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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.
Economic Profit
Illinois Tool Works Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (filing date: 2021-02-12), 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2020 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. | Illinois Tool Works Inc.’s economic profit decreased from 2018 to 2019 and from 2019 to 2020. |
Net Operating Profit after Taxes (NOPAT)
Illinois Tool Works Inc., NOPAT calculation
US$ in millions
Based on: 10-K (filing date: 2021-02-12), 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10).
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 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2020 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 2020 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
11 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. | Illinois Tool Works Inc.’s NOPAT decreased from 2018 to 2019 and from 2019 to 2020. |
Cash Operating Taxes
Illinois Tool Works Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (filing date: 2021-02-12), 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10).
| 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. | Illinois Tool Works Inc.’s cash operating taxes decreased from 2018 to 2019 and from 2019 to 2020. |
Invested Capital
Illinois Tool Works Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (filing date: 2021-02-12), 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10).
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.
| Item | Description | The company |
|---|---|---|
| Invested capital | Capital is an approximation of the economic book value of all cash invested in going-concern business activities. | Illinois Tool Works Inc.’s invested capital increased from 2018 to 2019 and from 2019 to 2020. |
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 (filing date: 2021-02-12).
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: 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: 2019-02-15).
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: 2018-02-15).
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 »
Economic Spread Ratio
Illinois Tool Works Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| 3M Co. | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| General Electric Co. | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| Northrop Grumman Corp. | ||||||
| Raytheon Technologies Corp. | ||||||
Based on: 10-K (filing date: 2021-02-12), 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10).
1 Economic profit. See details »
2 Invested capital. See details »
3 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
| 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. | Illinois Tool Works Inc.’s economic spread ratio deteriorated from 2018 to 2019 and from 2019 to 2020. |
Economic Profit Margin
Illinois Tool Works Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | ||
|---|---|---|---|---|---|---|
| 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 | ||||||
| 3M Co. | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| General Electric Co. | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| Northrop Grumman Corp. | ||||||
| Raytheon Technologies Corp. | ||||||
Based on: 10-K (filing date: 2021-02-12), 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10).
1 Economic profit. See details »
2 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted operating revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
| 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. | Illinois Tool Works Inc.’s economic profit margin deteriorated from 2018 to 2019 and from 2019 to 2020. |