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
Monsanto Co., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2017 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,582 – 17.12% × 16,366 = -220
The financial performance from 2012 to 2017 is characterized by a consistent inability to generate positive economic profit, indicating that the net operating profit after taxes (NOPAT) remained insufficient to cover the cost of the capital employed during this period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility, peaking in 2013 at 2,743 million US dollars before entering a period of decline. A notable trough occurred in 2016, where profit dropped to 1,816 million US dollars, representing the lowest point in the analyzed timeframe. A recovery was observed in 2017, with NOPAT rising back to 2,582 million US dollars.
- Cost of Capital and Invested Capital
- The cost of capital remained high throughout the period, starting at 18.64% in 2012 and fluctuating within a narrow range to end at 17.12% in 2017. Invested capital showed a general upward trajectory from 14,553 million US dollars in 2012 to a peak of 18,327 million US dollars in 2015. This was followed by a reduction to 15,963 million US dollars in 2016 and a slight increase to 16,366 million US dollars in 2017.
- Economic Profit Analysis
- Economic profit remained negative for all six years, signaling a persistent destruction of shareholder value. While there was an initial improvement in economic profit between 2012 and 2014, where losses narrowed from 466 million US dollars to 165 million US dollars, a sharp deterioration occurred subsequently. The deficit widened significantly in 2015 and 2016, reaching a peak loss of 813 million US dollars in 2016. This deterioration coincided with the peak in invested capital and the lowest observed NOPAT. By 2017, economic profit improved to -220 million US dollars, though it remained below the break-even threshold.
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Net Operating Profit after Taxes (NOPAT)
Monsanto Co., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful trade receivables.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in deferred revenues.
5 Addition of increase (decrease) in restructuring reserves.
6 Addition of increase (decrease) in equity equivalents to net income attributable to Monsanto Company.
7 2017 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 458 × 3.88% = 18
8 2017 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 470 × 35.00% = 164
9 Addition of after taxes interest expense to net income attributable to Monsanto Company.
10 2017 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 73 × 35.00% = 26
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
An analysis of the financial performance from 2012 to 2017 reveals a period of volatility characterized by an initial growth phase, a mid-period contraction, and a subsequent recovery. Both Net Income and Net Operating Profit After Taxes (NOPAT) exhibit a high degree of correlation in their trajectories, though NOPAT remains consistently higher than net income throughout the entire period.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT experienced an initial increase, peaking in 2013 at 2,743 million US$. This was followed by a three-year downward trend, reaching a period low of 1,816 million US$ in 2016. A significant recovery is observed in 2017, with the value returning to 2,582 million US$, nearly reaching the previous peak levels.
- Net Income Performance
- Net income attributable to the company followed a similar pattern, though its peak occurred slightly later in 2014 at 2,740 million US$. A sharp decline was recorded between 2014 and 2016, with the 2016 figure of 1,336 million US$ representing the lowest point in the observed timeframe. A strong rebound is evident in 2017, with net income rising to 2,260 million US$.
- Comparative Profitability Analysis
- The consistent variance where NOPAT exceeds net income indicates that operating profitability remained stronger than bottom-line earnings. This gap was most pronounced in 2016, where the difference between NOPAT and net income reached 480 million US$, suggesting that while operational profits declined, net income was subject to additional downward pressures during that fiscal year.
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Cash Operating Taxes
Monsanto Co., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
An analysis of tax expenditures from 2012 to 2017 reveals a distinct divergence between accounting-based tax provisions and actual cash outflows for operating taxes.
- Cash Operating Taxes Trend
- Cash operating taxes experienced a period of consistent growth between 2012 and 2015, rising from 708 million US$ to a peak of 1,272 million US$. This upward trajectory was followed by a sharp decline in 2016 and 2017, with values dropping to 801 million US$ and 719 million US$, respectively. This indicates a significant volatility in actual cash liquidity diverted to tax obligations over the six-year period.
- Income Tax Provision Analysis
- The income tax provision from continuing operations followed a more moderate path, increasing from 901 million US$ in 2012 to a peak of 1,078 million US$ in 2014. Subsequently, the provision entered a steady downward trend, decreasing for three consecutive years to reach 626 million US$ by August 31, 2017. This suggests a reduction in the recognized tax expense on the income statement toward the end of the period.
- Variance Between Accrual and Cash Tax
- A notable shift occurred in the relationship between the tax provision and cash operating taxes. In 2012 and 2013, the income tax provision exceeded the cash taxes paid. However, from 2014 onward, this relationship inverted, with cash operating taxes consistently surpassing the provision. The widest variance occurred in 2015, when cash taxes exceeded the provision by 408 million US$, suggesting substantial timing differences or the settlement of deferred tax liabilities during that window.
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Invested Capital
Monsanto Co., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
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 LIFO reserve. See details »
5 Addition of deferred revenues.
6 Addition of restructuring reserves.
7 Addition of equity equivalents to total Monsanto Company shareowners’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of construction in progress and other.
10 Subtraction of investments.
Invested capital exhibited a general upward trajectory from 2012 to 2015, peaking at 18,327 million USD, before experiencing a contraction in 2016 and a marginal recovery in 2017. This pattern indicates a period of capital expansion followed by a subsequent realignment of the financial base.
- Debt and Lease Obligations
- A significant escalation in total reported debt and leases occurred between 2013 and 2014, with values increasing from 2,547 million USD to 8,252 million USD. This growth trend continued into 2015, reaching a peak of 9,511 million USD, and remained stable through 2016 before declining to 8,582 million USD by August 31, 2017.
- Shareowners' Equity Trends
- Shareowners' equity demonstrated a pronounced inverse relationship with debt levels beginning in 2014. After reaching a peak of 12,559 million USD in 2013, equity declined steadily over three years to a low of 4,534 million USD in 2016. A partial recovery was observed in 2017, as equity rose to 6,438 million USD.
- Capital Structure Dynamics
- The period between 2013 and 2016 is characterized by a fundamental shift in the composition of invested capital. The sharp increase in debt coinciding with a substantial reduction in equity suggests a strategic transition toward a more leveraged capital structure. Despite these significant shifts in the funding mix, the total invested capital remained relatively more stable than its individual components, fluctuating between 14,553 million USD and 18,327 million USD throughout the analysis period.
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Cost of Capital
Monsanto Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 53,493) | 53,493) | ÷ | 62,431) | = | 0.86 | 0.86 | × | 19.56% | = | 16.76% | ||
| Debt3 | 8,480) | 8,480) | ÷ | 62,431) | = | 0.14 | 0.14 | × | 3.88% × (1 – 35.00%) | = | 0.34% | ||
| Operating lease liability4 | 458) | 458) | ÷ | 62,431) | = | 0.01 | 0.01 | × | 3.88% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 62,431) | 1.00 | 17.12% | ||||||||||
Based on: 10-K (reporting date: 2017-08-31).
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 | 44,889) | 44,889) | ÷ | 54,776) | = | 0.82 | 0.82 | × | 19.56% | = | 16.03% | ||
| Debt3 | 9,423) | 9,423) | ÷ | 54,776) | = | 0.17 | 0.17 | × | 3.80% × (1 – 35.00%) | = | 0.42% | ||
| Operating lease liability4 | 464) | 464) | ÷ | 54,776) | = | 0.01 | 0.01 | × | 3.80% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 54,776) | 1.00 | 16.47% | ||||||||||
Based on: 10-K (reporting date: 2016-08-31).
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 | 41,226) | 41,226) | ÷ | 50,436) | = | 0.82 | 0.82 | × | 19.56% | = | 15.99% | ||
| Debt3 | 8,743) | 8,743) | ÷ | 50,436) | = | 0.17 | 0.17 | × | 3.74% × (1 – 35.00%) | = | 0.42% | ||
| Operating lease liability4 | 467) | 467) | ÷ | 50,436) | = | 0.01 | 0.01 | × | 3.74% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 50,436) | 1.00 | 16.43% | ||||||||||
Based on: 10-K (reporting date: 2015-08-31).
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 | 54,303) | 54,303) | ÷ | 62,955) | = | 0.86 | 0.86 | × | 19.56% | = | 16.87% | ||
| Debt3 | 8,161) | 8,161) | ÷ | 62,955) | = | 0.13 | 0.13 | × | 3.78% × (1 – 35.00%) | = | 0.32% | ||
| Operating lease liability4 | 491) | 491) | ÷ | 62,955) | = | 0.01 | 0.01 | × | 3.78% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 62,955) | 1.00 | 17.21% | ||||||||||
Based on: 10-K (reporting date: 2014-08-31).
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 | 56,591) | 56,591) | ÷ | 59,307) | = | 0.95 | 0.95 | × | 19.56% | = | 18.66% | ||
| Debt3 | 2,282) | 2,282) | ÷ | 59,307) | = | 0.04 | 0.04 | × | 4.49% × (1 – 35.00%) | = | 0.11% | ||
| Operating lease liability4 | 435) | 435) | ÷ | 59,307) | = | 0.01 | 0.01 | × | 4.49% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 59,307) | 1.00 | 18.79% | ||||||||||
Based on: 10-K (reporting date: 2013-08-31).
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 | 47,414) | 47,414) | ÷ | 50,179) | = | 0.94 | 0.94 | × | 19.56% | = | 18.48% | ||
| Debt3 | 2,447) | 2,447) | ÷ | 50,179) | = | 0.05 | 0.05 | × | 4.48% × (1 – 35.00%) | = | 0.14% | ||
| Operating lease liability4 | 318) | 318) | ÷ | 50,179) | = | 0.01 | 0.01 | × | 4.48% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 50,179) | 1.00 | 18.64% | ||||||||||
Based on: 10-K (reporting date: 2012-08-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Monsanto Co., economic spread ratio calculation, comparison to benchmarks
| Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (220) | (813) | (650) | (165) | (221) | (466) | |
| Invested capital2 | 16,366) | 15,963) | 18,327) | 16,260) | 15,770) | 14,553) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -1.34% | -5.10% | -3.55% | -1.02% | -1.40% | -3.20% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| lululemon athletica inc. | — | — | — | — | — | — | |
| Nike Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2017 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -220 ÷ 16,366 = -1.34%
4 Click competitor name to see calculations.
The analysis of economic performance from 2012 to 2017 reveals a persistent failure to generate positive economic profit, indicating that the returns on invested capital remained below the company's cost of capital throughout the entire period.
- Economic Profit Trends
- Economic profit remained consistently negative over the six-year horizon. A period of relative improvement was observed between 2012 and 2014, as losses narrowed from -466 million USD to -165 million USD. This trend reversed sharply in 2015 and 2016, with economic profit declining to a peak deficit of -813 million USD in 2016, before rebounding to -220 million USD by August 31, 2017.
- Invested Capital Fluctuations
- Invested capital showed a general increase from 14,553 million USD in 2012 to a peak of 18,327 million USD in 2015. A subsequent reduction in invested capital occurred in 2016, dropping to 15,963 million USD, followed by a slight increase to 16,366 million USD in 2017.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative throughout the period, signifying continuous shareholder value destruction. The ratio improved from -3.20% in 2012 to its highest point of -1.02% in 2014. A significant deterioration followed, with the ratio falling to -3.55% in 2015 and reaching a period low of -5.10% in 2016. By 2017, the ratio recovered to -1.34%, reflecting a reduction in the gap between the return on invested capital and the cost of capital, though it remained insufficient to achieve a positive economic spread.
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Economic Profit Margin
Monsanto Co., economic profit margin calculation, comparison to benchmarks
| Aug 31, 2017 | Aug 31, 2016 | Aug 31, 2015 | Aug 31, 2014 | Aug 31, 2013 | Aug 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (220) | (813) | (650) | (165) | (221) | (466) | |
| Net sales | 14,640) | 13,502) | 15,001) | 15,855) | 14,861) | 13,504) | |
| Add: Increase (decrease) in deferred revenues | 238) | 186) | (68) | (170) | 14) | (69) | |
| Adjusted net sales | 14,878) | 13,688) | 14,933) | 15,685) | 14,875) | 13,435) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -1.48% | -5.94% | -4.35% | -1.05% | -1.49% | -3.47% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| lululemon athletica inc. | — | — | — | — | — | — | |
| Nike Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).
1 Economic profit. See details »
2 2017 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -220 ÷ 14,878 = -1.48%
3 Click competitor name to see calculations.
The financial performance from 2012 to 2017 is characterized by a consistent failure to generate positive economic profit, indicating that the company's returns remained below its cost of capital throughout the analyzed period.
- Economic Profit Trends
- Economic profit exhibited significant volatility over the six-year span. An initial period of improvement was observed between 2012 and 2014, as losses narrowed from -466 million USD to -165 million USD. This trend reversed sharply in 2015 and 2016, with losses expanding to -650 million USD and peaking at -813 million USD, respectively. A recovery occurred in 2017, with economic profit returning to -220 million USD.
- Economic Profit Margin Analysis
- The economic profit margin remained negative for the entire duration, reflecting a persistent destruction of economic value. The margin improved from -3.47% in 2012 to its most favorable point of -1.05% in 2014. Subsequently, the margin deteriorated rapidly, reaching a period low of -5.94% in 2016. By 2017, the margin recovered to -1.48%, nearly aligning with the performance levels seen in 2013.
- Relationship Between Sales and Economic Value
- Adjusted net sales fluctuated between a high of 15,685 million USD in 2014 and a low of 13,688 million USD in 2016. The correlation between the decline in sales and the widening of economic losses in 2016 suggests that the contraction in revenue exacerbated the inability to cover the cost of capital, leading to the most significant margin compression of the period.
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