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 – 10.38% × 67,164 = -2,577
An analysis of the economic profit trends from 2015 to 2019 reveals a pattern of operational growth offset by a persistent inability to exceed the cost of capital. While operational profitability improved steadily, the entity remained in a state of economic value destruction throughout the period.
- Net Operating Profit After Taxes (NOPAT)
- A consistent and significant upward trajectory is observed in NOPAT, which grew from 2,335 million USD in 2015 to 4,396 million USD in 2019. This represents a steady increase in the earnings generated from core operations after accounting for taxes, indicating improved operational efficiency or expanded revenue streams.
- Invested Capital and Cost of Capital
- Invested capital exhibited a general downward trend, decreasing from 72,098 million USD in 2015 to 67,164 million USD in 2019. During the same timeframe, the cost of capital displayed an overall increase, rising from 8.95% to 10.38%. The rise in the cost of capital increases the threshold of profit required to achieve a positive economic profit.
- Economic Profit
- Economic profit remained negative for all five years analyzed, confirming that the NOPAT was insufficient to cover the implicit cost of the capital employed. Despite this, the magnitude of the economic loss narrowed from -4,121 million USD in 2015 to -2,577 million USD in 2019. This improvement is primarily driven by the substantial growth in NOPAT and the reduction in the total invested capital base.
The data indicates a narrowing gap between operating returns and the capital charge. However, the simultaneous increase in the cost of capital has acted as a headwind, preventing the transition to positive economic profit despite the strong growth in operational earnings.
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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..
Analysis of financial performance from 2015 to 2019 reveals a distinct divergence between the company's core operational profitability and its bottom-line net income.
- Net Operating Profit After Taxes (NOPAT) Trends
- A consistent and linear upward trend is observed in NOPAT over the five-year period. Starting at US$ 2,335 million in 2015, the figure grew steadily each year, reaching US$ 4,396 million by December 31, 2019. This continuous growth indicates a sustained improvement in the productivity and profitability of the underlying business operations, independent of capital structure or financing costs.
- Net Income Volatility
- In contrast to the stability of NOPAT, net income attributable to Kinder Morgan, Inc. exhibited significant volatility. While net income rose from US$ 253 million in 2015 to US$ 708 million in 2016, it experienced a sharp contraction in 2017, falling to US$ 183 million. However, a strong recovery followed in 2018 and 2019, with net income accelerating to US$ 1,609 million and US$ 2,190 million, respectively.
- Operational vs. Net Profitability Gap
- A substantial variance is maintained between NOPAT and net income throughout the entire period. The fact that NOPAT remained strong and grew consistently while net income fluctuated suggests that non-operating items—likely interest expenses associated with debt or other non-cash adjustments—exerted a significant influence on the final net earnings. The widening of net income toward the end of the period, alongside the growth of NOPAT, indicates an improvement in the overall translation of operating profit into net earnings.
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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).
An analysis of tax expenditures from 2015 through 2019 reveals a significant divergence between the accounting income tax provision and the actual cash operating taxes paid. While the income tax provision demonstrated high volatility, the cash operating taxes remained relatively stable, indicating that non-cash tax adjustments significantly influenced the reported financial figures over this five-year period.
- Income Tax Provision Volatility
- The income tax provision exhibited substantial fluctuations, starting at 564 million USD in 2015 and peaking sharply at 1,938 million USD in 2017. This peak represents a more than three-fold increase from the 2015 baseline. Following this spike, the provision dropped precipitously to 587 million USD in 2018 before rising again to 926 million USD in 2019.
- Cash Operating Tax Stability
- In contrast to the provision, cash operating taxes remained within a tighter range. After a decrease from 601 million USD in 2015 to 472 million USD in 2016, the figures showed a gradual upward trend, reaching 592 million USD in 2018 and stabilizing at 590 million USD in 2019. This suggests a consistent cash outflow for taxes regardless of the accounting provisions reported.
- Provision-to-Cash Tax Variance
- A critical variance is observed in 2017, where the income tax provision exceeded cash operating taxes by 1,422 million USD. This divergence indicates a substantial increase in deferred tax liabilities or other non-cash tax charges during that period. By 2018, the gap narrowed significantly, with the provision and cash taxes converging at 587 million USD and 592 million USD, respectively.
- Implications for Economic Value Added (EVA)
- The stability of cash operating taxes relative to the volatile tax provision suggests that for the purposes of calculating EVA, the cash-based tax figure provides a more consistent measure of the actual capital burden. The large non-cash adjustments seen in 2017 would typically be added back to the net operating profit after tax (NOPAT) to avoid understating the economic performance of the entity during that fiscal year.
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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.
The total invested capital exhibits a general downward trajectory over the five-year period from 2015 to 2019. This contraction is primarily driven by a systematic reduction in total reported debt and leases, while stockholders' equity remained relatively stable, indicating a strategic shift toward deleveraging the capital structure.
- Total Reported Debt and Leases
- A consistent downward trend is observed in debt levels, which decreased from 43,869 million US$ in 2015 to 34,721 million US$ in 2019. This represents a total reduction of approximately 20.8% over the period, with the most significant annual declines occurring between 2015 and 2017 and again in 2019.
- Stockholders' Equity
- Equity levels remained relatively constant throughout the analysis period. A slight decline occurred between 2015 and 2017, moving from 35,119 million US$ to 33,636 million US$, followed by a marginal recovery to 33,742 million US$ by the end of 2019. The stability of this component suggests that the overall change in invested capital was not driven by equity fluctuations.
- Invested Capital Trends
- Invested capital decreased from 72,098 million US$ in 2015 to 67,164 million US$ in 2019. The movement of the invested capital closely mirrors the trend in total debt, confirming that the reduction in the capital base was a result of debt repayment rather than a divestment of equity or a significant shift in the funding mix.
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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 | × | 15.21% | = | 8.57% | ||
| 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 | 10.38% | ||||||||||
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 | × | 15.21% | = | 7.71% | ||
| 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 | 9.83% | ||||||||||
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 | × | 15.21% | = | 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 | 9.06% | ||||||||||
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 | × | 15.21% | = | 8.18% | ||
| 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 | 9.78% | ||||||||||
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 | × | 15.21% | = | 7.12% | ||
| 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 | (2,577) | (3,010) | (2,753) | (3,858) | (4,121) | |
| Invested capital2 | 67,164) | 69,659) | 69,077) | 69,639) | 72,098) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -3.84% | -4.32% | -3.99% | -5.54% | -5.72% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| ExxonMobil Holdings 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 × -2,577 ÷ 67,164 = -3.84%
4 Click competitor name to see calculations.
The analysis of financial performance from 2015 to 2019 reveals a period of consistent negative economic value creation, although a general trend of improvement is observable. The persistence of negative values across key metrics indicates that the return on invested capital did not exceed the cost of capital during this five-year window.
- Economic Profit Trends
- Economic profit remained negative throughout the period, starting at -4,121 million in 2015 and ending at -2,577 million in 2019. While a slight reversal occurred in 2018, where losses widened to -3,010 million from -2,753 million in the previous year, the overall trajectory shows a reduction in the economic deficit over the long term.
- Invested Capital Dynamics
- Invested capital exhibited a general downward trend, decreasing from 72,098 million in 2015 to 67,164 million in 2019. This gradual reduction in the capital base suggests a contraction or optimization of assets employed in the business, which correlates with the narrowing of economic losses.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative, reflecting a failure to achieve a positive spread over the cost of capital. However, the ratio improved from -5.72% in 2015 to -3.84% in 2019. The most significant improvement occurred between 2016 and 2017, where the ratio moved from -5.54% to -3.99%, signaling an increase in capital efficiency despite the continued negative absolute value.
In summary, while the entity failed to generate positive economic value, the steady narrowing of the economic spread ratio and the reduction in negative economic profit suggest a gradual recovery in the relationship between capital costs and operational returns.
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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 | (2,577) | (3,010) | (2,753) | (3,858) | (4,121) | |
| Revenues | 13,209) | 14,144) | 13,705) | 13,058) | 14,403) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -19.51% | -21.28% | -20.09% | -29.55% | -28.61% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| ExxonMobil Holdings 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 × -2,577 ÷ 13,209 = -19.51%
3 Click competitor name to see calculations.
Analysis of economic profit and revenue trends indicates a sustained period of negative economic value added, although the severity of the deficit decreased over the five-year observation period. The overall trajectory suggests a gradual improvement in the relationship between generated earnings and the cost of capital employed.
- Economic Profit Trends
- Economic profit remained consistently negative from 2015 to 2019. The most significant deficit was recorded in 2015 at -4,121 million US$, with a general trend of recovery leading to -2,577 million US$ by 2019. A minor reversal in this recovery was observed in 2018, where losses increased to -3,010 million US$ from the previous year's -2,753 million US$.
- Revenue Performance
- Revenues demonstrated volatility throughout the period, failing to establish a linear growth pattern. A decline was noted in 2016, followed by a recovery period that peaked in 2018 at 14,144 million US$, before decreasing again to 13,209 million US$ in 2019. This indicates that the improvement in economic profit was not primarily driven by revenue growth.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the trajectory of the absolute economic profit, showing a steady movement toward zero. The margin improved from -28.61% in 2015 to a peak of -19.51% in 2019. A notable shift occurred between 2016 and 2017, where the margin improved by nearly 9.5 percentage points, signaling a period of enhanced capital efficiency or reduced cost of capital relative to earnings.
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