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.
Paying user area
Try for free
Illinois Tool Works Inc. pages available for free this week:
- Income Statement
- Cash Flow Statement
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Illinois Tool Works Inc. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Economic Profit
Illinois Tool Works Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data reveals several noteworthy trends over the five-year period under review.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT demonstrates a generally positive trajectory with fluctuations. It increased significantly from 1,924 million USD in 2017 to a peak of 2,774 million USD in 2018. However, a slight decline occurred in 2019 and 2020, reaching 2,672 million USD and 2,268 million USD respectively. The figure rebounded strongly in 2021 to 2,907 million USD, surpassing previous highs. This suggests strong operational profitability with some sensitivity to external or internal factors during the middle years.
- Cost of Capital
- The cost of capital exhibited a gradual upward trend throughout the timeframe. Starting at 13.77% in 2017, it experienced slight increases annually, culminating at 14.16% in 2021. Although the changes are relatively marginal, the steady rise indicates an increase in the required return on investments or greater perceived risk over the period.
- Invested Capital
- Invested capital shows variability with a general increase. There was a notable reduction from 14,406 million USD in 2017 to 12,895 million USD in 2018, followed by a consistent increase across the subsequent years, reaching 13,555 million USD in 2021. The initial decline may reflect divestitures, asset optimization, or other strategic capital management decisions, after which the company expanded or maintained its invested capital base.
- Economic Profit
- Economic profit, a key indicator of value creation beyond the cost of capital, mirrors the variations observed in NOPAT but with more pronounced volatility. After a negative value of -59 million USD in 2017, it jumped substantially to 989 million USD in 2018. The following years show a decline to 853 million USD in 2019 and further down to 398 million USD in 2020, before rising again to 988 million USD in 2021. This pattern highlights the impact of fluctuating profitability and invested capital cost, with value creation being significantly higher in 2018 and 2021.
In summary, the data conveys a firm experiencing overall profitability growth with some fluctuations potentially influenced by market or operational factors. The cost of capital’s slow rise may impact future profitability thresholds. The invested capital trend suggests periods of reassessment followed by stabilization or growth. Economic profit trends indicate the company’s ability to generate value above its capital cost was strong in some years but less consistent across the period.
Net Operating Profit after Taxes (NOPAT)
Illinois Tool Works Inc., NOPAT calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2017-12-31).
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 deferred revenue and customer deposits.
5 Addition of increase (decrease) in accrued product warranties.
6 Addition of increase (decrease) in equity equivalents to net income.
7 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
9 Addition of after taxes interest expense to net income.
10 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
11 Elimination of after taxes investment income.
- Net Income
- The net income exhibited an overall upward trend from 2017 to 2021, starting at 1,687 million US dollars in 2017 and rising to 2,694 million US dollars by 2021. There was a significant increase between 2017 and 2018, followed by a slight decline in 2019. A more noticeable decrease occurred in 2020, likely reflecting challenging conditions during that year. Nevertheless, the net income rebounded strongly in 2021, reaching its highest value in the period analyzed.
- Net Operating Profit After Taxes (NOPAT)
- Similar to net income, the NOPAT also demonstrated positive growth over the five-year span. It increased from 1,924 million US dollars in 2017 to 2,907 million US dollars in 2021. The data shows a peak in 2018, followed by a gradual decline in 2019 and 2020, before recovering substantially in 2021. The pattern aligns closely with the net income trend, indicating consistent operational performance and profitability improvements toward the end of the period.
- Summary of Trends
- Both net income and NOPAT reveal a pattern of growth with intermittent setbacks. The declines observed in 2019 and 2020 suggest external or internal challenges impacting profitability during those years. The recovery in 2021 indicates resilience and potential operational improvements or favorable market conditions. Overall, the financial results over the period reflect strong profitability with transient fluctuations rather than a continuous trend of increase or decrease.
Cash Operating Taxes
Illinois Tool Works Inc., cash operating taxes calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2017-12-31).
The financial data reveals trends in the provision for income taxes and cash operating taxes over a five-year period ending in 2021.
- Provision for Income Taxes
- The provision for income taxes shows a clear downward trend from 2017 through 2020, starting at $1,583 million in 2017 and declining significantly to $595 million in 2020. This represents a decrease of approximately 62.4% over three years. In 2021, the provision for income taxes experienced a slight increase to $632 million, indicating a minor reversal of the prior years’ declining trend but still remaining well below the initial 2017 level.
- Cash Operating Taxes
- Cash operating taxes followed a similar pattern to the provision for income taxes but with less pronounced variability. Beginning at $1,597 million in 2017, cash operating taxes decreased to $666 million in 2020. This decline of roughly 58.3% over four years suggests effective cash tax management or changes in taxable income. Unlike the provision for income taxes, cash operating taxes increased notably in 2021 to $821 million, representing a larger rebound compared to the provision figure but still below 2017 values.
Overall, both tax-related expenses exhibit a significant downward trend during the initial four years, which may reflect changes in earnings, tax planning strategies, or tax rate adjustments. The partial recovery in both measures in 2021 suggests a stabilization or potential increase in taxable earnings or adjustments in tax liabilities. The gap between provision and cash operating taxes is relatively narrow throughout the period, indicating consistency between accrued and actual cash tax payments.
Invested Capital
Illinois Tool Works Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 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), 10-K (reporting date: 2017-12-31).
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 deferred revenue and customer deposits.
6 Addition of accrued product warranties.
7 Addition of equity equivalents to stockholders’ equity attributable to ITW.
8 Removal of accumulated other comprehensive income.
9 Subtraction of construction in progress.
- Total reported debt & leases
- The total reported debt and leases exhibit some variability over the analyzed period. Starting at $8,612 million in 2017, the figure declines to a low of $7,583 million in 2018, before experiencing a gradual increase, reaching $8,310 million in 2020, and then decreasing again to $7,881 million in 2021. Overall, the debt level fluctuates within a relatively narrow range, indicating some active management of debt levels without significant long-term increases or decreases.
- Stockholders’ equity attributable to ITW
- Stockholders' equity shows a declining trend from 2017 through 2019, dropping from $4,585 million to $3,026 million. In 2020, there is a slight recovery to $3,181 million, followed by a more substantial increase to $3,625 million in 2021. This pattern suggests that the company faced equity reductions initially, with a partial rebound in the later years of the period under review.
- Invested capital
- Invested capital declines from $14,406 million in 2017 to $12,895 million in 2018, then experiences a steady increase each year to $13,033 million in 2019, $13,434 million in 2020, and $13,555 million in 2021. This trend indicates growing investment in the company's operations or assets after an initial drop, reflecting possibly increased capital expenditures or acquisition activity post-2018.
Cost of Capital
Illinois Tool Works Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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 (reporting date: 2020-12-31).
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 (reporting date: 2019-12-31).
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 (reporting date: 2018-12-31).
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 (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Illinois Tool Works Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 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), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The company’s economic profit exhibits significant variability over the five-year period. In 2017, the economic profit was notably negative at -59 US$ million, indicating a loss in value creation during that year. This negative trend continued in 2018, albeit with a smaller loss of 989 US$ million. However, from 2019 onwards, the economic profit turned positive and showed considerable improvement, particularly by 2021 when it reached 988 US$ million, indicating a strong recovery and enhanced value generation.
Invested capital demonstrates a relatively stable and modest upward trend from 2017 to 2021. The invested capital decreased from 14,406 US$ million in 2017 to a low of 12,895 US$ million in 2018 but gradually increased in subsequent years, reaching 13,555 US$ million by 2021. This reflects a cautious approach to capital deployment, with moderate growth in invested resources toward the end of the period.
The economic spread ratio, a measure of the return on invested capital relative to the cost of capital, mirrors the economic profit movements. It started negatively at -0.41% in 2017, surged to 7.67% in 2018 indicating improved efficiency and profitability, then slightly decreased to 6.54% in 2019. The ratio declined further to 2.96% in 2020, which may reflect challenges during that year. In 2021, the ratio rebounded significantly to 7.29%, reflecting strong operational performance and effective capital utilization.
Overall, the data reveals an initial period of underperformance and negative economic profit followed by recovery and growth in both economic profit and economic spread ratio. The investment in capital remains stable with slight increases, suggesting a cautious but positive approach toward resource allocation. The rebound in economic spread ratio and profit in the final period demonstrates enhanced profitability and value creation after overcoming earlier challenges.
Economic Profit Margin
Illinois Tool Works Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Operating revenue | ||||||
| Add: Increase (decrease) in deferred revenue and customer deposits | ||||||
| Adjusted operating revenue | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 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), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted operating revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit shows a volatile trend throughout the period. Starting with a negative value of -59 million US dollars in 2017, it experienced a significant increase to 989 million US dollars in 2018. This improvement continued with a slightly lower but still substantial positive value of 853 million in 2019. However, there was a sharp decline in 2020, falling to 398 million US dollars, before rising again to 988 million in 2021. Overall, the economic profit displays considerable fluctuations but ends the period with a positive upward trend comparable to the peak in 2018.
- Adjusted Operating Revenue
- The adjusted operating revenue reveals a decline followed by a recovery over the years. The revenue increased slightly from 14,339 million US dollars in 2017 to 14,778 million in 2018, then decreased to 14,082 million in 2019. This downward trend was more pronounced in 2020 with a drop to 12,608 million US dollars, reflecting a potential impact from economic or market challenges during that year. In 2021, revenue rebounded to 14,627 million US dollars, nearly reaching the levels seen at the beginning of the period, indicating a recovery phase.
- Economic Profit Margin
- The economic profit margin exhibits distinct variation during the period. It started negatively at -0.41% in 2017, followed by a remarkable improvement to 6.69% in 2018. This positive margin was maintained at a slightly lower 6.05% in 2019. The margin then declined to 3.16% in 2020, mirroring the dip seen in both economic profit and revenue, before increasing again to 6.76% in 2021, the highest margin in the observed timeframe. These changes suggest fluctuating profitability efficiency but with an overall positive recovery by the end of the period.