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.
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Economic Profit
Kinder Morgan Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) increased over the five years, it has not been sufficient to offset the cost of capital applied to the invested capital base.
- NOPAT Trend
- Net operating profit after taxes exhibited an upward trend, increasing from US$2,335 million in 2015 to US$4,396 million in 2019. This represents a substantial increase in operational profitability over the period.
- Cost of Capital Trend
- The cost of capital generally increased throughout the period, rising from 8.88% in 2015 to 10.30% in 2019. The increase suggests a growing risk profile or changes in market interest rates impacting the company’s funding costs.
- Invested Capital Trend
- Invested capital experienced a slight decrease over the five-year period, moving from US$72,098 million in 2015 to US$67,164 million in 2019. This suggests a potential reduction in the company’s asset base or changes in working capital management.
- Economic Profit Trend
- Economic profit remained negative throughout the period, ranging from -US$2,519 million in 2019 to -US$4,069 million in 2015. While the magnitude of the negative economic profit decreased between 2015 and 2017, it increased again in 2018 and 2019. This indicates that the company’s returns are not exceeding its cost of capital, despite the growth in NOPAT.
The increasing NOPAT is a positive sign, but the concurrent rise in the cost of capital and the consistently negative economic profit suggest that the company is not generating sufficient returns on its invested capital to create value for its investors. Further investigation into the drivers of the cost of capital and the efficiency of capital allocation would be warranted.
Net Operating Profit after Taxes (NOPAT)
Kinder Morgan Inc., NOPAT calculation
US$ 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
= × =
5 2019 Calculation
Tax benefit of interest, net = Adjusted interest, net × Statutory income tax rate
= × 21.00% =
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.
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.
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.
Cost of Capital
Kinder Morgan Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Mandatory Convertible Preferred Stock | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Mandatory Convertible Preferred Stock | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Mandatory Convertible Preferred Stock | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Mandatory Convertible Preferred Stock | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Mandatory Convertible Preferred Stock | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| 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 × ÷ =
4 Click competitor name to see calculations.
The period between 2015 and 2019 demonstrates a consistent pattern of negative economic profit, alongside a generally stable invested capital base. This results in consistently negative economic spread ratios throughout the analyzed timeframe.
- Economic Profit
- Economic profit exhibits a fluctuating, yet generally improving, negative trend. Starting at negative US$4,069 million in 2015, it decreased to negative US$3,801 million in 2016, then improved to negative US$2,704 million in 2017. A slight increase to negative US$2,957 million occurred in 2018, followed by a further improvement to negative US$2,519 million in 2019. While remaining negative, the magnitude of the economic loss diminished over the five-year period.
- Invested Capital
- Invested capital remained relatively stable throughout the period. It began at US$72,098 million in 2015, decreased to US$69,639 million in 2016, and then experienced a slight decrease to US$69,077 million in 2017. A minor increase to US$69,659 million was observed in 2018, before decreasing again to US$67,164 million in 2019. The fluctuations were comparatively small, indicating a consistent level of capital employed.
- Economic Spread Ratio
- The economic spread ratio consistently registered negative values, indicating that the company’s return on invested capital was less than its cost of capital. The ratio began at -5.64% in 2015, decreased to -5.46% in 2016, and then improved to -3.91% in 2017. A slight deterioration to -4.24% occurred in 2018, followed by an improvement to -3.75% in 2019. The trend mirrors that of economic profit, with the ratio becoming less negative over time, suggesting a narrowing gap between returns and the cost of capital.
Overall, the analysis suggests a gradual improvement in value creation, as evidenced by the diminishing economic losses and increasing economic spread ratio, although the company continued to destroy economic value throughout the period.
Economic Profit Margin
Kinder Morgan Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| 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 × ÷ =
3 Click competitor name to see calculations.
The period between 2015 and 2019 demonstrates a consistent pattern of negative economic profit for the entity. While the magnitude of the economic loss fluctuates, it remains negative throughout the observed timeframe. Revenues also exhibit variability, but do not demonstrate a clear upward or downward trend.
- Economic Profit
- Economic profit begins at negative $4,069 million in 2015 and improves to negative $2,704 million in 2017. However, it then increases in magnitude to negative $2,957 million in 2018 before slightly improving again to negative $2,519 million in 2019. This suggests some volatility in the entity’s ability to generate returns exceeding its cost of capital, but a persistent overall economic loss.
- Revenues
- Revenues decrease from $14,403 million in 2015 to $13,058 million in 2016, representing a notable decline. A subsequent increase is observed in 2017, reaching $13,705 million, followed by a further increase to $14,144 million in 2018. Revenues then decrease again in 2019, settling at $13,209 million. This indicates revenue is subject to fluctuations, but remains within a relatively constrained range.
- Economic Profit Margin
- The economic profit margin mirrors the trend in economic profit, remaining negative throughout the period. It begins at -28.25% in 2015 and reaches a high of -19.73% in 2017, indicating a relative improvement in profitability compared to earlier years. The margin then worsens to -20.90% in 2018 before improving slightly to -19.07% in 2019. The consistent negativity suggests that, despite revenue fluctuations, the entity consistently fails to generate economic profit.
Overall, the entity experiences consistent economic losses, as evidenced by the negative economic profit and economic profit margin. While there are periods of relative improvement, the underlying trend remains negative. Revenue fluctuations do not appear to consistently translate into improved economic profitability.