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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

Norfolk Southern Corp., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net operating profit after taxes (NOPAT)¹	3,546	3,300	2,921	2,278	2,245
Cost of capital²	13.44%	13.49%	13.09%	12.90%	11.65%
Invested capital³	35,233	34,104	33,382	32,718	32,163

Economic profit⁴	(1,190)	(1,302)	(1,449)	(1,943)	(1,501)

Based on: 10-K (filing date: 2020-02-06), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-05), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

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
= 3,546 – 13.44% × 35,233 = -1,190

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.	Norfolk Southern Corp.’s economic profit increased from 2017 to 2018 and from 2018 to 2019.

Norfolk Southern Corp., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net income	2,722	2,666	5,404	1,668	1,556
Deferred income tax expense (benefit)¹	330	173	(2,859)	227	320
Increase (decrease) in allowance for doubtful accounts²	2	—	3	1	(3)
Increase (decrease) in equity equivalents³	332	173	(2,856)	228	317
Interest expense on debt	604	557	550	563	545
Interest expense, operating lease liability⁴	19	27	24	25	27
Adjusted interest expense on debt	623	584	574	588	572
Tax benefit of interest expense on debt⁵	(131)	(123)	(201)	(206)	(200)
Adjusted interest expense on debt, after taxes⁶	492	461	373	382	372
Net operating profit after taxes (NOPAT)	3,546	3,300	2,921	2,278	2,245

Based on: 10-K (filing date: 2020-02-06), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-05), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

¹ Elimination of deferred tax expense. See details »

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

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
= 538 × 3.52% = 19

⁵ 2019 Calculation
Tax benefit of interest expense on debt = Adjusted interest expense on debt × Statutory income tax rate
= 623 × 21.00% = 131

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.	Norfolk Southern Corp.’s NOPAT increased from 2017 to 2018 and from 2018 to 2019.

Norfolk Southern Corp., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Income taxes	769	803	(2,276)	914	886
Less: Deferred income tax expense (benefit)	330	173	(2,859)	227	320
Add: Tax savings from interest expense on debt	131	123	201	206	200
Cash operating taxes	570	753	784	893	766

Based on: 10-K (filing date: 2020-02-06), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-05), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

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.	Norfolk Southern Corp.’s cash operating taxes decreased from 2017 to 2018 and from 2018 to 2019.

Norfolk Southern Corp., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Short-term debt	—	—	100	100	200
Current maturities of long-term debt	316	585	600	550	500
Long-term debt, excluding current maturities	11,880	10,560	9,136	9,562	9,393
Operating lease liability¹	538	567	500	466	492
Total reported debt & leases	12,734	11,712	10,336	10,678	10,585
Stockholders’ equity	15,184	15,362	16,359	12,409	12,188
Net deferred tax (assets) liabilities²	6,815	6,460	6,324	9,140	8,942
Allowance for doubtful accounts³	9	7	7	4	3
Equity equivalents⁴	6,824	6,467	6,331	9,144	8,945
Accumulated other comprehensive (income) loss, net of tax⁵	491	563	356	487	445
Adjusted stockholders’ equity	22,499	22,392	23,046	22,040	21,578
Invested capital	35,233	34,104	33,382	32,718	32,163

Based on: 10-K (filing date: 2020-02-06), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-05), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

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.

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

Norfolk Southern Corp., cost of capital calculations

	Capital (fair value)¹	Weights					Cost of capital
Equity²	54,838	54,838	÷	70,182	=	0.78	0.78	×	16.22%	=	12.67%
Debt³	14,806	14,806	÷	70,182	=	0.21	0.21	×	4.49% × (1 – 21.00%)	=	0.75%
Operating lease liability⁴	538	538	÷	70,182	=	0.01	0.01	×	3.52% × (1 – 21.00%)	=	0.02%
Total:	70,182					1.00					13.44%

Based on: 10-K (filing date: 2020-02-06).

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	45,858	45,858	÷	58,628	=	0.78	0.78	×	16.22%	=	12.69%
Debt³	12,203	12,203	÷	58,628	=	0.21	0.21	×	4.69% × (1 – 21.00%)	=	0.77%
Operating lease liability⁴	567	567	÷	58,628	=	0.01	0.01	×	4.69% × (1 – 21.00%)	=	0.04%
Total:	58,628					1.00					13.49%

Based on: 10-K (filing date: 2019-02-08).

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	39,365	39,365	÷	51,736	=	0.76	0.76	×	16.22%	=	12.34%
Debt³	11,871	11,871	÷	51,736	=	0.23	0.23	×	4.82% × (1 – 35.00%)	=	0.72%
Operating lease liability⁴	500	500	÷	51,736	=	0.01	0.01	×	4.82% × (1 – 35.00%)	=	0.03%
Total:	51,736					1.00					13.09%

Based on: 10-K (filing date: 2018-02-05).

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	34,829	34,829	÷	47,021	=	0.74	0.74	×	16.22%	=	12.01%
Debt³	11,726	11,726	÷	47,021	=	0.25	0.25	×	5.27% × (1 – 35.00%)	=	0.85%
Operating lease liability⁴	466	466	÷	47,021	=	0.01	0.01	×	5.27% × (1 – 35.00%)	=	0.03%
Total:	47,021					1.00					12.90%

Based on: 10-K (filing date: 2017-02-06).

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	21,020	21,020	÷	32,836	=	0.64	0.64	×	16.22%	=	10.38%
Debt³	11,324	11,324	÷	32,836	=	0.34	0.34	×	5.40% × (1 – 35.00%)	=	1.21%
Operating lease liability⁴	492	492	÷	32,836	=	0.01	0.01	×	5.40% × (1 – 35.00%)	=	0.05%
Total:	32,836					1.00					11.65%

Based on: 10-K (filing date: 2016-02-08).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Norfolk Southern Corp., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(1,190)	(1,302)	(1,449)	(1,943)	(1,501)
Invested capital²	35,233	34,104	33,382	32,718	32,163
Performance Ratio
Economic spread ratio³	-3.38%	-3.82%	-4.34%	-5.94%	-4.67%
Benchmarks
Economic Spread Ratio, Competitors⁴
CSX Corp.	0.19%	-0.09%	-3.91%	-4.10%	-1.63%
FedEx Corp.	-7.78%	-1.34%	-1.37%	-4.49%	-8.88%
Union Pacific Corp.	0.96%	0.36%	-0.74%	-1.44%	-0.03%
United Parcel Service Inc.	2.73%	7.32%	10.81%	6.82%	17.12%

Based on: 10-K (filing date: 2020-02-06), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-05), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,190 ÷ 35,233 = -3.38%

⁴ Click competitor name to see calculations.

Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Norfolk Southern Corp.’s economic spread ratio improved from 2017 to 2018 and from 2018 to 2019.

Norfolk Southern Corp., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(1,190)	(1,302)	(1,449)	(1,943)	(1,501)
Railway operating revenues	11,296	11,458	10,551	9,888	10,511
Performance Ratio
Economic profit margin²	-10.54%	-11.36%	-13.73%	-19.66%	-14.28%
Benchmarks
Economic Profit Margin, Competitors³
CSX Corp.	0.55%	-0.26%	-11.24%	-11.90%	-4.22%
FedEx Corp.	-5.92%	-1.09%	-1.09%	-3.91%	-6.79%
Union Pacific Corp.	2.54%	0.90%	-1.92%	-3.88%	-0.08%
United Parcel Service Inc.	1.34%	3.25%	4.77%	2.24%	5.60%

Based on: 10-K (filing date: 2020-02-06), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-05), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-08).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Railway operating revenues
= 100 × -1,190 ÷ 11,296 = -10.54%

³ Click competitor name to see calculations.

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Norfolk Southern Corp.’s economic profit margin improved from 2017 to 2018 and from 2018 to 2019.

Norfolk Southern Corp. (NYSE:NSC)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin