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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread
Economic Profit Margin

McDonald’s Corp., economic profit calculation

USD $ in thousands

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ NOPAT. See Details »

² Cost of capital. See Details »

³ Invested capital. See Details »

⁴ Economic profit = NOPAT – Cost of capital × Invested capital
= hidden – hidden × hidden = hidden

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	McDonald’s Corp.’s economic profit increased from 2016 to 2017 and from 2017 to 2018.

McDonald’s Corp., NOPAT calculation

USD $ in thousands

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net income
	Deferred income tax expense (benefit)¹
	Increase (decrease) in deferred revenues, initial franchise fees²
	Increase (decrease) in equity equivalents³
	Interest expense, net of capitalized interest
	Interest expense, operating lease obligations⁴
	Adjusted interest expense, net of capitalized interest
	Tax benefit of interest expense, net of capitalized interest⁵
	Adjusted interest expense, net of capitalized interest, after taxes⁶
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ Elimination of deferred tax expense. See Details »

² Addition of increase (decrease) in deferred revenues, initial franchise fees.

³ Addition of increase (decrease) in equity equivalents to net income.

⁴ Addition of interest expense on capitalized operating leases. See Details »

⁵ Tax benefit of interest expense, net of capitalized interest = Adjusted interest expense, net of capitalized interest × Statutory income tax rate
= hidden × 21.00% = hidden

⁶ Addition of after taxes interest expense to net income.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	McDonald’s Corp.’s NOPAT increased from 2016 to 2017 and from 2017 to 2018.

McDonald’s Corp., cash operating taxes calculation

USD $ in thousands

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Provision for income taxes
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense, net of capitalized interest
	Cash operating taxes

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	McDonald’s Corp.’s cash operating taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

McDonald’s Corp., invested capital calculation (financing approach)

USD $ in thousands

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current maturities of long-term debt
	Long-term debt, excluding current maturities
	PV of operating lease payments¹
	Total reported debt & leases
	Shareholders’ equity (deficit)
	Net deferred tax (assets) liabilities²
	Deferred revenues, initial franchise fees³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Adjusted shareholders’ equity (deficit)
	Invested capital

Based on: 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-24).

¹ Addition of capitalized operating leases. See Details »

² Elimination of deferred taxes from assets and liabilities. See Details »

³ Addition of deferred revenues, initial franchise fees.

⁴ Addition of equity equivalents to shareholders’ equity (deficit).

⁵ Removal of accumulated other comprehensive income.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	McDonald’s Corp.’s invested capital increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.

McDonald’s Corp., cost of capital calculations


Equity²	÷	=	×		=
Debt obligations³	÷	=	×	× (1 – 21.00%)	=
PV of operating lease payments⁴	÷	=	×	× (1 – 21.00%)	=
Total:

Based on: 10-K (filing date: 2019-02-22).

¹ USD $ in thousands

² Equity. See Details »

³ Debt obligations. See Details »