)	(6,800)	(3,600)	100)
Increase (decrease) in equity equivalents⁷	38,900)	42,300)	(2,900)	6,100)	165,700)
Interest expense, net	49,600)	54,700)	60,300)	69,400)	72,400)
Interest expense, operating lease liability⁸	3,693)	2,306)	3,210)	3,546)	3,360)
Adjusted interest expense, net	53,293)	57,006)	63,510)	72,946)	75,760)
Tax benefit of interest expense, net⁹	(11,191)	(11,971)	(13,337)	(15,319)	(15,910)
Adjusted interest expense, net, after taxes¹⁰	42,101)	45,035)	50,173)	57,627)	59,851)
(Gain) loss on marketable securities	—)	—)	—)	1,800)	—)
Investment income, before taxes	—)	—)	—)	1,800)	—)
Tax expense (benefit) of investment income¹¹	—)	—)	—)	(378)	—)
Investment income, after taxes¹²	—)	—)	—)	1,422)	—)
(Income) loss from discontinued operations, net of tax¹³	(34,600)	(34,500)	—)	—)	—)
Net income (loss) attributable to noncontrolling interest	5,500)	6,100)	4,800)	6,500)	5,900)
Net operating profit after taxes (NOPAT)	597,801)	458,435)	403,273)	472,549)	591,651)

Based on: 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), 10-K (reporting date: 2018-12-31).

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 contract liabilities, deferred revenue.

⁵ Addition of increase (decrease) in accrued warranties.

⁶ Addition of increase (decrease) in accrued liabilities for restructuring actions.

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

⁸ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 115,400 × 3.20% = 3,693

⁹ 2022 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 53,293 × 21.00% = 11,191

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

¹¹ 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 0 × 21.00% = 0

¹² Elimination of after taxes investment income.

¹³ Elimination of discontinued operations.

An examination of profitability metrics from 2018 to 2022 reveals a period of volatility followed by a significant recovery in both operating and net earnings.

Net Operating Profit After Taxes (NOPAT) Trends: NOPAT exhibited a U-shaped trajectory over the five-year period. A sustained decline was observed between 2018 and 2020, with values dropping from US$591.7 million to a period low of US$403.3 million. This downward trend reversed in 2021 and accelerated in 2022, where NOPAT reached US$597.8 million. This final figure represents a full recovery to 2018 levels, indicating a restoration of core operational profitability.
Net Income Performance: Net income attributable to the company showed a generally positive growth trend, despite a contraction in 2020. Earnings rose from US$360.2 million in 2018 to US$400.9 million in 2019, before declining to US$351.2 million in 2020. A robust recovery followed, with a notable surge in 2022 to US$545.9 million, marking a 51.6% increase over the 2018 baseline.
Comparative Analysis of NOPAT and Net Income: Throughout the analyzed period, NOPAT remained consistently higher than net income, which is characteristic of firms with significant non-operating expenses or interest burdens. While both metrics suffered a dip in 2020, net income demonstrated a more immediate recovery in 2019 compared to NOPAT, which declined steadily for two consecutive years. By 2022, both metrics achieved their period peaks, suggesting a synchronized improvement in both operational efficiency and overall bottom-line profitability.

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Hubbell Inc., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Provision for income taxes	140,200)	88,200)	97,500)	113,100)	100,900)
Less: Deferred income tax expense (benefit)	(27,800)	9,200)	3,300)	6,100)	49,000)
Add: Tax savings from interest expense, net	11,191)	11,971)	13,337)	15,319)	15,910)
Less: Tax imposed on investment income	—)	—)	—)	(378)	—)
Cash operating taxes	179,191)	90,971)	107,537)	122,697)	67,810)

Based on: 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), 10-K (reporting date: 2018-12-31).

An analysis of tax obligations from 2018 to 2022 reveals a volatile trend in both the provision for income taxes and actual cash operating taxes, with a significant escalation in both metrics during the final year of the period.

Provision for Income Taxes Trends: The provision for income taxes exhibited fluctuation, rising from 100,900 thousand US dollars in 2018 to a peak of 113,100 thousand US dollars in 2019. A downward trend followed over the next two years, reaching a period low of 88,200 thousand US dollars in 2021. However, this was followed by a sharp increase in 2022, where the provision rose to 140,200 thousand US dollars, representing a 58.9% increase over the previous year.
Cash Operating Taxes Trends: Cash operating taxes demonstrated greater volatility and a more pronounced upward trajectory than the tax provisions. After an initial value of 67,810 thousand US dollars in 2018, cash taxes surged to 122,697 thousand US dollars in 2019. While a moderate decline occurred between 2019 and 2021, the figure spiked dramatically in 2022 to 179,191 thousand US dollars, an increase of approximately 97.1% compared to 2021.
Variance between Cash Taxes and Provisions: A significant shift in the relationship between accounting provisions and cash outflows is observed. In 2018, cash operating taxes were substantially lower than the provision for income taxes. From 2019 through 2022, this relationship inverted, with cash operating taxes consistently exceeding the tax provision. This divergence peaked in 2022, where cash taxes exceeded the provision by 38,991 thousand US dollars, indicating that the actual cash tax burden was significantly higher than the expense recognized in the financial statements.

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Hubbell Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Short-term debt and current portion of long-term debt	4,700)	9,700)	153,100)	65,400)	56,100)
Long-term debt, excluding current portion	1,437,900)	1,435,500)	1,436,900)	1,506,000)	1,737,100)
Operating lease liability¹	115,400)	85,400)	107,000)	101,300)	98,835)
Total reported debt & leases	1,558,000)	1,530,600)	1,697,000)	1,672,700)	1,892,035)
Total Hubbell Incorporated shareholders’ equity	2,360,900)	2,229,800)	2,070,000)	1,947,100)	1,780,600)
Net deferred tax (assets) liabilities²	108,300)	109,500)	130,200)	120,600)	113,600)
Allowance for doubtful accounts³	14,300)	10,600)	12,500)	7,700)	4,800)
Excess of FIFO over LIFO cost basis⁴	187,000)	136,900)	87,300)	89,800)	81,800)
Contract liabilities, deferred revenue⁵	45,800)	16,700)	30,900)	31,000)	27,700)
Accrued warranties⁶	46,200)	66,100)	80,500)	82,100)	92,700)
Accrued liabilities for restructuring actions⁷	7,900)	4,200)	10,600)	17,400)	21,000)
Equity equivalents⁸	409,500)	344,000)	352,000)	348,600)	341,600)
Accumulated other comprehensive (income) loss, net of tax⁹	345,200)	330,800)	329,200)	332,900)	285,700)
Noncontrolling interest	9,700)	10,900)	15,400)	13,400)	18,300)
Adjusted total Hubbell Incorporated shareholders’ equity	3,125,300)	2,915,500)	2,766,600)	2,642,000)	2,426,200)
Construction-in-progress¹⁰	(99,000)	(69,500)	(57,400)	(35,300)	(46,200)
Investments¹¹	(80,200)	(78,500)	(80,400)	(69,900)	(65,500)
Invested capital	4,504,100)	4,298,100)	4,325,800)	4,209,500)	4,206,535)

Based on: 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), 10-K (reporting date: 2018-12-31).

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 LIFO reserve. See details »

⁵ Addition of contract liabilities, deferred revenue.

⁶ Addition of accrued warranties.

⁷ Addition of accrued liabilities for restructuring actions.

⁸ Addition of equity equivalents to total Hubbell Incorporated shareholders’ equity.

⁹ Removal of accumulated other comprehensive income.

¹⁰ Subtraction of construction-in-progress.

¹¹ Subtraction of investments.

The analysis of invested capital between 2018 and 2022 reveals a period of relative stability followed by an expansion in the final year. Total invested capital remained within a tight range from 2018 to 2021, before increasing to 4.50 billion USD by the end of 2022. This overall trend is characterized by a structural shift in the company's financing mix, where a consistent increase in equity has offset a general reduction in debt obligations.

Debt and Lease Trajectory: A general downward trend in total reported debt and leases is observed over the five-year period. From a peak of 1.89 billion USD in 2018, debt levels declined to 1.56 billion USD by 2022. Despite minor fluctuations in 2020 and 2022, the overall movement indicates a strategic reduction in leveraged liabilities.
Shareholders' Equity Expansion: Total shareholders' equity demonstrated uninterrupted year-over-year growth throughout the analyzed period. Equity rose steadily from 1.78 billion USD in 2018 to 2.36 billion USD in 2022. This consistent growth suggests a strengthening of the internal capital base and an increase in retained earnings or capital contributions.
Invested Capital Composition and Synthesis: The stability of the total invested capital from 2018 to 2021 is attributable to the inverse relationship between debt reduction and equity growth. While debt decreased by approximately 361 million USD between 2018 and 2022, equity increased by approximately 580 million USD over the same period. The surge in invested capital observed in 2022 is driven by the continued accumulation of equity, which outweighed the marginal increase in debt during that specific fiscal year.

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Hubbell Inc., cost of capital calculations

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	12,897,374)	12,897,374)	÷	14,323,974)	=	0.90	0.90	×	18.36%	=	16.53%
Debt³	1,311,200)	1,311,200)	÷	14,323,974)	=	0.09	0.09	×	3.14% × (1 – 21.00%)	=	0.23%
Operating lease liability⁴	115,400)	115,400)	÷	14,323,974)	=	0.01	0.01	×	3.20% × (1 – 21.00%)	=	0.02%
Total:	14,323,974)					1.00					16.78%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	9,973,726)	9,973,726)	÷	11,593,326)	=	0.86	0.86	×	18.36%	=	15.79%
Debt³	1,534,200)	1,534,200)	÷	11,593,326)	=	0.13	0.13	×	3.14% × (1 – 21.00%)	=	0.33%
Operating lease liability⁴	85,400)	85,400)	÷	11,593,326)	=	0.01	0.01	×	2.70% × (1 – 21.00%)	=	0.02%
Total:	11,593,326)					1.00					16.14%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	8,924,254)	8,924,254)	÷	10,753,854)	=	0.83	0.83	×	18.36%	=	15.24%
Debt³	1,722,600)	1,722,600)	÷	10,753,854)	=	0.16	0.16	×	3.11% × (1 – 21.00%)	=	0.39%
Operating lease liability⁴	107,000)	107,000)	÷	10,753,854)	=	0.01	0.01	×	3.00% × (1 – 21.00%)	=	0.02%
Total:	10,753,854)					1.00					15.65%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	8,031,238)	8,031,238)	÷	9,755,738)	=	0.82	0.82	×	18.36%	=	15.11%
Debt³	1,623,200)	1,623,200)	÷	9,755,738)	=	0.17	0.17	×	3.38% × (1 – 21.00%)	=	0.44%
Operating lease liability⁴	101,300)	101,300)	÷	9,755,738)	=	0.01	0.01	×	3.50% × (1 – 21.00%)	=	0.03%
Total:	9,755,738)					1.00					15.59%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	6,476,307)	6,476,307)	÷	8,294,342)	=	0.78	0.78	×	18.36%	=	14.34%
Debt³	1,719,200)	1,719,200)	÷	8,294,342)	=	0.21	0.21	×	3.40% × (1 – 21.00%)	=	0.56%
Operating lease liability⁴	98,835)	98,835)	÷	8,294,342)	=	0.01	0.01	×	3.40% × (1 – 21.00%)	=	0.03%
Total:	8,294,342)					1.00					14.92%

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

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Hubbell Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	(157,909)	(235,214)	(273,841)	(183,585)	(36,128)
Invested capital²	4,504,100)	4,298,100)	4,325,800)	4,209,500)	4,206,535)
Performance Ratio
Economic spread ratio³	-3.51%	-5.47%	-6.33%	-4.36%	-0.86%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-20.44%	-19.05%	—	—	—
Caterpillar Inc.	-6.34%	-5.74%	—	—	—
Eaton Corp. plc	-9.74%	-9.35%	—	—	—
GE Aerospace	-13.77%	-18.68%	—	—	—
Honeywell International Inc.	-3.10%	-2.01%	—	—	—
Lockheed Martin Corp.	14.24%	15.22%	—	—	—
RTX Corp.	-4.74%	-4.20%	—	—	—

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -157,909 ÷ 4,504,100 = -3.51%

⁴ Click competitor name to see calculations.

The financial performance regarding economic value added exhibits a period of significant deterioration followed by a partial recovery between 2018 and 2022. Throughout the analyzed timeframe, economic profit remained consistently negative, indicating that the returns on invested capital did not exceed the cost of capital.

Economic Profit Trend: Economic profit experienced a sharp decline from -36.1 million US$ in 2018 to a trough of -273.8 million US$ in 2020. Following this low point, a recovery trend is observed, with losses narrowing to -235.2 million US$ in 2021 and further improving to -157.9 million US$ by the end of 2022.
Invested Capital Stability: Invested capital remained relatively stable over the five-year period, with a gradual increase from 4.21 billion US$ in 2018 to 4.50 billion US$ in 2022. The stability of the capital base suggests that the fluctuations in economic profit were driven primarily by operational performance or changes in the cost of capital rather than significant shifts in the asset base.
Economic Spread Ratio Analysis: The economic spread ratio mirrored the trajectory of economic profit, moving from -0.86% in 2018 to a peak negative value of -6.33% in 2020. A consistent improvement followed in the subsequent years, with the ratio rising to -5.47% in 2021 and -3.51% in 2022. This upward trend signifies a reduction in the spread between the cost of capital and the return generated, although the ratio remains negative, indicating that value is still being eroded relative to the required return.

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Hubbell Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	(157,909)	(235,214)	(273,841)	(183,585)	(36,128)

Net sales	4,947,900)	4,194,100)	4,186,000)	4,591,000)	4,481,700)
Add: Increase (decrease) in contract liabilities, deferred revenue	29,100)	(13,100)	(100)	3,300)	17,500)
Adjusted net sales	4,977,000)	4,181,000)	4,185,900)	4,594,300)	4,499,200)
Performance Ratio
Economic profit margin²	-3.17%	-5.63%	-6.54%	-4.00%	-0.80%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-15.61%	-15.13%	—	—	—
Caterpillar Inc.	-6.14%	-6.62%	—	—	—
Eaton Corp. plc	-14.45%	-14.04%	—	—	—
GE Aerospace	-12.48%	-18.85%	—	—	—
Honeywell International Inc.	-4.09%	-2.80%	—	—	—
Lockheed Martin Corp.	5.74%	6.50%	—	—	—
RTX Corp.	-7.77%	-7.30%	—	—	—

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ Economic profit. See details »

² 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -157,909 ÷ 4,977,000 = -3.17%

³ Click competitor name to see calculations.

An analysis of the five-year period ending December 31, 2022, reveals that the organization consistently operated with a negative economic profit, indicating that returns did not exceed the company's cost of capital. While the overall trajectory remained in negative territory, a notable pattern of deterioration followed by a gradual recovery is evident.

Economic Profit Trends: The absolute economic profit experienced a sharp decline between 2018 and 2020, moving from a loss of 36.1 million US dollars to a peak deficit of 273.8 million US dollars. Following this trough, a recovery trend emerged, with the economic loss narrowing to 235.2 million US dollars in 2021 and further improving to 157.9 million US dollars by the end of 2022.
Adjusted Net Sales Performance: Revenue exhibited volatility during the observed period. After a slight increase in 2019, adjusted net sales contracted in 2020 and 2021, reaching a low of approximately 4.18 billion US dollars. This downturn coincided with the period of maximum economic loss. A significant recovery occurred in 2022, with sales increasing to 4.98 billion US dollars, the highest level within the analyzed timeframe.
Economic Profit Margin Analysis: The economic profit margin mirrored the trajectory of the absolute economic profit. The margin deteriorated from -0.80% in 2018 to a low of -6.54% in 2020. The subsequent recovery phases saw the margin improve to -5.63% in 2021 and -3.17% in 2022. The improvement in the margin during the final two years suggests a reduction in the gap between the operational returns and the cost of capital, bolstered by the substantial increase in sales volume in the final year.

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Hubbell Inc. (NYSE:HUBB)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin