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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

Johnson & Johnson, economic profit calculation

US$ in millions

	12 months ended	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 28, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

<>⁴ 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
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–

×

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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.	Johnson & Johnson’s economic profit declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Johnson & Johnson, NOPAT calculation

US$ in millions

	12 months ended	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 28, 2014
	Net earnings
	Deferred income tax expense (benefit)¹
	Increase (decrease) in allowances for doubtful accounts²
	Increase (decrease) in restructuring reserve³
	Increase (decrease) in equity equivalents⁴
	Interest expense, net of portion capitalized
	Interest expense, operating lease liability⁵
	Adjusted interest expense, net of portion capitalized
	Tax benefit of interest expense, net of portion capitalized⁶
	Adjusted interest expense, net of portion capitalized, after taxes⁷
	(Gain) loss on marketable securities
	Interest income
	Investment income, before taxes
	Tax expense (benefit) of investment income⁸
	Investment income, after taxes⁹
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowances for doubtful accounts.

³ Addition of increase (decrease) in restructuring reserve.

⁴ Addition of increase (decrease) in equity equivalents to net earnings.

⁵ 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁶ 2018 Calculation
Tax benefit of interest expense, net of portion capitalized = Adjusted interest expense, net of portion capitalized × Statutory income tax rate
= hidden × 21.00% = hidden

⁷ Addition of after taxes interest expense to net earnings.

⁸ 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 21.00% = hidden

⁹ 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.	Johnson & Johnson’s NOPAT declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Johnson & Johnson, cash operating taxes calculation

US$ in millions

	12 months ended	Dec 30, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 28, 2014
	Provision for taxes on income
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense, net of portion capitalized
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

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.	Johnson & Johnson’s cash operating taxes increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.

Johnson & Johnson, invested capital calculation (financing approach)

US$ in millions

		Dec 30, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 28, 2014
	Loans and notes payable
	Long-term debt, excluding current portion
	Operating lease liability¹
	Total reported debt & leases
	Shareholders’ equity
	Net deferred tax (assets) liabilities²
	Allowances for doubtful accounts³
	Restructuring reserve⁴
	Equity equivalents⁵
	Accumulated other comprehensive (income) loss, net of tax⁶
	Adjusted shareholders’ equity
	Construction in progress⁷
	Current marketable securities⁸
	Invested capital

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

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 restructuring reserve.

⁵ Addition of equity equivalents to shareholders’ equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction in progress.

⁸ Subtraction of current marketable securities.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Johnson & Johnson’s invested capital increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Johnson & Johnson, cost of capital calculations


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 21.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 21.00%)	=
Total:

Based on: 10-K (filing date: 2019-02-20).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2018-02-21).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2017-02-27).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2016-02-24).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »


Equity²	÷	=	×		=
Debt³	÷	=	×	× (1 – 35.00%)	=
Operating lease liability⁴	÷	=	×	× (1 – 35.00%)	=
Total:

Based on: 10-K (filing date: 2015-02-24).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Johnson & Johnson, economic spread ratio calculation

		Dec 30, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 28, 2014
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Invested capital²
	Performance Ratio
	Economic spread ratio³

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

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.	Johnson & Johnson’s economic spread ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Johnson & Johnson, economic profit margin calculation

		Dec 30, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 28, 2014
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Sales to customers
	Performance Ratio
	Economic profit margin²

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

¹ Economic profit. See details »

² 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales to customers
= 100 × hidden ÷ hidden = hidden

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.	Johnson & Johnson’s economic profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

	Johnson & Johnson	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Johnson & Johnson (JNJ)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Dec 30, 2018

Dec 31, 2017

Dec 31, 2016

Dec 31, 2015

Dec 28, 2014

Economic Spread Ratio

Economic Profit Margin