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 – 34.04% × 14,862 = -3,943
The analysis of economic profit from 2017 to 2021 reveals a consistent failure to generate value above the cost of capital, with economic profit remaining negative throughout the entire period. Despite fluctuations in operating performance, the organization has experienced persistent value destruction, as net operating profit after taxes has been insufficient to offset the capital charge.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibits significant volatility, alternating between positive and negative values. Profits were recorded in 2018, 2019, and 2021, with a peak of US$ 1,350 million in 2018. Conversely, substantial losses occurred in 2017 and 2020, with the 2020 loss reaching US$ 1,242 million. This inconsistency indicates a high sensitivity to external market conditions.
- Cost of Capital
- The cost of capital has remained at an elevated level, ranging from a low of 25.75% in 2019 to a high of 34.04% in 2021. This high threshold creates a substantial hurdle for the company, requiring very high operating returns to achieve a positive economic profit.
- Invested Capital
- A general downward trend in invested capital is observed, particularly from 2019 onward. The capital base decreased from US$ 17,726 million in 2017 to US$ 14,862 million by 2021. This reduction in the capital base may reflect a strategic effort to shrink the asset footprint or reduce capital expenditure to mitigate losses.
- Economic Profit Trends
- Economic profit remained negative for all five years, peaking in deficit at US$ 6,020 million in 2017. While there was a period of relative improvement between 2018 and 2019, the figures returned to a sharper decline in 2020 before recovering slightly in 2021 to US$ -3,943 million. The persistence of these negative figures demonstrates that the return on invested capital has consistently trailed 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.
- Net income (loss)
- The net income demonstrated significant volatility over the five-year period. In 2017, the company experienced a substantial loss of $5,723 million. This negative outcome was followed by a strong recovery in 2018, with net income rising to a positive $1,096 million. However, the subsequent years showed fluctuating performance, with a decline to $480 million in 2019, then a return to a loss of $1,451 million in 2020. The year 2021 saw another recovery, bringing net income back to a positive $946 million. The trend indicates cyclical financial performance with significant swings between profit and loss.
- Net operating profit after taxes (NOPAT)
- The NOPAT followed a broadly similar pattern to net income, reflecting operational profitability after tax considerations. In 2017, NOPAT was negative at $659 million, switching to a positive $1,350 million in 2018, which aligns with the recovery in net income that year. The profit reduced to $654 million in 2019 and fell again to a loss of $1,242 million in 2020, paralleling the downturn in net income. In 2021, NOPAT increased to $1,116 million, indicating improved operational efficiency or market conditions. This pattern suggests that operational profitability was a significant factor in the company's overall net income variability.
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Cash Operating Taxes
Marathon Oil Corp., cash operating taxes calculation
US$ 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).
- Income Tax Provisions (Benefits)
- The income tax provisions experienced a notable fluctuation over the analyzed period. Starting at a relatively high positive figure in 2017 with 376 million US dollars, the value decreased to 331 million in 2018. In 2019 and 2020, the provisions turned negative, reflecting benefits rather than expenses, with -88 million and -14 million US dollars respectively. This shift indicates a period of tax benefits or credits. In 2021, the figure returned to a positive value of 58 million US dollars, though this amount remains significantly lower than the earlier years, suggesting a partial return to tax liabilities but not to previous levels.
- Cash Operating Taxes
- Cash operating taxes displayed a steep decline from 2017 to 2019, falling from 559 million US dollars down to a minimal 1 million. This sharp reduction suggests substantial changes in taxable operating activities or enhanced tax strategies during these years. A gradual increase followed in 2020 and 2021, reaching 66 million and 139 million US dollars, respectively. Despite this recovery, the 2021 value remains well below the levels observed in 2017 and 2018, indicating that the company's cash tax payments have not reverted to prior higher levels.
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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.
- Total Reported Debt & Leases
- The total reported debt and leases demonstrated a relatively stable trend from 2017 to 2020 with slight fluctuations, starting at $5,600 million in 2017 and peaking modestly at $5,709 million in 2019. However, there was a significant reduction in 2021, where the figure dropped sharply to $4,107 million, indicating a considerable deleveraging effort or repayment of debt and leases during that year.
- Stockholders’ Equity
- Stockholders’ equity showed moderate growth between 2017 and 2019, increasing from $11,708 million in 2017 to $12,153 million in 2019. This was followed by a decline in 2020 down to $10,561 million, likely reflecting the impact of market or operational challenges during that period. In 2021, equity stabilized somewhat with a slight increase to $10,686 million, suggesting a period of recovery or improved financial performance.
- Invested Capital
- Invested capital exhibited an overall downward trend over the five-year period. Beginning at $17,726 million in 2017, it remained relatively steady through 2018 and 2019 but declined sharply in 2020 to $16,214 million and further decreased in 2021 to $14,862 million. This decrease may indicate asset disposals, decreased capital expenditures, or a strategic shift in the company’s investment approach.
- Summary Insights
- Over the five-year span, the company appeared to strategically reduce its financial leverage, as evidenced by the significant decline in total reported debt and leases in 2021. This deleveraging was concurrent with a reduction in invested capital, possibly reflecting a realignment of capital allocation or divestitures. Stockholders’ equity experienced volatility, with a peak around 2019 followed by a contraction and slight rebound, which may be connected to broader market conditions or company-specific operational factors. Overall, the financial data indicates a trend toward lower debt levels and reduced invested capital, alongside a cautious stabilization of equity in the latest period.
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Cost of Capital
Marathon Oil Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,996) | 15,996) | ÷ | 20,794) | = | 0.77 | 0.77 | × | 43.09% | = | 33.15% | ||
| Long-term debt and finance lease liability, including current portion3 | 4,735) | 4,735) | ÷ | 20,794) | = | 0.23 | 0.23 | × | 4.89% × (1 – 21.00%) | = | 0.88% | ||
| Operating lease liability4 | 63) | 63) | ÷ | 20,794) | = | 0.00 | 0.00 | × | 3.00% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 20,794) | 1.00 | 34.04% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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 | × | 43.09% | = | 25.26% | ||
| 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 | 26.74% | ||||||||||
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 | × | 43.09% | = | 24.18% | ||
| 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 | 25.75% | ||||||||||
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 | × | 43.09% | = | 30.47% | ||
| 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 | 31.54% | ||||||||||
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 | × | 43.09% | = | 29.28% | ||
| 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 | 30.24% | ||||||||||
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 | (3,943) | (5,577) | (3,969) | (4,190) | (6,020) | |
| Invested capital2 | 14,862) | 16,214) | 17,954) | 17,565) | 17,726) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -26.53% | -34.40% | -22.11% | -23.86% | -33.96% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | -2.33% | — | — | — | — | |
| ConocoPhillips | 5.19% | — | — | — | — | |
| Exxon Mobil Corp. | 3.41% | — | — | — | — | |
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 × -3,943 ÷ 14,862 = -26.53%
4 Click competitor name to see calculations.
An analysis of the financial performance from 2017 to 2021 reveals a consistent trend of negative economic value creation. The organization failed to generate returns exceeding its cost of capital throughout the entire observation period, resulting in persistent negative economic profit and a negative economic spread ratio.
- Economic Profit Trends
- Economic profit remained negative for five consecutive years, indicating a continuous destruction of shareholder value. A period of improvement was observed between 2017 and 2019, as losses narrowed from -6,020 million to -3,969 million. This trend reversed sharply in 2020, when losses widened to -5,577 million, before recovering to -3,943 million by the end of 2021.
- Invested Capital Dynamics
- Invested capital remained relatively stable between 2017 and 2019, fluctuating within a narrow range between 17,565 million and 17,954 million. However, a contraction phase emerged starting in 2020, with capital decreasing to 16,214 million and continuing its decline to 14,862 million in 2021. This reduction in the capital base occurred despite the ongoing negative economic profit.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative throughout the period, confirming that the return on invested capital stayed consistently below the cost of capital. The ratio improved from -33.96% in 2017 to its highest point of -22.11% in 2019. A significant deterioration followed in 2020, reaching a low of -34.40%, before a partial recovery to -26.53% in 2021. The volatility in this ratio mirrors the fluctuations seen in economic profit, particularly the sharp downturn in 2020.
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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 | (3,943) | (5,577) | (3,969) | (4,190) | (6,020) | |
| Revenues | 5,601) | 3,097) | 5,063) | 5,902) | 4,373) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -70.39% | -180.09% | -78.39% | -71.00% | -137.66% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | -2.89% | — | — | — | — | |
| ConocoPhillips | 8.65% | — | — | — | — | |
| Exxon Mobil Corp. | 3.36% | — | — | — | — | |
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 × -3,943 ÷ 5,601 = -70.39%
3 Click competitor name to see calculations.
An analysis of the financial performance from 2017 to 2021 reveals a consistent failure to generate positive economic value. Economic profit remained negative throughout the entire five-year period, indicating that the entity's net operating profit after taxes was insufficient to cover the cost of the capital employed.
- Economic Profit Trends
- Economic profit experienced significant volatility, starting at a deficit of $6,020 million in 2017. While there was a narrowing of the deficit in 2018 and 2019, a secondary decline occurred in 2020, with economic profit falling to -$5,577 million. The period ended with a relative improvement in 2021, where the deficit was reduced to $3,943 million.
- Revenue Volatility
- Revenues showed a non-linear trend, peaking in 2018 at $5,902 million before experiencing a sharp contraction in 2020, reaching a low of $3,097 million. A strong recovery was observed in 2021, with revenues increasing to $5,601 million, which helped mitigate the severity of the economic profit deficit.
- Economic Profit Margin Analysis
- The economic profit margin remained deeply negative across all reported years, reflecting a sustained destruction of economic value. The most critical deterioration occurred in 2020, where the margin reached -180.09%, driven by the simultaneous collapse in revenues and an increase in the economic profit deficit. The margins in 2018 (-71.00%) and 2021 (-70.39%) represent the most stable points in the analyzed period, although they still indicate that the cost of capital significantly outweighed the generated returns.
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