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.
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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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT increased from $1,924 million in 2017 to $2,774 million in 2018, showing a strong growth. It then slightly decreased to $2,672 million in 2019 and further declined to $2,268 million in 2020. However, in 2021, there was a notable recovery, with NOPAT rising to $2,907 million, surpassing the previous peak.
- Cost of Capital
- The cost of capital demonstrated a gradual upward trend over the examined period. Starting at 13.95% in 2017, it increased marginally each year, reaching 14.34% by 2021. This consistent rise indicates a slightly increasing expense associated with the company’s capital funds.
- Invested Capital
- Invested capital decreased from $14,406 million in 2017 to $12,895 million in 2018, indicating a reduction in the capital base. It then experienced a steady increase over the subsequent years, reaching $13,555 million in 2021. This growth after 2018 suggests reinvestment or expansion initiatives during the later years.
- Economic Profit
- The economic profit showed significant variability during the period. It started negative at -$86 million in 2017, then surged to a high of $966 million in 2018, reflecting enhanced value creation above the cost of capital. The profitability dipped to $828 million in 2019 and further dropped to $373 million in 2020, but recovered substantially to $963 million in 2021. This pattern mirrors the trends observed in NOPAT, coupled with the fluctuations in invested capital and cost of capital.
Net Operating Profit after Taxes (NOPAT)
Illinois Tool Works Inc., NOPAT calculation
US$ 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.
- Economic Profit
- The economic profit exhibited significant volatility over the observed periods. It was negative in 2017, indicating a loss, but turned positive and peaked in 2018. A decline followed in 2019, dropping sharply yet remained positive. The year 2020 saw a further decrease to a low positive value before rebounding strongly in 2021. This pattern suggests fluctuating profitability levels, with a marked recovery in the latest period.
- Invested Capital
- Invested capital presented a relatively stable trend with minor fluctuations. There was a decrease from 2017 to 2018, followed by a gradual increase each subsequent year through 2021. This indicates consistent reinvestment and possible growth in operational assets despite initial contraction.
- Economic Spread Ratio
- The economic spread ratio showed significant variability. Starting negative in 2017, it improved dramatically in 2018 and remained positive in 2019, indicating returns above the cost of capital during those years. However, it declined in 2020, reflecting a lower spread, before increasing again in 2021. This pattern aligns with the economic profit trends, demonstrating recovery after a dip.
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
- Economic profit exhibited significant variation across the analyzed five-year period. Starting with a negative figure of -86 million US dollars at the end of 2017, the metric then increased substantially to 966 million in 2018, followed by a slight decline to 828 million in 2019. In 2020, economic profit experienced a notable decrease to 373 million, but then rebounded sharply to 963 million in 2021. This pattern suggests that while the company faced a loss in 2017, it successfully generated positive economic profit over the subsequent years, with a temporary downturn in 2020 potentially linked to broader economic conditions.
- Adjusted Operating Revenue
- Adjusted operating revenue showed a fluctuating trend during the period. It rose moderately from 14,339 million US dollars in 2017 to 14,778 million in 2018 but then declined to 14,082 million in 2019. The downward trend continued in 2020, reaching the lowest point of 12,608 million. However, a recovery occurred in 2021, with revenue increasing again to 14,627 million. These changes indicate variability in revenue performance, with a significant dip in 2020 followed by a return to near previous revenue levels in 2021.
- Economic Profit Margin
- The economic profit margin demonstrated considerable volatility over the period. It started negative at -0.6% in 2017, then improved dramatically to 6.53% in 2018. The margin slightly decreased to 5.88% in 2019 and declined further to 2.96% in 2020. In 2021, the margin improved again to 6.58%, marking the highest level within the period. This indicates that profitability relative to adjusted operating revenue has fluctuated, with a decline during 2020 followed by a robust recovery in 2021.