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.
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Northrop Grumman Corp. pages available for free this week:
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
- Analysis of Debt
- Aggregate Accruals
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Economic Profit
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 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The economic performance from 2018 to 2022 is characterized by significant volatility in value creation, primarily driven by fluctuations in operating profitability relative to a steadily expanding capital base.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited substantial variance over the analyzed period. Following a decline from 3,933 million USD in 2018 to 2,243 million USD in 2019, a strong recovery trend emerged, peaking at 8,020 million USD in 2021. However, this peak was followed by a contraction to 4,975 million USD in 2022, indicating inconsistent operational earnings growth.
- Invested Capital and Cost of Capital
- Invested capital showed a consistent upward trajectory after 2019, increasing from 23,507 million USD to 30,111 million USD by the end of 2022. During the same timeframe, the cost of capital remained relatively stable, fluctuating within a narrow range between 9.63% and 10.70%. The gradual increase in the cost of capital toward 2022, combined with the expanding capital base, heightened the threshold of profit required to generate positive economic value.
- Economic Profit and Value Creation
- Economic profit closely mirrored the volatility of NOPAT, with a notable instance of value destruction occurring in 2019 when economic profit fell to -190 million USD. A significant surge in value creation was observed in 2021, where economic profit reached a peak of 5,193 million USD. By 2022, economic profit declined to 1,752 million USD, reflecting the impact of reduced operating profits and a higher capital charge resulting from the increase in both invested capital and the weighted average cost of capital.
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
= × =
5 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net earnings.
The financial data reveals variations in net earnings and net operating profit after taxes (NOPAT) for the analyzed periods from 2018 to 2022.
- Net earnings
- Net earnings exhibited a fluctuation pattern over the five years. There was a marked decline from 3,229 million US dollars in 2018 to 2,248 million in 2019. This was followed by a recovery to 3,189 million in 2020. A significant increase occurred in 2021, reaching 7,005 million US dollars, before decreasing again to 4,896 million in 2022. Overall, there is a noticeable peak in 2021 that suggests an exceptional event or operational performance during that year.
- Net operating profit after taxes (NOPAT)
- NOPAT mirrored a similar trend as net earnings. It decreased from 3,933 million US dollars in 2018 to 2,243 million in 2019. Subsequently, NOPAT increased to 3,992 million in 2020 and experienced a sharp rise in 2021 to 8,020 million. In 2022, NOPAT declined to 4,975 million. The increase in 2021 is even more pronounced in NOPAT compared to net earnings, indicating that operating efficiency or profitability improved significantly during that year before reverting closer to previous levels in 2022.
- Trend analysis
- The decrease observed in both metrics from 2018 to 2019 suggests challenges faced during that period. Recovery in 2020 indicates improved financial performance. The exceptional increases in 2021 could be attributed to unique operational factors or market conditions supporting enhanced profitability. The reductions in 2022 imply a normalization following the peak year, though values remain higher than the lows experienced in 2019.
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 data reveals notable fluctuations in the federal and foreign income tax expense and cash operating taxes over the five-year period ending December 31, 2022.
- Federal and Foreign Income Tax Expense
- The tax expense exhibits a variable trend. Initially, it decreases from 513 million in 2018 to 300 million in 2019. Subsequently, it rises to 539 million in 2020, followed by a significant surge to 1,933 million in 2021. The figure then declines to 940 million in 2022, indicating substantial volatility in the reported tax expense.
- Cash Operating Taxes
- Cash operating taxes demonstrate a generally increasing pattern with some fluctuation. Starting at 431 million in 2018, the amount nearly doubles to 891 million in 2019 but then decreases to 385 million in 2020. This is followed by a sharp rise to 1,533 million in 2021, after which the value slightly decreases to 1,413 million in 2022. Over the period, cash operating taxes have exhibited an upward momentum, particularly notable in the last two years.
In summary, both tax-related financial metrics display significant changes, with peak values reached in 2021. The federal and foreign income tax expense shows higher volatility compared to cash operating taxes. The patterns suggest a period of increasing tax liabilities culminating in 2021, followed by a partial reversion in 2022, which may reflect changes in taxable income, tax regulations, or company-specific tax strategies during these years.
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.
The financial data demonstrates distinct trends over the five-year period from December 31, 2018, through December 31, 2022, across total reported debt and leases, shareholders’ equity, and invested capital.
- Total Reported Debt & Leases
-
This metric experienced minor fluctuations during the period, beginning at $16,124 million in 2018 and decreasing to $15,448 million in 2019. It then rose to a peak of $16,609 million in 2020 before declining to $14,657 million in 2021. In 2022, it increased slightly to $15,000 million. Overall, the total reported debt and leases have remained relatively stable, with variations within a limited range, indicating controlled management of financial obligations.
- Shareholders’ Equity
-
Shareholders’ equity showed a consistent upward trend throughout the period. Starting at $8,187 million in 2018, it increased steadily each year to reach $15,312 million by the end of 2022. This represents an overall growth of approximately 87% over the five-year span, suggesting a strengthening equity base and possibly enhanced retained earnings or capital infusions, contributing to financial stability and increased net asset value.
- Invested Capital
-
Invested capital exhibited a general upward trajectory. From $24,076 million in 2018, it declined slightly in 2019 to $23,507 million but then rose significantly to $26,642 million in 2020. Subsequent years continued this increase, reaching $27,632 million in 2021 and $30,111 million in 2022. This upward movement indicates ongoing investment in the company's operations, assets, or growth initiatives, reflecting expansion or reinvestment strategies.
In summary, the company maintained stable levels of debt across the reviewed years while consistently increasing shareholders’ equity and invested capital. The growth in equity and invested capital, coupled with controlled debt levels, suggests strengthening financial health and a possible focus on sustainable growth and value creation for shareholders.
Cost of Capital
Northrop Grumman Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ 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 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Long-term debt, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The analysis of economic value added between 2018 and 2022 reveals a period of significant volatility in value creation. While the invested capital base exhibited a consistent upward trajectory following a brief dip in 2019, the resulting economic profit and spread ratio experienced sharp fluctuations, indicating inconsistent returns relative to the cost of capital over the five-year period.
- Invested Capital Trends
- A steady expansion of the capital base is observed starting in 2020. Following a marginal decrease to 23,507 million USD in 2019, invested capital grew annually, reaching 30,111 million USD by December 31, 2022. This represents a sustained increase in the total resources deployed within the business.
- Economic Profit Performance
- Economic profit demonstrated a non-linear trend, characterized by a notable contraction in 2019 where profit fell to negative 190 million USD. This was followed by a robust recovery in 2020 and a substantial peak of 5,193 million USD in 2021. By December 31, 2022, economic profit normalized to ,1752 million USD, returning to levels comparable to those seen in 2018.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the volatility of economic profit, reflecting the efficiency of capital utilization. A negative spread of -0.81% in 2019 indicates that the return on invested capital did not exceed the cost of capital during that fiscal year. This was followed by an exceptional surge to 18.79% in 2021, marking the highest point of value creation in the period. The ratio subsequently corrected to 5.82% in 2022, aligning closely with the figures observed in 2018 and 2020.
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 | ||||||
| Sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by significant volatility in economic value creation despite a generally positive trajectory in top-line revenue. While sales expanded over the five-year period, the ability to generate economic profit—profit exceeding the cost of capital—fluctuated substantially, peaking in 2021 before contracting in 2022.
- Economic Profit Trends
- Economic profit exhibited an unstable pattern, beginning at 1,551 million USD in 2018 and falling to a deficit of 190 million USD in 2019. A recovery followed in 2020, leading to a sharp increase to a peak of 5,193 million USD in 2021. This peak was followed by a significant reduction to 1,752 million USD in 2022, though this remains slightly above 2018 levels.
- Sales Growth
- Revenue demonstrated a steady upward trend, growing from 30,095 million USD in 2018 to 36,602 million USD in 2022. A marginal decrease occurred in 2021, where sales dipped to 35,667 million USD, yet the overall period reflects a consistent expansion of the company's scale of operations.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit. After starting at 5.15% in 2018, the margin turned negative to -0.56% in 2019, indicating that the return on capital was insufficient to cover the cost of capital for that fiscal year. The margin recovered to 3.87% in 2020 and surged to a high of 14.56% in 2021. By 2022, the margin compressed to 4.79%, returning to a level closely aligned with the 2018 baseline despite the increased sales volume.
The divergence between the steady growth in sales and the erratic fluctuations in economic profit suggests that external factors or internal capital allocation efficiencies had a more profound impact on value creation than simple revenue growth. The substantial spike in 2021 stands as a significant outlier in the five-year trend.