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 – 17.85% × 35,469 = -2,621
The financial performance between 2017 and 2021 is characterized by persistent negative economic profit, indicating that the returns generated from operations were consistently below the required cost of capital. While operating profits showed recovery trends toward the end of the period, the overall value creation remained negative throughout the five-year window.
- Net Operating Profit After Taxes (NOPAT)
- A general upward trajectory was observed from 2017 to 2019, with NOPAT increasing from 2,921 million to 3,546 million. A significant contraction occurred in 2020, where profits fell to 2,658 million, followed by a strong recovery in 2021 to a period peak of 3,711 million.
- Cost of Capital
- The cost of capital remained remarkably stable throughout the period, fluctuating within a narrow range between 17.34% and 17.86%. This stability suggests a consistent risk profile and funding cost environment over the analyzed years.
- Invested Capital
- Invested capital exhibited a steady, incremental increase, rising from 33,382 million in 2017 to 35,469 million in 2021. This gradual expansion of the capital base continued regardless of the volatility experienced in operating profits.
- Economic Profit
- Economic profit remained negative for all five years, signaling that the company failed to generate returns exceeding its cost of capital. The most significant deficit occurred in 2020, reaching -3,645 million, which directly correlates with the decline in NOPAT. By 2021, the economic profit improved to -2,621 million, marking the lowest deficit of the period, although the company still failed to create positive economic value.
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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.
An analysis of the financial performance from 2017 through 2021 reveals a notable divergence between net income and net operating profit after taxes (NOPAT). While net income experienced significant volatility and a general decline from its 2017 peak, NOPAT demonstrated a more resilient operational trajectory, reaching its highest point in 2021.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited a steady upward trajectory from 2017 to 2019, increasing from US$ 2,921 million to US$ 3,546 million. A contraction was observed in 2020, with NOPAT falling to US$ 2,658 million, followed by a strong recovery in 2021 to a period high of US$ 3,711 million. This pattern indicates that core operational profitability remained relatively stable and capable of recovery despite a mid-period dip.
- Net Income Volatility
- Net income displayed substantial instability, beginning with a peak of US$ 5,404 million in 2017 and experiencing a sharp decline to US$ 2,666 million in 2018. Values remained suppressed through 2019 and 2020, reaching a low of US$ 2,013 million before recovering to US$ 3,005 million in 2021. The magnitude of the decline from 2017 to 2018 is significantly more pronounced than the corresponding change in NOPAT.
- Operational Divergence and Insights
- A significant disconnect between operational profit and net income is evident between 2018 and 2019. During this interval, NOPAT increased by approximately US$ 246 million, while net income remained nearly stagnant. This divergence suggests that non-operating factors—such as interest expenses, tax adjustments, or one-time non-operational charges—had a disproportionate impact on the final bottom line compared to the actual operating performance of the business.
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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 tax profile between 2017 and 2021 demonstrates a notable divergence between accrual-based income tax expenses and actual cash operating tax outflows, which is a critical distinction for calculating economic value added.
- Income Tax Volatility
- A significant anomaly is observed in 2017, where income taxes were recorded as a negative value of US$ 2,276 million, indicating a substantial tax benefit or credit. Following this event, income tax expenses returned to positive values and remained relatively stable, fluctuating between a low of US$ 517 million in 2020 and a peak of US$ 873 million in 2021.
- Cash Operating Tax Trends
- Cash operating taxes exhibited a consistent downward trend from 2017 through 2020, declining from US$ 784 million to US$ 509 million. This gradual reduction was interrupted in 2021 by a sharp increase to US$ 827 million, representing a 62.5% increase over the previous year and the highest cash tax outflow of the period analyzed.
- Comparative Analysis of Tax Outflows
- The disparity between reported income taxes and cash operating taxes was most extreme in 2017, where the variance exceeded US$ 3 billion. While the accrual-based income tax figure showed extreme volatility, the cash operating taxes provided a more tempered reflection of the actual liquidity impact. The convergence of these two figures in 2021, with both reaching their period highs, suggests a synchronization between accounting tax expenses and actual cash disbursements toward the end of the analyzed timeframe.
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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 analysis of invested capital between 2017 and 2021 reveals a modest but steady increase in the total capital base, which grew from US$ 33,382 million to US$ 35,469 million. This growth is characterized by a significant divergence in the underlying components of the capital structure.
- Debt and Lease Obligations
- A continuous upward trajectory is observed in total reported debt and leases, which increased from US$ 10,336 million in 2017 to US$ 14,253 million in 2021. This represents a consistent reliance on debt financing to support the company's capital requirements over the five-year period.
- Stockholders' Equity
- A sustained decline in stockholders' equity is evident, falling from US$ 16,359 million in 2017 to US$ 13,641 million in 2021. The consistent year-over-year reduction indicates a contraction in the equity portion of the capital base.
- Invested Capital Dynamics
- Total invested capital experienced growth of approximately 6.2% over the analyzed period. However, the growth rate decelerated after 2019, with values remaining relatively stable between 2020 and 2021. The data indicates that the expansion and maintenance of the total invested capital were driven entirely by increased leverage, which offset the simultaneous erosion of equity.
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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 | × | 21.80% | = | 17.18% | ||
| 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 | 17.85% | ||||||||||
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 | × | 21.80% | = | 17.08% | ||
| 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 | 17.79% | ||||||||||
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 | × | 21.80% | = | 17.03% | ||
| 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 | 17.80% | ||||||||||
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 | × | 21.80% | = | 17.05% | ||
| 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 | 17.86% | ||||||||||
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 | × | 21.80% | = | 16.59% | ||
| 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 | 17.34% | ||||||||||
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 | (2,621) | (3,645) | (2,726) | (2,790) | (2,866) | |
| Invested capital2 | 35,469) | 35,427) | 35,233) | 34,104) | 33,382) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.39% | -10.29% | -7.74% | -8.18% | -8.59% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| FedEx Corp. | -3.65% | — | — | — | — | |
| Uber Technologies Inc. | -22.83% | — | — | — | — | |
| Union Pacific Corp. | -2.31% | — | — | — | — | |
| United Airlines Holdings Inc. | -10.26% | — | — | — | — | |
| United Parcel Service Inc. | 17.54% | — | — | — | — | |
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 × -2,621 ÷ 35,469 = -7.39%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 indicates a consistent failure to generate returns exceeding the cost of capital, as evidenced by persistently negative economic profit. While a general trend toward recovery is observable by the end of the period, significant volatility occurred in 2020.
- Economic Profit
- Economic profit remained negative throughout the five-year duration, signaling a continuous destruction of economic value. A marginal improvement was observed from 2017 at -2,866 million USD to 2019 at -2,726 million USD. This progress was reversed in 2020, when economic profit dropped sharply to -3,645 million USD, before recovering to its highest level in the period at -2,621 million USD in 2021.
- Invested Capital
- Invested capital showed a steady and incremental increase, rising from 33,382 million USD in 2017 to 35,469 million USD in 2021. The consistent growth in the capital base suggests ongoing investment in assets, although these investments did not translate into positive economic value during the analyzed timeframe.
- Economic Spread Ratio
- The economic spread ratio mirrors the trajectory of economic profit, maintaining a negative percentage throughout the period. The ratio improved from -8.59% in 2017 to -7.74% in 2019, then experienced a significant deterioration to -10.29% in 2020. By 2021, the ratio improved to -7.39%, marking the lowest negative spread in the five-year sequence, though the result still indicates that the return on invested capital remained below the cost of capital.
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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 | (2,621) | (3,645) | (2,726) | (2,790) | (2,866) | |
| Railway operating revenues | 11,142) | 9,789) | 11,296) | 11,458) | 10,551) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -23.52% | -37.23% | -24.14% | -24.35% | -27.16% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| FedEx Corp. | -2.79% | — | — | — | — | |
| Uber Technologies Inc. | -21.03% | — | — | — | — | |
| Union Pacific Corp. | -6.17% | — | — | — | — | |
| United Airlines Holdings Inc. | -21.62% | — | — | — | — | |
| United Parcel Service Inc. | 8.01% | — | — | — | — | |
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 × -2,621 ÷ 11,142 = -23.52%
3 Click competitor name to see calculations.
The financial performance from 2017 through 2021 is characterized by a persistent inability to generate positive economic profit, indicating that the company consistently failed to earn returns exceeding its cost of capital throughout the analyzed period.
- Economic Profit Trajectory
- Economic profit remained negative for five consecutive years. After a marginal improvement between 2017 and 2019, where losses narrowed from -2,866 million USD to -2,726 million USD, a significant deterioration occurred in 2020, with losses widening to -3,645 million USD. A recovery followed in 2021, with losses reducing to -2,621 million USD, marking the lowest negative value in the series.
- Revenue Correlation
- Railway operating revenues exhibited volatility, peaking in 2018 at 11,458 million USD before experiencing a sharp contraction in 2020 to 9,789 million USD. The subsequent rebound to 11,142 million USD in 2021 aligns with the improvement in economic profit, suggesting that the magnitude of economic losses is closely tied to fluctuations in top-line revenue generation.
- Economic Profit Margin Analysis
- The economic profit margin reflects a consistent deficit in value creation. The margin improved slightly from -27.16% in 2017 to -24.14% in 2019. However, a severe contraction was observed in 2020, where the margin dropped to -37.23%, coinciding with the lowest revenue levels of the period. By 2021, the margin recovered to -23.52%, representing the most favorable position within the analyzed timeframe, although the figure remains deeply negative.
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