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 – 10.41% × 67,164 = -2,593
The financial performance between 2015 and 2019 is characterized by a consistent failure to generate positive economic profit, although a general trend toward value recovery is evident. While the entity continues to operate below its cost of capital, the magnitude of the economic loss has decreased over the five-year period.
- Net Operating Profit After Taxes (NOPAT)
- A strong and uninterrupted upward trajectory is observed in NOPAT, which grew from 2,335 million US$ in 2015 to 4,396 million US$ by 2019. This represents a significant increase in operational profitability and serves as the primary driver in reducing the economic deficit.
- Cost of Capital
- The cost of capital exhibits a general upward trend with some volatility. After starting at 8.97% in 2015, it reached a peak of 10.41% in 2019. This rising cost of capital creates a higher hurdle for the entity to achieve a positive economic profit, partially offsetting the gains made in operating profit.
- Invested Capital
- Invested capital shows a gradual decline, moving from 72,098 million US$ in 2015 to 67,164 million US$ in 2019. This reduction in the capital base suggests a strategy of capital optimization or a reduction in asset intensity, which contributes positively to the economic profit calculation by lowering the total capital charge.
- Economic Profit
- Economic profit remained negative throughout the entire period, indicating that the returns on invested capital did not exceed the weighted average cost of capital. However, the economic loss improved from -4,135 million US$ in 2015 to -2,593 million US$ in 2019. A temporary reversal in this improvement occurred in 2018, where the loss widened to -3,025 million US$ from -2,767 million US$ in the prior year, before recovering in 2019.
In summary, the narrowing of the economic profit deficit is the result of substantial growth in NOPAT and a reduction in invested capital, which together have outweighed the negative impact of a rising cost of capital.
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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 | × | 15.26% | = | 8.59% | ||
| 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 | 10.41% | ||||||||||
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 | × | 15.26% | = | 7.73% | ||
| 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 | 9.85% | ||||||||||
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 | × | 15.26% | = | 7.23% | ||
| 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 | 9.07% | ||||||||||
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 | × | 15.26% | = | 8.20% | ||
| 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 | 9.80% | ||||||||||
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 | × | 15.26% | = | 7.14% | ||
| 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 | 8.97% | ||||||||||
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 | (2,593) | (3,025) | (2,767) | (3,874) | (4,135) | |
| Invested capital2 | 67,164) | 69,659) | 69,077) | 69,639) | 72,098) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -3.86% | -4.34% | -4.01% | -5.56% | -5.74% | |
| 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 × -2,593 ÷ 67,164 = -3.86%
4 Click competitor name to see calculations.
An analysis of the economic performance from 2015 through 2019 reveals a consistent pattern of negative economic value added, although a gradual trend toward recovery is evident. The company operated with a negative economic spread throughout the entire period, indicating that the return on invested capital remained below the cost of capital.
- Economic Profit Trends
- Economic profit remained negative for the five-year duration, starting at -4,135 million USD in 2015. While a slight regression occurred in 2018, where profit fell to -3,025 million USD from -2,767 million USD in 2017, the overall trajectory shows improvement. By December 31, 2019, the economic profit reached its highest point in the series at -2,593 million USD, representing a significant reduction in economic loss compared to the 2015 baseline.
- Invested Capital Dynamics
- Invested capital exhibited a general downward trend over the period. The capital base decreased from 72,098 million USD in 2015 to 67,164 million USD in 2019. A period of relative stability was observed between 2016 and 2018, with values hovering around 69 billion USD, followed by a more pronounced contraction in the final year of the analysis.
- Economic Spread Ratio Performance
- The economic spread ratio, which measures the difference between the return on invested capital and the weighted average cost of capital, was consistently negative. The ratio improved from -5.74% in 2015 to -3.86% in 2019. This narrowing of the negative spread suggests an increase in capital efficiency or a reduction in the cost of capital, aligning with the overall reduction in economic losses observed in the economic profit figures.
The convergence of decreasing invested capital and a narrowing negative economic spread ratio indicates a strategic shift toward reducing the capital base while simultaneously improving the relative return on that capital. Despite the persistent failure to achieve a positive economic profit, the quantitative trend indicates a steady movement toward economic break-even.
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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 | (2,593) | (3,025) | (2,767) | (3,874) | (4,135) | |
| Revenues | 13,209) | 14,144) | 13,705) | 13,058) | 14,403) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -19.63% | -21.39% | -20.19% | -29.67% | -28.71% | |
| 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 × -2,593 ÷ 13,209 = -19.63%
3 Click competitor name to see calculations.
The analysis of the period from 2015 to 2019 reveals a consistent state of negative economic profit, indicating that the returns generated were insufficient to cover the cost of capital employed. Despite the persistence of these deficits, a general trend toward the reduction of economic losses is observable over the five-year duration.
- Economic Profit Trends
- Economic profit remained negative throughout the reported period, moving from -4,135 million USD in 2015 to -2,593 million USD in 2019. While a slight regression occurred in 2018 with a loss of -3,025 million USD, the overall trajectory shows a narrowing of the economic deficit, with the 2019 figure representing the strongest performance in the sequence.
- Revenue Dynamics
- Revenues exhibited fluctuations without a definitive growth trend, starting at 14,403 million USD in 2015 and ending at 13,209 million USD in 2019. The highest revenue point was recorded in 2018 at 14,144 million USD. The lack of a linear correlation between revenue growth and economic profit improvement suggests that the reduction in economic losses was driven by factors other than top-line expansion, such as cost management or capital restructuring.
- Economic Profit Margin Analysis
- The economic profit margin remained negative, reflecting the company's inability to create economic value above its cost of capital. However, the margin showed a notable recovery from a low of -29.67% in 2016 to -19.63% in 2019. The significant improvement between 2016 and 2017, where the margin shifted from -29.67% to -20.19%, indicates a period of rapid efficiency gains or a substantial reduction in capital charges relative to revenue.
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