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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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 period between 2018 and 2022 demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) and invested capital both exhibited variability over the five-year span, influencing the overall economic profit generated.
- NOPAT Trend
- NOPAT began at US$3,933 million in 2018, decreased significantly to US$2,243 million in 2019, then recovered to US$3,992 million in 2020. A substantial increase was observed in 2021, reaching US$8,020 million, before declining to US$4,975 million in 2022. This suggests considerable volatility in operational profitability.
- Cost of Capital Trend
- The cost of capital experienced a slight increase from 9.72% in 2018 to 10.17% in 2019, followed by a decrease to 9.47% in 2020. It then rose again to 10.06% in 2021 and further to 10.52% in 2022. This indicates a generally increasing cost of funding over the period, with some intermediate fluctuations.
- Invested Capital Trend
- Invested capital showed a minor decrease from US$24,076 million in 2018 to US$23,507 million in 2019. Subsequently, it increased steadily to US$26,642 million in 2020, US$27,632 million in 2021, and US$30,111 million in 2022. This demonstrates a consistent expansion of the capital base.
- Economic Profit Trend
- Economic profit was US$1,592 million in 2018, then decreased to a loss of US$148 million in 2019. It recovered to US$1,468 million in 2020, and experienced a significant surge to US$5,241 million in 2021. Economic profit then decreased to US$1,808 million in 2022. The economic profit closely follows the trend of NOPAT, with the largest fluctuations occurring in the same years. The negative economic profit in 2019 indicates that returns did not exceed the cost of capital in that year.
The substantial increase in economic profit in 2021 appears to be driven by a significant rise in NOPAT, while the decrease in 2022 is attributable to the decline in NOPAT despite continued growth in invested capital and a rising cost of capital. Overall, the period was characterized by considerable performance swings.
Net Operating Profit after Taxes (NOPAT)
Northrop Grumman Corp., NOPAT calculation
US$ 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 economic spread ratio exhibited considerable fluctuation between 2018 and 2022. Initial values indicated a positive spread, which diminished significantly before recovering and then stabilizing. Economic profit demonstrated a similar pattern of volatility, influencing the observed trends in the economic spread ratio.
- Economic Spread Ratio
- In 2018, the economic spread ratio stood at 6.61%. This represents a substantial return on invested capital exceeding the cost of that capital. A sharp decline was observed in 2019, resulting in a negative ratio of -0.63%, indicating that the company’s returns were insufficient to cover its cost of capital. The ratio rebounded strongly in 2020 to 5.51%, suggesting improved profitability relative to invested capital.
- 2021 witnessed a dramatic increase to 18.97%, the highest value within the observed period. This signifies a period of exceptionally strong economic performance. However, the ratio moderated in 2022, decreasing to 6.01%, though remaining positive and indicating a healthy economic spread. This suggests a return to more sustainable, though still positive, levels of profitability.
- Economic Profit & Invested Capital Relationship
- The economic spread ratio’s movements correlate closely with changes in economic profit. The negative economic profit in 2019 directly resulted in the negative economic spread ratio. Conversely, the substantial economic profit reported in 2021 drove the ratio to its peak. Invested capital generally increased throughout the period, from US$24,076 million in 2018 to US$30,111 million in 2022. While increasing invested capital can dilute the economic spread ratio, the significant increases in economic profit in 2020 and 2021 were sufficient to overcome this effect and drive substantial improvements in the ratio.
Overall, the period demonstrates a company capable of generating significant economic profit, but also susceptible to periods where returns fall below the cost of capital. The substantial increase in invested capital throughout the period suggests a growth strategy, and the economic spread ratio’s performance indicates the effectiveness of capital allocation decisions.
Economic Profit Margin
Northrop Grumman Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 economic profit margin exhibited considerable fluctuation between 2018 and 2022. Initial profitability declined significantly before recovering and then stabilizing. A detailed examination of the period reveals distinct phases in performance.
- Overall Trend
- The economic profit margin began at 5.29% in 2018, decreased substantially to -0.44% in 2019, then increased to 3.99% in 2020. A significant surge occurred in 2021, reaching 14.70%, followed by a moderation to 4.94% in 2022. This pattern indicates volatility in the relationship between economic profit and sales.
- 2018-2019
- From 2018 to 2019, the economic profit margin experienced a marked decline. This shift coincided with a negative economic profit in 2019, contrasting with the positive economic profit of US$1,592 million in 2018. Sales increased during this period, but not sufficiently to offset the decline in economic profit.
- 2020-2021
- The period between 2020 and 2021 demonstrated a strong recovery. The economic profit margin more than tripled, rising from 3.99% to 14.70%. This improvement was driven by a substantial increase in economic profit, reaching US$5,241 million in 2021, despite a slight decrease in sales from 2020 to 2021.
- 2021-2022
- The economic profit margin decreased from 14.70% in 2021 to 4.94% in 2022. While economic profit remained positive at US$1,808 million, the margin contracted, potentially due to an increase in the cost of capital or a slower growth rate in economic profit relative to sales. Sales increased slightly from 2021 to 2022.
In summary, the economic profit margin demonstrated a period of initial decline, followed by substantial improvement, and then a degree of stabilization at a lower, though still positive, level. The significant fluctuations suggest sensitivity to changes in economic profit and sales, warranting further investigation into the underlying drivers of these variations.