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
Kellanova, economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
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
= 1,013 – 8.45% × 11,675 = 27
The analysis of economic profit from 2019 to 2023 reveals a period of significant volatility, characterized by a cycle of value destruction, substantial value creation, and a subsequent return to marginal profitability. The overall trend indicates that economic value added was primarily driven by fluctuations in operating profitability rather than changes in the cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- A sharp upward trajectory was observed between 2019 and 2021, with NOPAT increasing from 1,016 million to a peak of 1,799 million. However, this growth was not sustained, as a significant contraction occurred in 2022, with profits falling to 1,089 million and further stabilizing at 1,013 million in 2023. This suggests a return to baseline operational profitability levels seen at the start of the period.
- Cost of Capital
- The cost of capital remained relatively stable throughout the five-year period, fluctuating within a narrow range between 7.99% and 8.65%. A slight upward trend emerged toward the end of the period, peaking in 2022 at 8.65% before easing slightly to 8.45% in 2023. The stability of this metric indicates that the changes in economic profit were not caused by shifts in the required rate of return, but rather by operational performance and capital management.
- Invested Capital
- Invested capital showed modest growth from 2019 through 2021, reaching a maximum of 13,587 million. A notable reversal occurred in 2023, where invested capital decreased to 11,675 million. This reduction represents a strategic contraction of the capital base, which served to lower the total capital charge against the company's operating profit.
- Economic Profit
- Economic profit shifted from a negative value of -54 million in 2019 to a peak of 678 million in 2021, marking a period of strong value creation coinciding with peak NOPAT. A return to value destruction occurred in 2022, with economic profit dropping to -52 million. In 2023, a marginal recovery to 27 million was achieved; this shift back to positive territory was facilitated by the significant reduction in invested capital, which offset the stagnation in NOPAT.
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Net Operating Profit after Taxes (NOPAT)
Kellanova, NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
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 exit cost reserves.
4 Addition of increase (decrease) in equity equivalents to net income attributable to Kellanova.
5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 653 × 3.60% = 24
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 327 × 21.00% = 69
7 Addition of after taxes interest expense to net income attributable to Kellanova.
8 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= -3 × 21.00% = -1
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
The financial performance between 2019 and 2023 is characterized by a significant growth cycle peaking in 2021, followed by a marked contraction. Both net income and Net Operating Profit After Taxes (NOPAT) exhibit synchronized movement, suggesting that the primary drivers of profitability during this period were operational in nature.
- NOPAT Trajectory
- Net operating profit after taxes demonstrated a strong upward trend from 2019 to 2021, rising from US$ 1,016 million to a peak of US$ 1,799 million. This growth phase was followed by a sharp decline in 2022 to US$ 1,089 million and a further slight decrease to US$ 1,013 million in 2023. By the end of the analyzed period, NOPAT had effectively returned to its 2019 baseline.
- Net Income Correlation
- Net income attributable to the company mirrored the NOPAT trend, increasing from US$ 960 million in 2019 to a peak of US$ 1,488 million in 2021. A subsequent downturn occurred in 2022 and 2023, with net income falling to US$ 960 million and US$ 951 million, respectively. The high degree of correlation between these two metrics indicates that fluctuations in net income were primarily driven by changes in operating profitability.
- Operating vs. Net Profit Variance
- NOPAT remained consistently higher than net income throughout the five-year period. This persistent variance suggests the presence of non-operating expenses, such as interest payments on debt, which reduce the final net income but are excluded from NOPAT to isolate the core operational efficiency of the entity.
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Cash Operating Taxes
Kellanova, cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
The financial trajectory between 2019 and 2023 reveals a period of volatility in tax obligations, characterized by a divergence between accounting income taxes and actual cash operating taxes. Cash operating taxes, which are essential for determining the true cash flow impact within Economic Value Added (EVA) frameworks, exhibit a general downward trend from the start of the period before stabilizing in recent years.
- Cash Operating Tax Volatility
- A sharp contraction in cash operating taxes is observed between 2019 and 2020, where expenditures fell from US$ 536 million to US$ 317 million. Following this decline, cash taxes fluctuated, peaking again in 2021 at US$ 399 million before settling into a more stable range of US$ 340 million to US$ 365 million during the 2022 and 2023 fiscal years.
- Analysis of Tax Divergence
- There is a consistent variance between cash operating taxes and reported income taxes. In 2019, cash operating taxes were significantly higher than income taxes, suggesting a period of high cash outflows relative to accounting expenses. Conversely, 2021 represents the only period where income taxes (US$ 474 million) exceeded cash operating taxes (US$ 399 million), indicating a temporary reversal in the timing of tax recognitions versus payments.
- Income Tax Trend Patterns
- Income tax expenses remained relatively flat from 2019 to 2020, followed by a substantial spike in 2021. This was succeeded by a marked reduction in 2022, where income taxes dropped to US$ 244 million, the lowest point in the five-year series, before a slight increase to US$ 258 million in 2023.
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Invested Capital
Kellanova, invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
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 exit cost reserves.
5 Addition of equity equivalents to total Kellanova equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
The financial trajectory of invested capital from 2019 to 2023 reveals a period of relative stability followed by a significant contraction in the final year. While the capital base fluctuated marginally between 2019 and 2022, the 2023 fiscal year marked a notable reduction in the total resources deployed in the business.
- Debt and Lease Obligations
- A consistent downward trend is observed in total reported debt and leases. Obligations decreased annually from 8,469 million USD in 2019 to 6,526 million USD in 2023. This represents a steady deleveraging process, reducing the debt component of the invested capital by approximately 23% over the five-year period.
- Equity Dynamics
- Total equity exhibited a growth phase between 2019 and 2022, rising from 2,747 million USD to a peak of 3,941 million USD. However, this upward trend reversed in 2023, with equity declining to 3,175 million USD, indicating a reduction in the shareholders' book value during the final year of the analyzed period.
- Invested Capital Trends
- Invested capital remained comparatively stable for the first four years, peaking at 13,587 million USD in 2021 before slightly receding to 13,188 million USD in 2022. A sharp decline occurred in 2023, with invested capital dropping to 11,675 million USD. This contraction is the result of the combined effect of sustained debt reduction and the aforementioned decrease in total equity.
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Cost of Capital
Kellanova, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,122) | 19,122) | ÷ | 25,559) | = | 0.75 | 0.75 | × | 10.46% | = | 7.83% | ||
| Notes payable and long-term debt3 | 5,784) | 5,784) | ÷ | 25,559) | = | 0.23 | 0.23 | × | 3.06% × (1 – 21.00%) | = | 0.55% | ||
| Operating lease liability4 | 653) | 653) | ÷ | 25,559) | = | 0.03 | 0.03 | × | 3.60% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 25,559) | 1.00 | 8.45% | ||||||||||
Based on: 10-K (reporting date: 2023-12-30).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 23,556) | 23,556) | ÷ | 30,510) | = | 0.77 | 0.77 | × | 10.46% | = | 8.08% | ||
| Notes payable and long-term debt3 | 6,347) | 6,347) | ÷ | 30,510) | = | 0.21 | 0.21 | × | 3.23% × (1 – 21.00%) | = | 0.53% | ||
| Operating lease liability4 | 607) | 607) | ÷ | 30,510) | = | 0.02 | 0.02 | × | 2.90% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 30,510) | 1.00 | 8.65% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,592) | 22,592) | ÷ | 30,959) | = | 0.73 | 0.73 | × | 10.46% | = | 7.64% | ||
| Notes payable and long-term debt3 | 7,749) | 7,749) | ÷ | 30,959) | = | 0.25 | 0.25 | × | 2.90% × (1 – 21.00%) | = | 0.57% | ||
| Operating lease liability4 | 618) | 618) | ÷ | 30,959) | = | 0.02 | 0.02 | × | 2.70% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 30,959) | 1.00 | 8.25% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,382) | 20,382) | ÷ | 29,448) | = | 0.69 | 0.69 | × | 10.46% | = | 7.24% | ||
| Notes payable and long-term debt3 | 8,429) | 8,429) | ÷ | 29,448) | = | 0.29 | 0.29 | × | 3.13% × (1 – 21.00%) | = | 0.71% | ||
| Operating lease liability4 | 637) | 637) | ÷ | 29,448) | = | 0.02 | 0.02 | × | 2.60% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 29,448) | 1.00 | 7.99% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,063) | 22,063) | ÷ | 31,137) | = | 0.71 | 0.71 | × | 10.46% | = | 7.41% | ||
| Notes payable and long-term debt3 | 8,527) | 8,527) | ÷ | 31,137) | = | 0.27 | 0.27 | × | 3.27% × (1 – 21.00%) | = | 0.71% | ||
| Operating lease liability4 | 547) | 547) | ÷ | 31,137) | = | 0.02 | 0.02 | × | 2.90% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 31,137) | 1.00 | 8.16% | ||||||||||
Based on: 10-K (reporting date: 2019-12-28).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Kellanova, economic spread ratio calculation, comparison to benchmarks
| Dec 30, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 28, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 27) | (52) | 678) | 511) | (54) | |
| Invested capital2 | 11,675) | 13,188) | 13,587) | 13,194) | 13,101) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.23% | -0.40% | 4.99% | 3.88% | -0.41% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | 3.97% | 3.66% | 5.20% | — | — | |
| Mondelēz International Inc. | -0.12% | -3.93% | -0.92% | — | — | |
| PepsiCo Inc. | 4.22% | 4.19% | 4.75% | — | — | |
| Philip Morris International Inc. | 8.81% | 11.75% | 26.08% | — | — | |
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 27 ÷ 11,675 = 0.23%
4 Click competitor name to see calculations.
The financial performance regarding economic value creation exhibits significant volatility between 2019 and 2023. There was a period of substantial value expansion peaking in 2021, followed by a sharp contraction in 2022 and a marginal recovery in 2023.
- Economic Profit
- A cyclical trend is evident, starting with a deficit of US$ 54 million in 2019. Performance improved sharply over the following two years, reaching a peak of US$ 678 million in 2021. This growth was reversed in 2022, when economic profit fell to negative US$ 52 million, before shifting back to a positive position of US$ 27 million by the end of 2023.
- Invested Capital
- Invested capital remained relatively stable from 2019 through 2022, fluctuating within a narrow range between US$ 13.1 billion and US$ 13.6 billion. However, a significant reduction is observed in 2023, with capital decreasing to US$ 11.675 billion, representing a notable contraction in the capital base.
- Economic Spread Ratio
- The economic spread ratio mirrors the fluctuations seen in economic profit. The ratio moved from -0.41% in 2019 to a high of 4.99% in 2021, indicating a period where returns significantly exceeded the cost of capital. This was followed by a decline to -0.40% in 2022, suggesting value erosion, and a slight return to positive territory at 0.23% in 2023.
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Economic Profit Margin
Kellanova, economic profit margin calculation, comparison to benchmarks
| Dec 30, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 28, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 27) | (52) | 678) | 511) | (54) | |
| Net sales | 13,122) | 15,315) | 14,181) | 13,770) | 13,578) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 0.21% | -0.34% | 4.78% | 3.71% | -0.39% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | 7.25% | 6.81% | 10.80% | — | — | |
| Mondelēz International Inc. | -0.21% | -7.96% | -1.98% | — | — | |
| PepsiCo Inc. | 3.46% | 3.37% | 4.17% | — | — | |
| Philip Morris International Inc. | 12.87% | 17.52% | 24.21% | — | — | |
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 27 ÷ 13,122 = 0.21%
3 Click competitor name to see calculations.
An analysis of the economic profit and associated margins from 2019 to 2023 reveals a period of significant volatility in value creation. The company transitioned through multiple cycles of economic loss and gain, characterized by a strong peak in performance mid-period followed by a sharp contraction and a marginal recovery.
- Economic Profit Trends
- Economic profit shifted from a deficit of US$ 54 million in 2019 to a peak of US$ 678 million by 2021. However, this growth was not sustained, as the figure plummeted to a loss of US$ 52 million in 2022 before returning to a modest positive value of US$ 27 million in 2023.
- Economic Profit Margin Performance
- The economic profit margin mirrored the fluctuations of absolute economic profit. After starting at -0.39% in 2019, the margin expanded rapidly to 3.71% in 2020 and 4.78% in 2021. A subsequent decline led to a margin of -0.34% in 2022, followed by a slight recovery to 0.21% in 2023.
- Relationship Between Net Sales and Value Creation
- A divergence between revenue growth and economic value creation is observed in 2022. While net sales reached a five-year peak of US$ 15,315 million, the economic profit margin fell into negative territory. This indicates that the increase in sales volume during that period was insufficient to cover the cost of capital. Conversely, in 2023, economic profit returned to a positive state despite net sales falling to their lowest level in the analyzed period at US$ 13,122 million.
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