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
Marathon Oil Corp., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,116 – 32.71% × 14,862 = -3,745
The analysis of economic value added from 2017 to 2021 indicates a consistent failure to generate economic profit, with negative values recorded across all five years. Despite fluctuations in operational profitability, the cost of financing the invested capital consistently exceeded the net operating profit after taxes (NOPAT), resulting in continuous shareholder value destruction.
- Net Operating Profit After Taxes (NOPAT)
- Operational earnings exhibited significant volatility throughout the period. A net loss of US$ 659 million in 2017 shifted to a profit of US$ 1,350 million in 2018, followed by a decrease to US$ 654 million in 2019. A severe contraction occurred in 2020, with NOPAT falling to negative US$ 1,242 million, before recovering to US$ 1,116 million in 2021.
- Capital Structure and Cost of Capital
- Invested capital showed a general downward trend, declining from US$ 17,726 million in 2017 to US$ 14,862 million by 2021. During this same period, the cost of capital remained high and volatile, fluctuating between a low of 24.78% in 2019 and a peak of 32.71% in 2021. The high percentage cost of capital created a substantial financial hurdle that the company's operating profits were unable to overcome.
- Economic Profit Synthesis
- Economic profit remained negative throughout the analyzed timeframe, reaching its lowest point in 2017 at negative US$ 5,812 million. While there was a period of relative improvement between 2018 and 2019, the economic profit plummeted again in 2020 to negative US$ 5,413 million, mirroring the collapse in NOPAT. By 2021, the economic profit improved to negative US$ 3,745 million, a result driven more by the reduction in the total invested capital base than by a sufficient increase in operating returns relative to the cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Marathon Oil Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in reserve for credit losses.
3 Addition of increase (decrease) in equity equivalents to net income (loss).
4 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 63 × 3.00% = 2
5 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 259 × 21.00% = 54
6 Addition of after taxes interest expense to net income (loss).
7 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 1 × 21.00% = 0
8 Elimination of after taxes investment income.
9 Elimination of discontinued operations.
The financial performance between 2017 and 2021 is characterized by significant volatility in both bottom-line earnings and core operating profitability. A cyclical pattern is evident, with periods of substantial losses alternating with returns to profitability.
- Net Income Trends
- Net income exhibited extreme fluctuations, starting with a substantial loss of 5,723 million US dollars in 2017. A recovery followed in 2018 and 2019, with earnings of 1,096 million and 480 million US dollars respectively. This upward trajectory was interrupted in 2020 by a loss of 1,451 million US dollars, before returning to a positive position of 946 million US dollars in 2021.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT followed a similar volatile trajectory but demonstrated different magnitudes of variance. After a loss of 659 million US dollars in 2017, operating profit peaked in 2018 at 1,350 million US dollars. A decline occurred in 2019 to 654 million US dollars, followed by a sharp reversal to a loss of 1,242 million US dollars in 2020, and a subsequent recovery to 1,116 million US dollars in 2021.
- Analysis of NOPAT and Net Income Divergence
- A notable divergence occurred in 2017, where the loss in net income significantly exceeded the loss in NOPAT. This suggests that the primary drivers of the 2017 deficit were non-operating items rather than core operational failures. In contrast, from 2018 through 2021, NOPAT remained consistently higher than net income during profitable years, indicating that interest expenses and other non-operating costs weighed on the final net earnings.
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Cash Operating Taxes
Marathon Oil Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
An analysis of the tax expenditures from 2017 to 2021 reveals significant volatility in both cash operating taxes and income tax provisions, characterized by a sharp decline leading into 2019 followed by a period of gradual recovery.
- Cash Operating Taxes Trend
- Cash operating taxes experienced a substantial contraction, falling from US$ 559 million in 2017 to a low of US$ 1 million in 2019. Following this nadir, a recovery trend is observed, with outflows increasing to US$ 66 million in 2020 and further rising to US$ 139 million in 2021. Despite this recovery, the 2021 levels remained significantly below those recorded in 2017 and 2018.
- Income Tax Provisions and Benefits
- Income tax provisions mirrored the downward trajectory seen in cash taxes. Provisions decreased from US$ 376 million in 2017 to US$ 331 million in 2018, before transitioning into tax benefits of US$ 88 million in 2019 and US$ 14 million in 2020. By 2021, the company returned to a positive tax provision of US$ 58 million.
- Relationship Between Cash Taxes and Provisions
- A close correlation exists between the two metrics, particularly during the 2019 trough where the shift toward tax benefits coincided with a near-elimination of cash tax payments. This pattern suggests a period of reduced taxable income or the strategic application of tax credits. In the final year of the period, a divergence is noted as cash operating taxes of US$ 139 million significantly exceeded the reported income tax provision of US$ 58 million, indicating a higher immediate cash burden relative to the accounting provision.
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Invested Capital
Marathon Oil Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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 stockholders’ equity.
5 Removal of accumulated other comprehensive income.
Between 2017 and 2021, the capital structure experienced a period of initial stability followed by a contraction phase, resulting in a notable reduction in total invested capital.
- Invested Capital Trends
- Invested capital remained relatively stable from 2017 through 2019, peaking at US$ 17,954 million. A downward trend emerged in 2020, with the value declining to US$ 16,214 million and further decreasing to US$ 14,862 million by the end of 2021. This represents a total contraction of approximately 16% over the five-year period.
- Debt and Lease Obligations
- Total reported debt and leases exhibited minimal volatility between 2017 and 2019, maintaining a range between US$ 5,600 million and US$ 5,709 million. A significant reduction is observed in 2021, where obligations fell to US$ 4,107 million. This sharp decline indicates an aggressive deleveraging effort in the final year of the analysis.
- Stockholders' Equity Dynamics
- Stockholders' equity showed steady growth from 2017 to 2019, increasing from US$ 11,708 million to US$ 12,153 million. A sharp decline occurred in 2020, with equity falling to US$ 10,561 million, followed by a slight recovery to US$ 10,686 million in 2021. The overall reduction in equity during the 2020 period contributed significantly to the decline in total invested capital.
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Cost of Capital
Marathon Oil Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,996) | 15,996) | ÷ | 20,794) | = | 0.77 | 0.77 | × | 41.36% | = | 31.82% | ||
| Long-term debt and finance lease liability, including current portion3 | 4,735) | 4,735) | ÷ | 20,794) | = | 0.23 | 0.23 | × | 4.89% × (1 – 21.00%) | = | 0.88% | ||
| Operating lease liability4 | 63) | 63) | ÷ | 20,794) | = | 0.00 | 0.00 | × | 3.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 20,794) | 1.00 | 32.71% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liability, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 8,806) | 8,806) | ÷ | 15,020) | = | 0.59 | 0.59 | × | 41.36% | = | 24.25% | ||
| Long-term debt and finance lease liability, including current portion3 | 6,077) | 6,077) | ÷ | 15,020) | = | 0.40 | 0.40 | × | 4.54% × (1 – 21.00%) | = | 1.45% | ||
| Operating lease liability4 | 137) | 137) | ÷ | 15,020) | = | 0.01 | 0.01 | × | 3.00% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 15,020) | 1.00 | 25.72% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liability, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 8,157) | 8,157) | ÷ | 14,539) | = | 0.56 | 0.56 | × | 41.36% | = | 23.21% | ||
| Long-term debt and finance lease liability, including current portion3 | 6,174) | 6,174) | ÷ | 14,539) | = | 0.42 | 0.42 | × | 4.55% × (1 – 21.00%) | = | 1.53% | ||
| Operating lease liability4 | 208) | 208) | ÷ | 14,539) | = | 0.01 | 0.01 | × | 4.00% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 14,539) | 1.00 | 24.78% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liability, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,653) | 13,653) | ÷ | 19,306) | = | 0.71 | 0.71 | × | 41.36% | = | 29.25% | ||
| Long-term debt and finance lease liability, including current portion3 | 5,469) | 5,469) | ÷ | 19,306) | = | 0.28 | 0.28 | × | 4.61% × (1 – 21.00%) | = | 1.03% | ||
| Operating lease liability4 | 184) | 184) | ÷ | 19,306) | = | 0.01 | 0.01 | × | 4.61% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 19,306) | 1.00 | 30.32% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liability, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 12,899) | 12,899) | ÷ | 18,981) | = | 0.68 | 0.68 | × | 41.36% | = | 28.11% | ||
| Long-term debt and finance lease liability, including current portion3 | 5,976) | 5,976) | ÷ | 18,981) | = | 0.31 | 0.31 | × | 4.61% × (1 – 35.00%) | = | 0.94% | ||
| Operating lease liability4 | 106) | 106) | ÷ | 18,981) | = | 0.01 | 0.01 | × | 4.61% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 18,981) | 1.00 | 29.07% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liability, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Marathon Oil Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (3,745) | (5,413) | (3,795) | (3,976) | (5,812) | |
| Invested capital2 | 14,862) | 16,214) | 17,954) | 17,565) | 17,726) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -25.20% | -33.39% | -21.14% | -22.63% | -32.79% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | -2.48% | — | — | — | — | |
| ConocoPhillips | 4.79% | — | — | — | — | |
| Exxon Mobil Corp. | 3.03% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -3,745 ÷ 14,862 = -25.20%
4 Click competitor name to see calculations.
An analysis of the financial performance from 2017 to 2021 reveals a persistent trend of negative economic value generation. Throughout the period, the entity consistently operated with a negative economic profit, indicating that returns on invested capital remained below the required cost of capital.
- Economic Profit Trends
- Economic profit remained negative for five consecutive years, reflecting a continuous destruction of economic value. A gradual improvement was observed between 2017 and 2019, with losses narrowing from -5,812 million US$ to -3,795 million US$. This trend was reversed in 2020, when economic profit declined sharply to -5,413 million US$, before recovering to -3,745 million US$ in 2021.
- Invested Capital Dynamics
- Invested capital exhibited relative stability between 2017 and 2019, fluctuating within a narrow range around 17.7 billion US$. Starting in 2020, a contraction in the capital base became evident, with invested capital decreasing to 16,214 million US$ and further dropping to 14,862 million US$ by 2021. This represents a total reduction of approximately 16% in invested capital from the 2017 peak.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative throughout the entire analyzed period, confirming that the return on invested capital did not exceed the weighted average cost of capital. The ratio improved from -32.79% in 2017 to a high of -21.14% in 2019. However, a significant deterioration occurred in 2020, with the ratio falling to -33.39%, its lowest point in the series. By 2021, the ratio moderated to -25.20%. The volatility in this ratio, particularly the sharp decline in 2020, suggests a high sensitivity to external economic shocks during that period.
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Economic Profit Margin
Marathon Oil Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (3,745) | (5,413) | (3,795) | (3,976) | (5,812) | |
| Revenues | 5,601) | 3,097) | 5,063) | 5,902) | 4,373) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -66.87% | -174.79% | -74.95% | -67.36% | -132.90% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | -3.09% | — | — | — | — | |
| ConocoPhillips | 7.98% | — | — | — | — | |
| Exxon Mobil Corp. | 2.98% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × -3,745 ÷ 5,601 = -66.87%
3 Click competitor name to see calculations.
Analysis of economic value added reveals a persistent failure to achieve positive economic profit between 2017 and 2021, indicating that the returns generated were insufficient to cover the company's cost of capital throughout the period.
- Economic Profit Trends
- Economic profit remained negative for five consecutive years, with values fluctuating between a low of -5,812 million USD in 2017 and a relative high of -3,745 million USD in 2021. While a gradual improvement was observed from 2017 through 2019, this trend was reversed in 2020 with losses widening to -5,413 million USD, before recovering in 2021.
- Revenue Volatility and Correlation
- Revenues exhibited significant instability, peaking at 5,902 million USD in 2018 and reaching a period low of 3,097 million USD in 2020. There is a observable correlation between revenue contractions and the deterioration of economic profit, most notably in 2020, where the sharp decline in revenue coincided with a substantial increase in economic losses.
- Economic Profit Margin Analysis
- The economic profit margin remained consistently negative, reflecting a lack of economic value creation. The margin experienced extreme volatility, reaching its most adverse level of -174.79% in 2020. By 2021, the margin improved to -66.87%, the most favorable level recorded in the analyzed period, although it still indicates that the entity is not generating a return above its cost of capital.
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