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
Norfolk Southern 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
= 3,711 – 17.93% × 35,469 = -2,650
The analysis of the financial data from 2017 to 2021 reveals a persistent failure to generate positive economic profit. Throughout the five-year period, the organization consistently operated with a negative economic profit, indicating that the net operating profit after taxes (NOPAT) was insufficient to cover the imputed cost of the capital invested in the business.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a general upward trajectory, growing from 2,921 million USD in 2017 to a peak of 3,711 million USD in 2021. A notable contraction occurred in 2020, where profit fell to 2,658 million USD, before recovering strongly in the following year.
- Cost of Capital and Invested Capital
- The cost of capital remained remarkably stable, fluctuating within a narrow range between 17.41% and 17.94%. Concurrently, the invested capital base saw steady incremental growth, rising from 33,382 million USD in 2017 to 35,469 million USD by 2021. The combination of a high, stable cost of capital and an increasing capital base placed significant pressure on the company's ability to achieve economic value added.
- Economic Profit Trends
- Economic profit remained negative for all reported years, reflecting a consistent destruction of economic value. The deficit reached its widest point in 2020, with an economic profit of -3,673 million USD, coinciding with the dip in NOPAT. While the economic profit improved to -2,650 million USD in 2021, the company has not yet reached a break-even point where NOPAT equals the cost of invested capital.
The data suggests a structural gap between the returns generated by the operations and the required return on the capital employed. Despite the recovery and growth in operating profits by 2021, the high cost of capital relative to the operating margin ensures that the economic profit remains in negative territory.
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Net Operating Profit after Taxes (NOPAT)
Norfolk Southern 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 allowance for doubtful accounts.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 413 × 3.04% = 13
5 2021 Calculation
Tax benefit of interest expense on debt = Adjusted interest expense on debt × Statutory income tax rate
= 659 × 21.00% = 138
6 Addition of after taxes interest expense to net income.
The financial data indicates fluctuations in key profitability measures over the five-year period ending December 31, 2021.
- Net Income
- The net income shows a notable decline from 2017 to 2018, dropping from 5404 million US$ to 2666 million US$. This represents a reduction of approximately 50.6%. From 2018 onwards, net income slightly increased to 2722 million US$ in 2019 but then declined again to 2013 million US$ in 2020. A recovery is observed in 2021, with net income increasing to 3005 million US$. Overall, net income has not returned to the 2017 peak by the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT presents a generally upward trend from 2017 through 2019, increasing from 2921 million US$ to 3546 million US$. However, in 2020, there is a decline to 2658 million US$, reflecting operational challenges or increased costs. The figure recovers significantly in 2021, reaching 3711 million US$, which is the highest level recorded during the period and exceeds the 2017 value.
The data suggests that while net income experienced volatility with an initial sharp decline and partial recovery by 2021, operational profitability as measured by NOPAT has demonstrated resilience with an overall increasing trajectory. The year 2020 marks a downturn in both measures, likely correlated with adverse external or internal factors during that period. The stronger rebound in NOPAT by 2021 compared to net income may imply improved operational efficiency or changes in non-operational factors affecting net income.
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Cash Operating Taxes
Norfolk Southern Corp., cash operating taxes calculation
US$ 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).
The financial data presents notable fluctuations in the income taxes and cash operating taxes over a five-year period ending December 31, 2021.
- Income Taxes
- The income taxes exhibit significant variability. In 2017, there was a considerable negative value, indicating a tax benefit or recovery of US$ 2,276 million. Subsequently, income taxes turned positive, registering amounts ranging from US$ 503 million to US$ 873 million from 2018 through 2021. The lowest recorded amount was US$ 517 million in 2020, followed by a noticeable increase to US$ 873 million in 2021. This pattern suggests the entity transitioned from a tax recovery position in 2017 to consistent tax expenses in subsequent years, with some fluctuations potentially influenced by operational or regulatory factors.
- Cash Operating Taxes
- Cash operating taxes showed a declining trend from US$ 784 million in 2017 to US$ 509 million in 2020. In 2018, the amount decreased slightly to US$ 753 million and further dropped to US$ 570 million in 2019. The 2020 figure marks the lowest during the period analyzed. However, in 2021, cash operating taxes increased sharply to US$ 827 million, reaching the highest level in the dataset. This increase may indicate higher taxable income, changes in tax legislation, or operational adjustments impacting taxable cash flows.
Overall, the data reveals a shift from a significant income tax benefit in 2017 to ongoing tax expenses in later years, alongside a generally declining trend in cash operating taxes until 2020, followed by a marked rise in 2021. These trends could reflect changes in profitability, tax strategy, or external fiscal conditions impacting the company's tax obligations.
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Invested Capital
Norfolk Southern 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.
The financial data indicates notable trends in debt, equity, and invested capital over the five-year period ending in 2021.
- Total reported debt & leases
- This item shows a consistent upward trend throughout the period. Debt increased steadily from $10,336 million in 2017 to $14,253 million in 2021. The increase appears continuous year over year, with the most significant growth occurring between 2020 and 2021.
- Stockholders’ equity
- Stockholders’ equity exhibits a declining pattern over the same timeframe. Equity decreased from $16,359 million in 2017 to $13,641 million in 2021. The decline is relatively gradual but consistent each year, reflecting potential shareholder value diminution or increased liabilities.
- Invested capital
- Invested capital shows a moderate increase from $33,382 million in 2017 to $35,469 million in 2021. However, the growth is not linear; the capital rose annually until 2020, after which it exhibits minimal change between 2020 and 2021. This trend suggests that investments or total capital expenditures slowed or stabilized towards the end of the period.
Overall, the capital structure reflects a rising reliance on debt financing accompanied by declining equity, while the total invested capital has grown modestly but appears to plateau in the most recent year. These movements could indicate a strategic shift towards leveraging debt and managing capital investment more conservatively.
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Cost of Capital
Norfolk Southern Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 64,841) | 64,841) | ÷ | 82,287) | = | 0.79 | 0.79 | × | 21.90% | = | 17.26% | ||
| Debt3 | 17,033) | 17,033) | ÷ | 82,287) | = | 0.21 | 0.21 | × | 4.06% × (1 – 21.00%) | = | 0.66% | ||
| Operating lease liability4 | 413) | 413) | ÷ | 82,287) | = | 0.01 | 0.01 | × | 3.04% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 82,287) | 1.00 | 17.93% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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 | 61,862) | 61,862) | ÷ | 78,959) | = | 0.78 | 0.78 | × | 21.90% | = | 17.16% | ||
| Debt3 | 16,664) | 16,664) | ÷ | 78,959) | = | 0.21 | 0.21 | × | 4.17% × (1 – 21.00%) | = | 0.70% | ||
| Operating lease liability4 | 433) | 433) | ÷ | 78,959) | = | 0.01 | 0.01 | × | 3.50% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 78,959) | 1.00 | 17.87% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
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 | 54,838) | 54,838) | ÷ | 70,182) | = | 0.78 | 0.78 | × | 21.90% | = | 17.11% | ||
| 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 | 17.88% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
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 | 45,858) | 45,858) | ÷ | 58,628) | = | 0.78 | 0.78 | × | 21.90% | = | 17.13% | ||
| 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 | 17.94% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
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 | 39,365) | 39,365) | ÷ | 51,736) | = | 0.76 | 0.76 | × | 21.90% | = | 16.66% | ||
| 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 | 17.41% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Norfolk Southern 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 | (2,650) | (3,673) | (2,755) | (2,818) | (2,892) | |
| Invested capital2 | 35,469) | 35,427) | 35,233) | 34,104) | 33,382) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.47% | -10.37% | -7.82% | -8.26% | -8.66% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| FedEx Corp. | -3.82% | — | — | — | — | |
| Uber Technologies Inc. | -22.90% | — | — | — | — | |
| Union Pacific Corp. | -2.36% | — | — | — | — | |
| United Airlines Holdings Inc. | -10.29% | — | — | — | — | |
| United Parcel Service Inc. | 17.48% | — | — | — | — | |
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 × -2,650 ÷ 35,469 = -7.47%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by persistent negative economic profit, indicating that the returns generated were consistently below the cost of capital. While there were fluctuations in the magnitude of these losses, the period is marked by a significant decline in 2020 followed by a recovery in 2021.
- Economic Profit Trends
- Economic profit remained negative throughout the entire five-year period. A gradual improvement was observed from 2017 to 2019, with losses narrowing from US$ 2,892 million to US$ 2,755 million. This trend was reversed in 2020, when economic profit reached a period low of US$ -3,673 million. However, by December 31, 2021, the losses were reduced to US$ 2,650 million, representing the strongest economic profit performance within the analyzed timeframe.
- Invested Capital Growth
- A steady increase in invested capital is evident, rising from US$ 33,382 million in 2017 to US$ 35,469 million in 2021. The growth was most pronounced between 2017 and 2019, after which the rate of increase slowed significantly. Between 2020 and 2021, invested capital remained relatively stagnant, increasing by only US$ 42 million.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative, mirroring the trajectory of the economic profit. The ratio improved from -8.66% in 2017 to -7.82% in 2019, before sharply deteriorating to -10.37% in 2020. This peak in negative spread indicates a widening gap between the cost of capital and the actual return on investment during that year. By 2021, the ratio recovered to -7.47%, the highest value recorded in the period, suggesting a reduction in the rate of value destruction.
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Economic Profit Margin
Norfolk Southern 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 | (2,650) | (3,673) | (2,755) | (2,818) | (2,892) | |
| Railway operating revenues | 11,142) | 9,789) | 11,296) | 11,458) | 10,551) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -23.78% | -37.52% | -24.39% | -24.59% | -27.41% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| FedEx Corp. | -2.92% | — | — | — | — | |
| Uber Technologies Inc. | -21.09% | — | — | — | — | |
| Union Pacific Corp. | -6.31% | — | — | — | — | |
| United Airlines Holdings Inc. | -21.67% | — | — | — | — | |
| United Parcel Service Inc. | 7.98% | — | — | — | — | |
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 ÷ Railway operating revenues
= 100 × -2,650 ÷ 11,142 = -23.78%
3 Click competitor name to see calculations.
The financial performance from 2017 through 2021 is characterized by a consistent inability to generate positive economic profit, indicating that the returns on invested capital remained below the company's cost of capital throughout the period. While fluctuations occurred, the overall trend reflects a sustained period of value destruction from an economic profit perspective.
- Economic Profit Trends
- Economic profit remained negative for all five years analyzed. The losses were relatively stable between 2017 and 2019, ranging from -2,892 million to -2,755 million. A significant deterioration occurred in 2020, where economic profit dropped to its lowest point of -3,673 million. However, a recovery was observed in 2021, with the loss narrowing to -2,650 million, the lowest deficit in the five-year sequence.
- Railway Operating Revenues
- Operating revenues exhibited volatility, peaking in 2018 at 11,458 million before experiencing a decline. A sharp contraction was evident in 2020, with revenues falling to 9,789 million. By 2021, revenues rebounded to 11,142 million, nearly returning to 2019 levels, which suggests a recovery in top-line activity following the 2020 downturn.
- Economic Profit Margin
- The economic profit margin mirrored the volatility of the absolute economic profit and revenue figures. The margin improved slightly from -27.41% in 2017 to -24.39% in 2019. The most severe decline occurred in 2020, when the margin widened to -37.52%, coinciding with the simultaneous drop in revenues and increase in economic loss. The period concluded with a recovery in 2021, as the margin reached its highest point in the series at -23.78%.
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