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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.

Northrop Grumman Corp., economic profit calculation

US$ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

² Cost of capital. See details »

³ Invested capital. See details »

<>⁴ 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
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–

×

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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.’s economic profit declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Northrop Grumman Corp., NOPAT calculation

US$ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net earnings
	Deferred income tax expense (benefit)¹
	Increase (decrease) in allowance for doubtful accounts²
	Increase (decrease) in equity equivalents³
	Interest expense
	Interest expense, operating lease liability⁴
	Adjusted interest expense
	Tax benefit of interest expense⁵
	Adjusted interest expense, after taxes⁶
	Net operating profit after taxes (NOPAT)

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 earnings.

⁴ 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
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⁵ 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= hidden × 21.00% = hidden

⁶ Addition of after taxes interest expense to net earnings.

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.’s NOPAT increased from 2016 to 2017 and from 2017 to 2018.

Northrop Grumman Corp., cash operating taxes calculation

US$ in millions

	12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Federal and foreign income tax expense
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense
	Cash operating taxes

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.’s cash operating taxes declined from 2016 to 2017 and from 2017 to 2018.

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

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Current portion of long-term debt
	Long-term debt, net of current portion
	Operating lease liability¹
	Total reported debt & leases
	Shareholders’ equity
	Net deferred tax (assets) liabilities²
	Allowance for doubtful accounts³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Adjusted shareholders’ equity
	Marketable securities⁶
	Invested capital

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.

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.’s invested capital increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Northrop Grumman Corp., cost of capital calculations

	Weights			Cost of capital
Equity²		÷	=		×		=
Long-term debt, including current portion³		÷	=		×	× (1 – 21.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 21.00%)	=
Total capital:	Total weights:			Cost of total capital:

¹ US$ in millions