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 analysis of economic profit from 2018 to 2022 reveals a period of significant volatility in value creation, characterized by a sharp peak in 2021 and a notable contraction in 2019. While the invested capital base expanded steadily over the five-year period, the fluctuations in economic profit were primarily driven by volatility in net operating profit after taxes (NOPAT) rather than changes in the cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited considerable instability throughout the period. After a decline from 3,933 million in 2018 to 2,243 million in 2019, the figure recovered in 2020 and surged to a peak of 8,020 million in 2021. A subsequent correction occurred in 2022, with NOPAT falling to 4,975 million, although this remains higher than the levels recorded in the first three years of the analyzed period.
- Invested Capital and Cost of Capital
- Invested capital followed a consistent growth trajectory, increasing from 24,076 million in 2018 to 30,111 million by 2022, representing a substantial expansion of the capital base. During this time, the cost of capital remained relatively stable, fluctuating between 9.56% and 10.62%. This stability suggests that the variance in economic profit was a result of operational performance rather than shifts in the weighted average cost of capital.
- Economic Profit and Value Creation
- Economic profit transitioned from 1,569 million in 2018 to a negative 172 million in 2019, signaling a period of value destruction where the NOPAT was insufficient to cover the required return on invested capital. A significant recovery ensued, leading to a high of 5,214 million in 2021. By 2022, economic profit returned to 1,777 million; while this figure is positive, it reflects a normalization toward 2018 levels despite the increased scale of invested 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 financial performance between 2018 and 2022 is characterized by significant volatility in value creation alongside a consistent expansion of the invested capital base. While the organization experienced a temporary period of value destruction in 2019, a substantial recovery occurred in subsequent years, peaking in 2021 before normalizing in 2022.
- Invested Capital Trends
- A general upward trajectory in invested capital is observed, rising from US$ 24,076 million in 2018 to US$ 30,111 million by 2022. After a slight contraction in 2019, the capital base grew steadily for three consecutive years, indicating a sustained increase in the resources deployed to generate returns.
- Economic Profit Fluctuations
- Economic profit exhibited extreme variance over the five-year period. A positive result of US$ 1,569 million in 2018 shifted to a deficit of US$ 172 million in 2019. This was followed by a strong recovery to US$ 1,444 million in 2020 and a sharp peak of US$ 5,214 million in 2021. By 2022, economic profit moderated to US$ 1,777 million, remaining positive but significantly lower than the previous year's peak.
- Economic Spread Ratio Analysis
- The economic spread ratio closely mirrors the trend of economic profit, reflecting the efficiency of capital utilization relative to the cost of capital. The ratio fell from 6.52% in 2018 to -0.73% in 2019, signifying that the return on invested capital was insufficient to cover the capital charge during that year. A rapid acceleration followed, with the ratio reaching a high of 18.87% in 2021, before returning to 5.90% in 2022.
The correlation between the surge in economic profit and the spike in the economic spread ratio in 2021 suggests a period of exceptional operational efficiency or a significant increase in returns that far exceeded the growth in invested capital. The return to a 5.90% spread in 2022 indicates a stabilization of value creation near 2018 and 2020 levels, despite a larger capital base.
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 analysis of economic value creation from 2018 to 2022 reveals a period of significant volatility in economic profit and margins, contrasted against a generally stable and upward trajectory in total sales.
- Revenue Trends
- Sales demonstrated a consistent growth pattern, rising from US$ 30,095 million in 2018 to US$ 36,602 million in 2022. While a slight dip was observed in 2021, the overall trend indicates a steady expansion of the top line over the five-year duration.
- Economic Profit Fluctuations
- Economic profit experienced sharp oscillations. After starting at US$ 1,569 million in 2018, the figure declined to a negative US$ 172 million in 2019, indicating a failure to generate returns exceeding the cost of capital. A subsequent recovery led to a peak of US$ 5,214 million in 2021, followed by a contraction to US$ 1,777 million in 2022.
- Economic Profit Margin Performance
- The economic profit margin reflected the volatility seen in absolute profit. The margin shifted from 5.21% in 2018 to -0.51% in 2019. A significant surge occurred in 2021, where the margin reached a high of 14.62%, before reverting to 4.85% by the end of 2022. This suggests that the exceptional value creation in 2021 was a transient peak rather than a sustained structural improvement.
The divergence between steady sales growth and the instability of the economic profit margin suggests that the company's ability to create economic value was driven more by internal efficiency or cost of capital fluctuations than by revenue expansion alone.