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
Johnson Controls International plc, economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,892 – 16.87% × 29,464 = -3,079
The financial performance over the analyzed six-year period is characterized by a persistent inability to generate positive economic value. Throughout the duration from 2018 to 2023, economic profit remained consistently negative, indicating that the net operating profit after taxes was insufficient to cover the cost of the capital employed in the business.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility, most notably a sharp decline in 2020 where earnings dropped to 448 million USD from 2,126 million USD in the previous year. A strong recovery followed in 2021, with NOPAT returning to 2,084 million USD. Between 2021 and 2023, the profit levels stabilized, fluctuating between 1,860 million USD and 1,892 million USD.
- Invested Capital and Cost of Capital
- A downward trend in invested capital was observed between 2018 and 2020, decreasing from 35,173 million USD to 29,283 million USD. Following this contraction, the capital base remained remarkably stable, hovering around 29.4 billion USD through 2023. Simultaneously, the cost of capital remained relatively high and stable, fluctuating between a low of 15.49% in 2018 and a peak of 17.63% in 2021, ending the period at 16.87% in 2023.
- Economic Profit Analysis
- Economic profit remained negative for the entire period, representing a consistent destruction of shareholder value. The most significant deficit occurred in 2020, reaching negative 4,313 million USD, which directly correlates with the precipitous drop in NOPAT during that year. Aside from the 2020 anomaly, economic profit has oscillated within a narrow band between negative 3,079 million USD and negative 3,273 million USD. This indicates that while the operational profit has recovered since 2020, it remains fundamentally inadequate to offset the capital charge associated with the company's invested capital base.
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Net Operating Profit after Taxes (NOPAT)
Johnson Controls International plc, NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for expected credit losses.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in restructuring reserve.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Johnson Controls.
6 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,404 × 3.50% = 49
7 2023 Calculation
Tax benefit of interest expense, net of capitalized interest costs = Adjusted interest expense, net of capitalized interest costs × Statutory income tax rate
= 356 × 12.50% = 45
8 Addition of after taxes interest expense to net income attributable to Johnson Controls.
9 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 18 × 12.50% = 2
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
An analysis of the financial performance from 2018 to 2023 reveals significant volatility in both Net Income and Net Operating Profit After Taxes (NOPAT), with a notable period of instability between 2019 and 2020 followed by a period of stabilization.
- Net Operating Profit After Taxes (NOPAT) Trends
- Operational profitability experienced a severe contraction in 2020, where NOPAT fell to 448 million US$, a substantial decline from the 2,126 million US$ reported in 2019. However, a robust recovery occurred in 2021, with NOPAT rebounding to 2,084 million US$. The subsequent two years show a stabilizing trend, with values remaining relatively consistent at 1,860 million US$ in 2022 and 1,892 million US$ in 2023.
- Net Income Variance and Non-Operating Impact
- A significant divergence between Net Income and NOPAT is evident in 2019. While NOPAT remained stable, Net Income surged to 5,674 million US$. This discrepancy suggests that the 2019 results were heavily influenced by non-operating items, such as asset divestitures, tax adjustments, or one-time gains, rather than core operational growth. In contrast, the 2020 decline was reflected in both metrics, indicating that the downturn was fundamentally operational.
- Comparative Stability and Recovery
- Following the 2020 trough, NOPAT has demonstrated a more stable recovery path compared to Net Income. From 2021 to 2023, NOPAT maintained a tighter range, suggesting a restoration of operational consistency. Net Income has also trended upward since 2020, reaching 1,849 million US$ by 2023, although it has not returned to the anomalous heights seen in 2019.
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Cash Operating Taxes
Johnson Controls International plc, cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30).
The financial data reveals significant volatility and a recurring divergence between the income tax provision and actual cash operating taxes from 2018 to 2023. This lack of synchronization suggests the presence of substantial deferred tax assets or liabilities and one-time tax adjustments that cause cash outflows to deviate from the reported accounting tax expenses.
- Cash Operating Taxes Trends
- Cash outflows for taxes exhibited extreme fluctuations over the analyzed period. A peak of 1,210 million US dollars was recorded in 2018, which was followed by a substantial cash inflow (refund) of 806 million US dollars in 2019. Cash payments rose again to reach 861 million US dollars by 2021, before moderating to 159 million US dollars in 2022 and 395 million US dollars in 2023.
- Income Tax Provision Volatility
- The income tax provision shifted frequently between an expense and a benefit. Positive provisions were recorded in 2018, 2020, and 2021, with the highest expense occurring in 2021 at 868 million US dollars. Conversely, tax benefits were recognized in 2019, 2022, and 2023, with the most significant benefit of 323 million US dollars appearing in the final year of the period.
- Analysis of Divergence and Cash Impact
- A notable misalignment is observed between accrual-based tax reporting and cash reality. In 2023, while a tax benefit of 323 million US dollars was recognized, the company simultaneously experienced a cash outflow of 395 million US dollars. Similarly, in 2018, the cash operating tax payment exceeded the tax provision by 692 million US dollars. This indicates that for the purposes of calculating Economic Value Added (EVA), the cash taxes paid provide a different perspective on value destruction or creation than the income tax provision reported on the profit and loss statement.
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Invested Capital
Johnson Controls International plc, invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30).
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 deferred revenue.
5 Addition of restructuring reserve.
6 Addition of equity equivalents to shareholders’ equity attributable to Johnson Controls.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
The total invested capital exhibited a significant contraction between 2018 and 2020, followed by a period of relative stability through 2023. From a peak of 35,173 million US dollars in 2018, the capital base declined by approximately 16.7% to 29,283 million US dollars by September 30, 2020. Following this reduction, the invested capital remained nearly constant, fluctuating minimally between 29,283 million and 29,496 million US dollars over the subsequent three fiscal years.
- Debt and Lease Obligations
- A notable volatility is observed in the total reported debt and leases. There was a sharp reduction from 12,091 million US dollars in 2018 to 8,304 million US dollars in 2019. This deleveraging trend reversed after 2019, as debt levels climbed steadily to 10,252 million US dollars by 2023. This indicates a strategic shift from aggressive debt reduction to a moderate increase in leverage over the latter half of the period.
- Shareholders' Equity Trends
- Shareholders' equity attributable to the company followed a general downward trajectory for the majority of the period. Equity decreased from 21,164 million US dollars in 2018 to a low of 16,268 million US dollars in 2022, representing a total decline of approximately 23%. While a slight recovery to 16,545 million US dollars occurred in 2023, the overall trend reflects a consistent reduction in the equity portion of the capital structure.
- Capital Structure Composition
- The stability of the total invested capital from 2020 to 2023 was achieved through an inverse relationship between debt and equity. Specifically, the increase in reported debt and leases from 9,026 million US dollars in 2020 to 10,252 million US dollars in 2023 was largely offset by the continued erosion of shareholders' equity. This balancing effect maintained the total capital base at approximately 29.4 billion US dollars, providing a stable denominator for the calculation of economic value added during this timeframe.
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Cost of Capital
Johnson Controls International plc, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 36,824) | 36,824) | ÷ | 46,113) | = | 0.80 | 0.80 | × | 20.36% | = | 16.26% | ||
| Debt3 | 7,885) | 7,885) | ÷ | 46,113) | = | 0.17 | 0.17 | × | 3.49% × (1 – 12.50%) | = | 0.52% | ||
| Operating lease liability4 | 1,404) | 1,404) | ÷ | 46,113) | = | 0.03 | 0.03 | × | 3.50% × (1 – 12.50%) | = | 0.09% | ||
| Total: | 46,113) | 1.00 | 16.87% | ||||||||||
Based on: 10-K (reporting date: 2023-09-30).
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 | 45,597) | 45,597) | ÷ | 54,833) | = | 0.83 | 0.83 | × | 20.36% | = | 16.93% | ||
| Debt3 | 7,969) | 7,969) | ÷ | 54,833) | = | 0.15 | 0.15 | × | 2.94% × (1 – 12.50%) | = | 0.37% | ||
| Operating lease liability4 | 1,267) | 1,267) | ÷ | 54,833) | = | 0.02 | 0.02 | × | 2.10% × (1 – 12.50%) | = | 0.04% | ||
| Total: | 54,833) | 1.00 | 17.34% | ||||||||||
Based on: 10-K (reporting date: 2022-09-30).
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 | 55,170) | 55,170) | ÷ | 65,052) | = | 0.85 | 0.85 | × | 20.36% | = | 17.26% | ||
| Debt3 | 8,508) | 8,508) | ÷ | 65,052) | = | 0.13 | 0.13 | × | 2.94% × (1 – 12.50%) | = | 0.34% | ||
| Operating lease liability4 | 1,374) | 1,374) | ÷ | 65,052) | = | 0.02 | 0.02 | × | 1.80% × (1 – 12.50%) | = | 0.03% | ||
| Total: | 65,052) | 1.00 | 17.63% | ||||||||||
Based on: 10-K (reporting date: 2021-09-30).
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 | 32,836) | 32,836) | ÷ | 42,674) | = | 0.77 | 0.77 | × | 20.36% | = | 15.66% | ||
| Debt3 | 8,631) | 8,631) | ÷ | 42,674) | = | 0.20 | 0.20 | × | 3.05% × (1 – 12.50%) | = | 0.54% | ||
| Operating lease liability4 | 1,207) | 1,207) | ÷ | 42,674) | = | 0.03 | 0.03 | × | 2.20% × (1 – 12.50%) | = | 0.05% | ||
| Total: | 42,674) | 1.00 | 16.26% | ||||||||||
Based on: 10-K (reporting date: 2020-09-30).
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 | 32,577) | 32,577) | ÷ | 41,272) | = | 0.79 | 0.79 | × | 20.36% | = | 16.07% | ||
| Debt3 | 7,610) | 7,610) | ÷ | 41,272) | = | 0.18 | 0.18 | × | 3.37% × (1 – 12.50%) | = | 0.54% | ||
| Operating lease liability4 | 1,085) | 1,085) | ÷ | 41,272) | = | 0.03 | 0.03 | × | 3.37% × (1 – 12.50%) | = | 0.08% | ||
| Total: | 41,272) | 1.00 | 16.69% | ||||||||||
Based on: 10-K (reporting date: 2019-09-30).
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 | 30,808) | 30,808) | ÷ | 42,819) | = | 0.72 | 0.72 | × | 20.36% | = | 14.65% | ||
| Debt3 | 10,915) | 10,915) | ÷ | 42,819) | = | 0.25 | 0.25 | × | 3.43% × (1 – 12.50%) | = | 0.77% | ||
| Operating lease liability4 | 1,096) | 1,096) | ÷ | 42,819) | = | 0.03 | 0.03 | × | 3.43% × (1 – 12.50%) | = | 0.08% | ||
| Total: | 42,819) | 1.00 | 15.49% | ||||||||||
Based on: 10-K (reporting date: 2018-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Johnson Controls International plc, economic spread ratio calculation, comparison to benchmarks
| Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (3,079) | (3,256) | (3,089) | (4,313) | (3,094) | (3,273) | |
| Invested capital2 | 29,464) | 29,496) | 29,338) | 29,283) | 31,274) | 35,173) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -10.45% | -11.04% | -10.53% | -14.73% | -9.89% | -9.30% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Boeing Co. | -15.06% | -20.44% | -19.05% | — | — | — | |
| Caterpillar Inc. | -2.42% | -6.34% | -5.74% | — | — | — | |
| Eaton Corp. plc | -7.84% | -9.74% | -9.35% | — | — | — | |
| GE Aerospace | 1.18% | -13.77% | -18.68% | — | — | — | |
| Honeywell International Inc. | -2.12% | -3.10% | -2.01% | — | — | — | |
| Lockheed Martin Corp. | 18.22% | 14.24% | 15.22% | — | — | — | |
| RTX Corp. | -4.69% | -4.74% | -4.20% | — | — | — | |
Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -3,079 ÷ 29,464 = -10.45%
4 Click competitor name to see calculations.
Analysis of the economic value added metrics reveals a persistent failure to generate positive economic profit from 2018 through 2023. The organization has consistently operated with a negative economic spread, indicating that the return on invested capital has remained below the weighted average cost of capital throughout the observed period.
- Economic Profit Trends
- Economic profit remained negative throughout the six-year period, fluctuating between -3,079 million and -4,313 million. A significant deterioration occurred in 2020, where economic profit reached its lowest point. While the figures have shown slight recovery and stabilization since 2021, they remain substantially negative, suggesting a continuous destruction of shareholder value.
- Invested Capital Dynamics
- A notable reduction in invested capital occurred between 2018 and 2020, decreasing from 35,173 million to 29,283 million. Following this period of contraction, the invested capital base stabilized, maintaining a narrow range between 29,338 million and 29,496 million from 2021 to 2023. This indicates a shift from an initial phase of capital reduction to a steady-state capital structure.
- Economic Spread Ratio Performance
- The economic spread ratio reflects a chronic inability to meet the cost of capital, remaining negative for the entire duration. The ratio experienced a sharp decline to -14.73% in 2020, coinciding with the peak in economic losses. Although the ratio improved in 2021, it has since remained depressed, settling at -10.45% by September 30, 2023, confirming that the operational returns are consistently insufficient to cover the cost of the capital employed.
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Economic Profit Margin
Johnson Controls International plc, economic profit margin calculation, comparison to benchmarks
| Sep 30, 2023 | Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (3,079) | (3,256) | (3,089) | (4,313) | (3,094) | (3,273) | |
| Net sales | 26,793) | 25,299) | 23,668) | 22,317) | 23,968) | 31,400) | |
| Add: Increase (decrease) in deferred revenue | 192) | 131) | 202) | 28) | 81) | 47) | |
| Adjusted net sales | 26,985) | 25,430) | 23,870) | 22,345) | 24,049) | 31,447) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -11.41% | -12.80% | -12.94% | -19.30% | -12.86% | -10.41% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Boeing Co. | -8.69% | -15.61% | -15.13% | — | — | — | |
| Caterpillar Inc. | -2.10% | -6.14% | -6.62% | — | — | — | |
| Eaton Corp. plc | -10.62% | -14.45% | -14.04% | — | — | — | |
| GE Aerospace | 0.92% | -12.48% | -18.85% | — | — | — | |
| Honeywell International Inc. | -2.80% | -4.09% | -2.80% | — | — | — | |
| Lockheed Martin Corp. | 7.40% | 5.74% | 6.50% | — | — | — | |
| RTX Corp. | -7.38% | -7.77% | -7.30% | — | — | — | |
Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -3,079 ÷ 26,985 = -11.41%
3 Click competitor name to see calculations.
An analysis of the financial performance from September 30, 2018, to September 30, 2023, reveals a persistent inability to generate positive economic value. Throughout the six-year period, economic profit remained negative, indicating that the return on capital was insufficient to cover the cost of capital. While there have been fluctuations in the magnitude of these losses, the company has not reached a break-even point in terms of economic value added.
- Economic Profit Trends
- Economic profit consistently remained in negative territory, oscillating between -3,079 million and -4,313 million. A significant deterioration occurred in 2020, where the loss widened to its peak of -4,313 million. Subsequent years showed a partial recovery, with losses stabilizing around the -3,000 million to -3,200 million range, ending the period at -3,079 million in 2023.
- Adjusted Net Sales Trajectory
- A distinct U-shaped pattern is observable in adjusted net sales. After a starting point of 31,447 million in 2018, sales experienced a sharp decline, reaching a low of 22,345 million in 2020. Following this trough, a steady recovery trend emerged, with annual increases leading to 26,985 million by September 30, 2023. Despite this recovery, sales levels remained below the 2018 baseline.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of net sales and absolute economic profit. The margin deteriorated from -10.41% in 2018 to a period low of -19.30% in 2020, coinciding with the minimum sales volume and maximum economic loss. Since 2021, there has been a gradual improvement in the margin, moving from -12.94% to -11.41% in 2023. This upward trend suggests a marginal improvement in capital efficiency, although the margin remains significantly negative, highlighting a continuing gap between operational returns and the required cost of capital.
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