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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

Northrop Grumman Corp., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net operating profit after taxes (NOPAT)¹	4,975)	8,020)	3,992)	2,243)	3,933)
Cost of capital²	8.71%	8.36%	7.92%	8.44%	8.10%
Invested capital³	30,111)	27,632)	26,642)	23,507)	24,076)

Economic profit⁴	2,352)	5,709)	1,882)	260)	1,984)

Based on: 10-K (reporting date: 2022-12-31), 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).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 4,975 – 8.71% × 30,111 = 2,352

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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.	Northrop Grumman Corp. economic profit increased from 2020 to 2021 but then slightly decreased from 2021 to 2022 not reaching 2020 level.

Northrop Grumman Corp., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net earnings	4,896)	7,005)	3,189)	2,248)	3,229)
Deferred income tax expense (benefit)¹	(352)	529)	290)	(468)	214)
Increase (decrease) in allowance for expected credit losses²	(26)	1)	—)	(1)	(5)
Increase (decrease) in equity equivalents³	(378)	530)	290)	(469)	209)
Interest expense	506)	556)	593)	528)	562)
Interest expense, operating lease liability⁴	72)	58)	56)	60)	64)
Adjusted interest expense	578)	614)	649)	588)	626)
Tax benefit of interest expense⁵	(121)	(129)	(136)	(123)	(132)
Adjusted interest expense, after taxes⁶	457)	485)	513)	464)	495)
Net operating profit after taxes (NOPAT)	4,975)	8,020)	3,992)	2,243)	3,933)

Based on: 10-K (reporting date: 2022-12-31), 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).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for expected credit losses.

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

⁴ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,123 × 3.40% = 72

⁵ 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 578 × 21.00% = 121

⁶ Addition of after taxes interest expense to net earnings.

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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.	Northrop Grumman Corp. NOPAT increased from 2020 to 2021 but then slightly decreased from 2021 to 2022 not reaching 2020 level.

Northrop Grumman Corp., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Federal and foreign income tax expense	940)	1,933)	539)	300)	513)
Less: Deferred income tax expense (benefit)	(352)	529)	290)	(468)	214)
Add: Tax savings from interest expense	121)	129)	136)	123)	132)
Cash operating taxes	1,413)	1,533)	385)	891)	431)

Based on: 10-K (reporting date: 2022-12-31), 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).

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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.	Northrop Grumman Corp. cash operating taxes increased from 2020 to 2021 but then slightly decreased from 2021 to 2022.

Northrop Grumman Corp., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Current portion of long-term debt	1,072)	6)	742)	1,109)	517)
Long-term debt, net of current portion	11,805)	12,777)	14,261)	12,770)	13,883)
Operating lease liability¹	2,123)	1,874)	1,606)	1,569)	1,724)
Total reported debt & leases	15,000)	14,657)	16,609)	15,448)	16,124)
Shareholders’ equity	15,312)	12,926)	10,579)	8,819)	8,187)
Net deferred tax (assets) liabilities²	(30)	290)	(311)	(508)	14)
Allowance for expected credit losses³	8)	34)	33)	33)	34)
Equity equivalents⁴	(22)	324)	(278)	(475)	48)
Accumulated other comprehensive (income) loss, net of tax⁵	153)	143)	128)	97)	52)
Adjusted shareholders’ equity	15,443)	13,393)	10,429)	8,441)	8,287)
Marketable securities⁶	(332)	(418)	(396)	(382)	(335)
Invested capital	30,111)	27,632)	26,642)	23,507)	24,076)

Based on: 10-K (reporting date: 2022-12-31), 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).

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 marketable securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Northrop Grumman Corp. invested capital increased from 2020 to 2021 and from 2021 to 2022.

Northrop Grumman Corp., cost of capital calculations

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	67,875)	67,875)	÷	82,098)	=	0.83	0.83	×	9.86%	=	8.15%
Long-term debt, including current portion³	12,100)	12,100)	÷	82,098)	=	0.15	0.15	×	4.19% × (1 – 21.00%)	=	0.49%
Operating lease liability⁴	2,123)	2,123)	÷	82,098)	=	0.03	0.03	×	3.40% × (1 – 21.00%)	=	0.07%
Total:	82,098)					1.00					8.71%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in millions

² Equity. See details »

³ Long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	58,381)	58,381)	÷	75,355)	=	0.77	0.77	×	9.86%	=	7.64%
Long-term debt, including current portion³	15,100)	15,100)	÷	75,355)	=	0.20	0.20	×	4.19% × (1 – 21.00%)	=	0.66%
Operating lease liability⁴	1,874)	1,874)	÷	75,355)	=	0.02	0.02	×	3.10% × (1 – 21.00%)	=	0.06%
Total:	75,355)					1.00					8.36%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in millions

² Equity. See details »

³ Long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	48,853)	48,853)	÷	68,659)	=	0.71	0.71	×	9.86%	=	7.02%
Long-term debt, including current portion³	18,200)	18,200)	÷	68,659)	=	0.27	0.27	×	4.00% × (1 – 21.00%)	=	0.84%
Operating lease liability⁴	1,606)	1,606)	÷	68,659)	=	0.02	0.02	×	3.50% × (1 – 21.00%)	=	0.06%
Total:	68,659)					1.00					7.92%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in millions

² Equity. See details »

³ Long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	64,519)	64,519)	÷	81,188)	=	0.79	0.79	×	9.86%	=	7.84%
Long-term debt, including current portion³	15,100)	15,100)	÷	81,188)	=	0.19	0.19	×	3.69% × (1 – 21.00%)	=	0.54%
Operating lease liability⁴	1,569)	1,569)	÷	81,188)	=	0.02	0.02	×	3.80% × (1 – 21.00%)	=	0.06%
Total:	81,188)					1.00					8.44%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in millions

² Equity. See details »

³ Long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	46,771)	46,771)	÷	62,795)	=	0.74	0.74	×	9.86%	=	7.34%
Long-term debt, including current portion³	14,300)	14,300)	÷	62,795)	=	0.23	0.23	×	3.73% × (1 – 21.00%)	=	0.67%
Operating lease liability⁴	1,724)	1,724)	÷	62,795)	=	0.03	0.03	×	3.73% × (1 – 21.00%)	=	0.08%
Total:	62,795)					1.00					8.10%

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in millions

² Equity. See details »

³ Long-term debt, including current portion. See details »

⁴ Operating lease liability. See details »

Northrop Grumman Corp., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in millions)
Economic profit¹	2,352)	5,709)	1,882)	260)	1,984)
Invested capital²	30,111)	27,632)	26,642)	23,507)	24,076)
Performance Ratio
Economic spread ratio³	7.81%	20.66%	7.06%	1.11%	8.24%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-19.74%	-18.41%	-29.97%	-19.82%	—
Caterpillar Inc.	1.07%	1.00%	-5.12%	1.20%	—
Cummins Inc.	-1.28%	2.65%	-0.67%	4.71%	—
Eaton Corp. plc	-4.56%	-4.34%	-6.45%	-3.77%	—
General Electric Co.	-8.80%	-13.79%	-3.94%	-6.49%	—
Honeywell International Inc.	-0.81%	0.24%	-1.19%	3.08%	—
Lockheed Martin Corp.	13.23%	14.22%	17.53%	18.14%	—
RTX Corp.	-3.19%	-2.72%	-8.24%	0.25%	—

Based on: 10-K (reporting date: 2022-12-31), 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).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 2,352 ÷ 30,111 = 7.81%

⁴ Click competitor name to see calculations.

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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.	Northrop Grumman Corp. economic spread ratio improved from 2020 to 2021 but then slightly deteriorated from 2021 to 2022 not reaching 2020 level.

Northrop Grumman Corp., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in millions)
Economic profit¹	2,352)	5,709)	1,882)	260)	1,984)
Sales	36,602)	35,667)	36,799)	33,841)	30,095)
Performance Ratio
Economic profit margin²	6.43%	16.01%	5.11%	0.77%	6.59%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-15.07%	-14.61%	-24.55%	-9.20%	—
Caterpillar Inc.	1.04%	1.16%	-7.11%	1.30%	—
Cummins Inc.	-1.03%	1.92%	-0.59%	3.02%	—
Eaton Corp. plc	-6.76%	-6.52%	-9.90%	-5.20%	—
General Electric Co.	-7.98%	-13.92%	-6.29%	-9.65%	—
Honeywell International Inc.	-1.06%	0.34%	-1.77%	3.58%	—
Lockheed Martin Corp.	5.33%	6.07%	7.52%	7.79%	—
RTX Corp.	-5.40%	-4.85%	-16.84%	0.34%	—

Based on: 10-K (reporting date: 2022-12-31), 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).

¹ Economic profit. See details »

² 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × 2,352 ÷ 36,602 = 6.43%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company 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.	Northrop Grumman Corp. economic profit margin improved from 2020 to 2021 but then slightly deteriorated from 2021 to 2022 not reaching 2020 level.

Northrop Grumman Corp. (NYSE:NOC)

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