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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 Ratio
Economic Profit Margin

Nike Inc., economic profit calculation

US$ in millions

	12 months ended	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015	May 31, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

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
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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.	Nike Inc.’s economic profit declined from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Nike Inc., NOPAT calculation

US$ in millions

	12 months ended	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015	May 31, 2014
	Net income
	Deferred income tax expense (benefit)¹
	Increase (decrease) in allowance for uncollectible accounts receivable²
	Increase (decrease) in equity equivalents³
	Interest expense
	Interest expense, operating lease liability⁴
	Adjusted interest expense
	Tax benefit of interest expense⁵
	Adjusted interest expense, after taxes⁶
	Interest income
	Investment income, before taxes
	Tax expense (benefit) of investment income⁷
	Investment income, after taxes⁸
	Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for uncollectible accounts receivable.

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

⁴ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁵ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= hidden × 21.00% = hidden

⁶ Addition of after taxes interest expense to net income.

⁷ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 21.00% = hidden

⁸ Elimination of after taxes investment 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.	Nike Inc.’s NOPAT declined from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Nike Inc., cash operating taxes calculation

US$ in millions

	12 months ended	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015	May 31, 2014
	Income tax expense
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

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.	Nike Inc.’s cash operating taxes increased from 2017 to 2018 but then declined significantly from 2018 to 2019.

Nike Inc., invested capital calculation (financing approach)

US$ in millions

		May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015	May 31, 2014
	Current portion of long-term debt
	Notes payable
	Long-term debt, excluding current portion
	Operating lease liability¹
	Total reported debt & leases
	Shareholders’ equity
	Net deferred tax (assets) liabilities²
	Allowance for uncollectible accounts receivable³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Adjusted shareholders’ equity
	Construction in process⁶
	Short-term investments⁷
	Invested capital

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

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 shareholders’ equity.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of construction in process.

⁷ Subtraction of short-term investments.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Nike Inc.’s invested capital declined from 2017 to 2018 and from 2018 to 2019.

Nike Inc., cost of capital calculations

	Weights			Cost of capital
Equity²		÷	=		×		=
Short-term borrowings and long-term debt³		÷	=		×	× (1 – 21.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 21.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2019-07-23).

¹ US$ in millions

² Equity. See details »