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
Northrop Grumman Corp., economic profit calculation
US$ in millions
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 – 10.86% × 30,111 = 1,706
An analysis of the economic value added reveals a period of significant volatility in profitability between 2018 and 2022, characterized by a substantial peak in value creation in 2021 followed by a correction in 2022.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited high variability over the five-year period. After a decline from 3,933 million USD in 2018 to 2,243 million USD in 2019, a recovery occurred in 2020. A sharp increase was observed in 2021, where NOPAT peaked at 8,020 million USD, before retreating to 4,975 million USD in 2022.
- Invested Capital and Cost of Capital
- Invested capital showed a consistent upward trajectory, growing from 24,076 million USD in 2018 to 30,111 million USD by the end of 2022, indicating a steady expansion of the asset base. Concurrently, the cost of capital remained relatively stable, fluctuating within a narrow range between 9.77% and 10.86%, with a slight increasing trend observed in the final two years of the period.
- Economic Profit Performance
- Economic profit mirrored the volatility of NOPAT. A period of value destruction occurred in 2019, as economic profit turned negative at -225 million USD. This was followed by a recovery in 2020 and a significant surge in 2021, reaching a peak of 5,153 million USD. By 2022, economic profit declined to 1,706 million USD, reflecting the combined impact of lower NOPAT and a higher capital charge resulting from the increased invested capital base and a higher cost of capital.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Net Operating Profit after Taxes (NOPAT)
Northrop Grumman Corp., NOPAT calculation
US$ in millions
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.
The financial performance from 2018 to 2022 is characterized by significant volatility in both net earnings and net operating profit after taxes (NOPAT). A distinct pattern of fluctuation is evident, with a notable contraction in 2019 followed by a sharp expansion peaking in 2021, before returning to a lower level in 2022.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited a non-linear trajectory over the five-year period. After an initial decline from 3,933 million USD in 2018 to 2,243 million USD in 2019, the metric recovered to 3,992 million USD in 2020. A substantial surge occurred in 2021, where NOPAT reached a peak of 8,020 million USD, representing the highest operational profitability in the observed period. This was followed by a contraction to 4,975 million USD in 2022.
- Net Earnings Correlation
- Net earnings mirrored the movements of NOPAT closely, indicating that the drivers of operational profit were the primary catalysts for bottom-line results. Net earnings fell to 2,248 million USD in 2019 and spiked to 7,005 million USD in 2021. The synchronized movement between these two metrics suggests a consistent relationship between operating performance and final net income across the reporting years.
- Operational vs. Bottom-Line Divergence
- A consistent gap is observed where NOPAT generally exceeds net earnings, most notably in 2018, 2020, 2021, and 2022. This divergence suggests the presence of non-operating expenses, such as interest payments or other non-core financial costs, that reduce net earnings relative to the operating profit. The narrowest gap occurred in 2019, where NOPAT and net earnings were nearly identical at 2,243 million USD and 2,248 million USD, respectively.
- Volatility and Peak Analysis
- The year 2021 represents a significant outlier in the data set, with NOPAT increasing by approximately 100% compared to 2020. The subsequent decline in 2022 indicates that the 2021 peak was a temporary surge rather than a permanent shift in the baseline of operational profitability.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Cash Operating Taxes
Northrop Grumman Corp., cash operating taxes calculation
US$ in millions
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).
The analysis of tax-related expenditures from 2018 to 2022 reveals significant volatility in both reported tax expenses and actual cash outflows. A notable lack of linear correlation exists between the federal and foreign income tax expense and the cash operating taxes paid throughout this period, suggesting the influence of deferred tax assets, liabilities, or one-time tax adjustments.
- Cash Operating Taxes Trends
- Cash operating taxes exhibited a fluctuating trajectory, starting at 431 million US$ in 2018 and rising sharply to 891 million US$ in 2019. After a decline to 385 million US$ in 2020, a substantial increase occurred in 2021, with payments reaching 1,533 million US$. This level remained relatively elevated in 2022, closing at 1,413 million US$.
- Federal and Foreign Income Tax Expense Trends
- The accrual-based tax expense showed a different pattern, decreasing from 513 million US$ in 2018 to a period low of 300 million US$ in 2019. Expenses rose to 539 million US$ in 2020 before spiking to a peak of 1,933 million US$ in 2021. A subsequent reduction was observed in 2022, with the expense falling to 940 million US$.
- Variance and Divergence Analysis
- Significant divergences between cash payments and reported expenses are evident in 2019 and 2022. In 2019, cash operating taxes surged while the reported tax expense declined. In 2022, a reverse divergence occurred where cash operating taxes remained high at 1,413 million US$, while the income tax expense dropped to 940 million US$, indicating that cash outflows for taxes exceeded the reported accounting expense by 473 million US$.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Invested Capital
Northrop Grumman Corp., invested capital calculation (financing approach)
US$ in millions
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.
Invested capital exhibited a general upward trajectory over the five-year period ending December 31, 2022. Following a marginal decline in 2019, the capital base expanded consistently, growing from 24,076 million USD in 2018 to 30,111 million USD by the end of 2022. This represents an overall increase of approximately 25% in the total resources deployed to generate economic value.
- Shareholders' Equity Growth
- A consistent and strong upward trend is observed in shareholders' equity, which increased annually throughout the analyzed period. Equity rose from 8,187 million USD in 2018 to 15,312 million USD in 2022. This represents a substantial growth of approximately 87%, indicating a significant strengthening of the company's internal funding and capital reserves.
- Debt and Lease Obligations
- Total reported debt and leases remained relatively stable, characterized by fluctuations rather than a sustained directional trend. The balance peaked at 16,609 million USD in 2020 before declining to a period low of 14,657 million USD in 2021, ultimately closing at 15,000 million USD in 2022. The relative stability of these obligations suggests that debt was not used as a primary driver for capital expansion during this window.
- Capital Structure Composition
- The growth in total invested capital was driven almost exclusively by the expansion of shareholders' equity. In 2018, debt and leases represented a significantly larger portion of the invested capital than equity. By 2022, this disparity narrowed considerably as equity nearly doubled while debt levels remained flat. This shift indicates a transition toward a more equity-funded capital structure, reducing the organization's relative reliance on leverage to support its invested capital base.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Cost of Capital
Northrop Grumman Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 67,875) | 67,875) | ÷ | 82,098) | = | 0.83 | 0.83 | × | 12.46% | = | 10.30% | ||
| 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 | 10.86% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 58,381) | 58,381) | ÷ | 75,355) | = | 0.77 | 0.77 | × | 12.46% | = | 9.65% | ||
| 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 | 10.38% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 48,853) | 48,853) | ÷ | 68,659) | = | 0.71 | 0.71 | × | 12.46% | = | 8.86% | ||
| 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 | 9.77% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 64,519) | 64,519) | ÷ | 81,188) | = | 0.79 | 0.79 | × | 12.46% | = | 9.90% | ||
| 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 | 10.50% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 46,771) | 46,771) | ÷ | 62,795) | = | 0.74 | 0.74 | × | 12.46% | = | 9.28% | ||
| 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 | 10.03% | ||||||||||
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 »
Economic Spread Ratio
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 | 1,706) | 5,153) | 1,390) | (225) | 1,518) | |
| Invested capital2 | 30,111) | 27,632) | 26,642) | 23,507) | 24,076) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 5.66% | 18.65% | 5.22% | -0.96% | 6.30% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -20.40% | -19.01% | — | — | — | |
| Caterpillar Inc. | -6.19% | -5.60% | — | — | — | |
| Eaton Corp. plc | -9.69% | -9.30% | — | — | — | |
| GE Aerospace | -13.67% | -18.58% | — | — | — | |
| Honeywell International Inc. | -3.12% | -2.03% | — | — | — | |
| Lockheed Martin Corp. | 14.01% | 14.99% | — | — | — | |
| RTX Corp. | -4.90% | -4.36% | — | — | — | |
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 × 1,706 ÷ 30,111 = 5.66%
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by significant volatility in value creation, with a notable peak in 2021 followed by a correction in 2022. While the organization maintained a positive economic spread for most of the period, the fluctuations indicate varying levels of efficiency in generating returns above the cost of capital.
- Economic Spread Ratio and Profitability
- The economic spread ratio experienced a sharp decline in 2019, falling to -0.96%, which corresponded with a negative economic profit of -225 million US$. This indicates a period where the return on invested capital failed to cover the cost of that capital. A recovery was observed in 2020, with the ratio returning to 5.22%. The most significant expansion occurred in 2021, where the spread ratio peaked at 18.65% and economic profit reached a high of 5,153 million US$. By 2022, the ratio normalized to 5.66%, bringing economic profit down to 1,706 million US$.
- Invested Capital Trends
- Invested capital exhibited a consistent upward trend from 2019 onwards. After a slight decrease from 24,076 million US$ in 2018 to 23,507 million US$ in 2019, the capital base grew steadily, reaching 30,111 million US$ by December 31, 2022. This represents a total increase of approximately 28% in the invested capital base over the final four years of the analyzed period.
- Correlation Between Capital Investment and Value Creation
- The relationship between invested capital and economic spread suggests that the increase in the capital base did not linearly translate into sustained increases in the spread ratio. The peak in 2021 demonstrates a period of high capital efficiency, where the organization generated substantial economic value relative to its investment. However, the subsequent decline in 2022, despite the highest level of invested capital (30,111 million US$), suggests a diminishing marginal return on the additional capital deployed during that timeframe.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?
Economic Profit Margin
Northrop Grumman Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 1,706) | 5,153) | 1,390) | (225) | 1,518) | |
| Sales | 36,602) | 35,667) | 36,799) | 33,841) | 30,095) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 4.66% | 14.45% | 3.78% | -0.67% | 5.04% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.58% | -15.10% | — | — | — | |
| Caterpillar Inc. | -5.99% | -6.46% | — | — | — | |
| Eaton Corp. plc | -14.37% | -13.96% | — | — | — | |
| GE Aerospace | -12.40% | -18.76% | — | — | — | |
| Honeywell International Inc. | -4.12% | -2.84% | — | — | — | |
| Lockheed Martin Corp. | 5.65% | 6.40% | — | — | — | |
| RTX Corp. | -8.04% | -7.58% | — | — | — | |
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 × 1,706 ÷ 36,602 = 4.66%
3 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by a general increase in scale accompanied by significant volatility in economic value creation. While revenue showed a steady upward trajectory, the ability to generate returns in excess of the cost of capital fluctuated considerably over the five-year period.
- Revenue Growth and Stability
- Sales grew from US$ 30,095 million in 2018 to a peak of US$ 36,799 million in 2020. After a marginal decline in 2021, revenue stabilized at US$ 36,602 million by the end of 2022. This represents a sustained increase in top-line volume over the analyzed period.
- Economic Profit Fluctuations
- Economic profit exhibited extreme variance, beginning at US$ 1,518 million in 2018 and falling to a deficit of US$ 225 million in 2019. A strong recovery occurred in 2020, followed by a substantial peak of US$ 5,153 million in 2021. By 2022, economic profit contracted to US$ 1,706 million, indicating a return to levels similar to the 2018 baseline.
- Economic Profit Margin Trends
- The economic profit margin followed a mirrored path to absolute economic profit. The margin dropped from 5.04% in 2018 to -0.67% in 2019, signaling a period where capital charges exceeded operating returns. A significant expansion occurred in 2021, where the margin reached a high of 14.45%. In 2022, the margin normalized to 4.66%, suggesting that the exceptional value creation observed in 2021 was a temporary deviation rather than a permanent shift in efficiency.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
How can I help you?