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
Kinder Morgan Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 4,396 – 10.37% × 67,164 = -2,570
An analysis of economic value added from 2015 to 2019 reveals a consistent trend of negative economic profit, indicating that returns generated from operations were insufficient to cover the cost of the capital employed. However, a progressive reduction in the economic loss is evident, suggesting a trend toward improved capital efficiency over the five-year period.
- Operating Performance (NOPAT)
- A consistent upward trajectory in Net Operating Profit After Taxes is observed, with values increasing from 2,335 million US dollars in 2015 to 4,396 million US dollars in 2019. This growth represents a significant expansion in operational profitability.
- Capital Base and Cost
- Invested capital exhibited a gradual overall decline, moving from 72,098 million US dollars in 2015 to 67,164 million US dollars in 2019. During the same period, the cost of capital showed a general increase, rising from 8.95% in 2015 to 10.37% in 2019. The rising cost of capital acted as a headwind, increasing the threshold for achieving positive economic profit.
- Economic Profit Trajectory
- While economic profit remained negative throughout the period, the deficit narrowed from -4,115 million US dollars in 2015 to -2,570 million US dollars in 2019. The improvement in economic profit is primarily attributed to the substantial growth in NOPAT, which outpaced the combined effects of the rising cost of capital and the fluctuations in the invested capital base.
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Net Operating Profit after Taxes (NOPAT)
Kinder Morgan Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in equity equivalents to net income attributable to Kinder Morgan, Inc..
4 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 329 × 4.31% = 14
5 2019 Calculation
Tax benefit of interest, net = Adjusted interest, net × Statutory income tax rate
= 1,815 × 21.00% = 381
6 Addition of after taxes interest expense to net income attributable to Kinder Morgan, Inc..
The financial data exhibits a notable progression across the five-year period from 2015 to 2019 in key profitability metrics.
- Net Income Attributable to Kinder Morgan, Inc.
-
Net income shows a fluctuating pattern with significant variation. It increased substantially from 253 million USD in 2015 to 708 million USD in 2016, indicating a period of improved profitability. However, it then decreased sharply to 183 million USD in 2017 and slightly declined further to 160.9 million USD in 2018. In 2019, a pronounced rebound occurred, with net income surging to 2,190 million USD, representing the highest level within the period analyzed.
- Net Operating Profit After Taxes (NOPAT)
-
NOPAT exhibits a consistent upward trajectory over the same time frame, indicating overall operational efficiency and profitability improvements. It rose steadily from 2,335 million USD in 2015 to 4,396 million USD in 2019. This steady increase contrasts the volatility seen in net income, suggesting that operational profitability strengthened continuously even during periods when net income faced short-term setbacks.
Overall, while net income experienced volatility with a significant dip in 2017 and 2018 before recovering sharply in 2019, NOPAT demonstrated consistent growth. The divergence between the volatility in net income and the stability in NOPAT could indicate the influence of non-operational factors, including one-time items, financing costs, or tax impacts affecting net income more directly. The improvement in NOPAT highlights enhanced core business performance throughout the period.
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Cash Operating Taxes
Kinder Morgan Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The analysis of the annual financial data reveals fluctuations in both income tax provision and cash operating taxes over the five-year period ending December 31, 2019.
- Income Tax Provision
- The income tax provision shows significant volatility during the period. Starting at USD 564 million in 2015, it increased notably to USD 917 million in 2016. A sharp rise was observed in 2017, with the provision peaking at USD 1,938 million. However, this high was not sustained, as the figure dropped substantially to USD 587 million in 2018, followed by a moderate increase to USD 926 million in 2019. The trend suggests that the income tax provision was influenced by fluctuating taxable income or changes in tax regulations during these years, with the 2017 value standing out as an outlier relative to other periods.
- Cash Operating Taxes
- Cash operating taxes remained relatively stable compared to the income tax provision. The values fluctuated within a narrow range from USD 472 million to USD 601 million throughout the five years. Notably, the cash operating taxes decreased from USD 601 million in 2015 to USD 472 million in 2016, then experienced minor increases and decreases over the subsequent years, ending at USD 590 million in 2019. This consistency indicates maintained cash tax obligations despite the volatility seen in the income tax provision, implying differences in timing or accounting recognition between these two tax-related metrics.
Overall, the data suggests that while cash taxes paid remained fairly steady, the reported income tax provisions varied considerably, reflecting potential changes in income, tax planning strategies, or tax regulation impacts during the period analyzed.
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Invested Capital
Kinder Morgan Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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 equity equivalents to total Kinder Morgan, Inc.’s stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction work in process.
7 Subtraction of marketable securities at fair value.
- Total Reported Debt & Leases
- Over the five-year period, there is a clear downward trend in the total reported debt and leases. Beginning at approximately 43.9 billion USD at the end of 2015, the debt level consistently decreased each year, reaching about 34.7 billion USD by the end of 2019. This reduction indicates a strategic effort to deleverage or reduce financial obligations over time.
- Total Kinder Morgan, Inc.’s Stockholders’ Equity
- The stockholders’ equity remained relatively stable throughout the period analyzed. Starting around 35.1 billion USD at the end of 2015, it experienced slight decreases over the next three years, bottoming out near 33.6 billion USD by the end of 2017. However, by the end of 2019, equity showed a minor recovery to approximately 33.7 billion USD. This stability suggests a balanced approach to equity management without significant dilution or accumulation.
- Invested Capital
- Invested capital demonstrated a modest decline from roughly 72.1 billion USD at the end of 2015 to about 67.2 billion USD by the end of 2019. The decrease was gradual, with minor fluctuations observed between the years, implying a steady but cautious approach to capital investment and asset base management.
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Cost of Capital
Kinder Morgan Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 49,401) | 49,401) | ÷ | 87,746) | = | 0.56 | 0.56 | × | 15.20% | = | 8.55% | ||
| Mandatory Convertible Preferred Stock | —) | —) | ÷ | 87,746) | = | 0.00 | 0.00 | × | 0.00% | = | 0.00% | ||
| Debt3 | 38,016) | 38,016) | ÷ | 87,746) | = | 0.43 | 0.43 | × | 5.27% × (1 – 21.00%) | = | 1.80% | ||
| Operating lease liability4 | 329) | 329) | ÷ | 87,746) | = | 0.00 | 0.00 | × | 4.31% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 87,746) | 1.00 | 10.37% | ||||||||||
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 | 40,791) | 40,791) | ÷ | 80,484) | = | 0.51 | 0.51 | × | 15.20% | = | 7.70% | ||
| Mandatory Convertible Preferred Stock | 1,541) | 1,541) | ÷ | 80,484) | = | 0.02 | 0.02 | × | 9.75% | = | 0.19% | ||
| Debt3 | 37,469) | 37,469) | ÷ | 80,484) | = | 0.47 | 0.47 | × | 5.15% × (1 – 21.00%) | = | 1.89% | ||
| Operating lease liability4 | 683) | 683) | ÷ | 80,484) | = | 0.01 | 0.01 | × | 5.15% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 80,484) | 1.00 | 9.82% | ||||||||||
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 | 38,033) | 38,033) | ÷ | 80,197) | = | 0.47 | 0.47 | × | 15.20% | = | 7.21% | ||
| Mandatory Convertible Preferred Stock | 1,541) | 1,541) | ÷ | 80,197) | = | 0.02 | 0.02 | × | 9.75% | = | 0.19% | ||
| Debt3 | 40,050) | 40,050) | ÷ | 80,197) | = | 0.50 | 0.50 | × | 5.02% × (1 – 35.00%) | = | 1.63% | ||
| Operating lease liability4 | 573) | 573) | ÷ | 80,197) | = | 0.01 | 0.01 | × | 5.02% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 80,197) | 1.00 | 9.05% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 50,185) | 50,185) | ÷ | 93,341) | = | 0.54 | 0.54 | × | 15.20% | = | 8.17% | ||
| Mandatory Convertible Preferred Stock | 1,541) | 1,541) | ÷ | 93,341) | = | 0.02 | 0.02 | × | 9.75% | = | 0.16% | ||
| Debt3 | 41,015) | 41,015) | ÷ | 93,341) | = | 0.44 | 0.44 | × | 4.95% × (1 – 35.00%) | = | 1.41% | ||
| Operating lease liability4 | 600) | 600) | ÷ | 93,341) | = | 0.01 | 0.01 | × | 4.95% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 93,341) | 1.00 | 9.77% | ||||||||||
Based on: 10-K (reporting date: 2016-12-31).
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 | 34,857) | 34,857) | ÷ | 74,521) | = | 0.47 | 0.47 | × | 15.20% | = | 7.11% | ||
| Mandatory Convertible Preferred Stock | 1,541) | 1,541) | ÷ | 74,521) | = | 0.02 | 0.02 | × | 9.75% | = | 0.20% | ||
| Debt3 | 37,481) | 37,481) | ÷ | 74,521) | = | 0.50 | 0.50 | × | 4.92% × (1 – 35.00%) | = | 1.61% | ||
| Operating lease liability4 | 642) | 642) | ÷ | 74,521) | = | 0.01 | 0.01 | × | 4.92% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 74,521) | 1.00 | 8.95% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Kinder Morgan Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,570) | (3,004) | (2,747) | (3,851) | (4,115) | |
| Invested capital2 | 67,164) | 69,659) | 69,077) | 69,639) | 72,098) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -3.83% | -4.31% | -3.98% | -5.53% | -5.71% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| Exxon Mobil Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,570 ÷ 67,164 = -3.83%
4 Click competitor name to see calculations.
The financial performance from 2015 to 2019 is characterized by consistent negative economic profit, indicating that the return on invested capital remained below the cost of capital throughout the period. Despite the persistent value destruction, a general trend of improvement is evident as both the absolute economic loss and the negative spread ratio narrowed over the five-year window.
- Economic Profit Trends
- Economic profit remained negative for all reporting periods, starting at -4,115 million USD in 2015. A gradual recovery was observed through 2017, where the deficit reduced to -2,747 million USD. A slight reversal occurred in 2018 with a deficit of -3,004 million USD, before the value improved to -2,570 million USD in 2019. This trajectory suggests a steady reduction in the gap between operating returns and the required capital charge.
- Invested Capital Management
- Invested capital exhibited a general downward trajectory, declining from 72,098 million USD in 2015 to 67,164 million USD in 2019. The capital base remained relatively stable between 2016 and 2018, fluctuating around 69 billion USD, before a more pronounced decrease occurred in 2019. The reduction in total invested capital may have assisted in mitigating the economic loss by lowering the overall cost of capital charge.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative across the entire period, confirming that the company did not achieve a positive spread over its cost of capital. However, the ratio improved from -5.71% in 2015 to -3.83% in 2019. A significant improvement was noted in 2017, reaching -3.98%, followed by a minor decline to -4.31% in 2018, and a final recovery to the period's peak of -3.83% in 2019. The narrowing of this ratio indicates a trend toward greater capital efficiency, although the company remained in a state of economic value destruction throughout the observed timeframe.
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Economic Profit Margin
Kinder Morgan Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,570) | (3,004) | (2,747) | (3,851) | (4,115) | |
| Revenues | 13,209) | 14,144) | 13,705) | 13,058) | 14,403) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -19.45% | -21.24% | -20.05% | -29.49% | -28.57% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| Exxon Mobil Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × -2,570 ÷ 13,209 = -19.45%
3 Click competitor name to see calculations.
Between 2015 and 2019, the economic profit margin remained consistently negative, indicating that the organization did not generate returns sufficient to cover its cost of capital during this period. Despite this sustained negative performance, a general trajectory of improvement is observable, as the margin gradually narrowed over the five-year interval.
- Economic Profit Trends
- Economic profit exhibited a general recovery trend, moving from a deficit of 4,115 million USD in 2015 to 2,570 million USD in 2019. The most substantial year-over-year improvement occurred between 2016 and 2017, when the economic loss decreased by 1,104 million USD. While a slight reversal occurred in 2018, the trend returned to a positive direction in 2019.
- Economic Profit Margin Analysis
- The economic profit margin reached its lowest point in 2016 at -29.49%. From that trough, the margin improved to -20.05% in 2017 and concluded the period at -19.45% in 2019. This represents a cumulative improvement of 10.12 percentage points from the 2015 baseline, signaling a slow but steady reduction in the gap between actual returns and the required cost of capital.
- Revenue and Margin Correlation
- Revenues fluctuated throughout the period, with a peak of 14,403 million USD in 2015 and a low of 13,058 million USD in 2016. Notably, the economic profit margin improved in 2019 despite a decline in revenue from 14,144 million USD in 2018 to 13,209 million USD. This suggests that the improvement in economic value was not primarily driven by revenue growth, but likely resulted from internal efficiencies, capital restructuring, or reduced capital charges.
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