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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes exhibited volatility over the five-year period. It initially declined sharply from 3933 million USD in 2018 to 2243 million USD in 2019. This was followed by a substantial recovery in 2020, reaching 3992 million USD, and an even more pronounced increase in 2021 to 8020 million USD. However, in 2022, NOPAT decreased again to 4975 million USD, indicating inconsistency in profit generation on an operating basis.
- Cost of Capital
- The cost of capital fluctuated moderately throughout the period, starting at 8.65% in 2018, rising slightly to 9.03% in 2019, then decreasing to 8.45% in 2020. This was followed by an increase to 8.94% in 2021 and a further rise to 9.32% in 2022. The trend suggests a slight upward pressure on the company's cost of capital over the analyzed years.
- Invested Capital
- Invested capital showed a general upward trend across the five years. Beginning at 24,076 million USD in 2018, it decreased marginally to 23,507 million USD in 2019, before increasing steadily each subsequent year: 26,642 million USD in 2020, 27,632 million USD in 2021, and reaching 30,111 million USD in 2022. This indicates ongoing investment and growth in the capital base.
- Economic Profit
- Economic profit demonstrated considerable variability. It decreased dramatically from 1,850 million USD in 2018 to only 121 million USD in 2019, then rebounded sharply to 1,741 million USD in 2020. The peak occurred in 2021 at 5,550 million USD, followed by a decline to 2,167 million USD in 2022. This pattern mirrors the volatility seen in NOPAT but highlights a significant value creation spike in 2021.
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.
- Economic Profit
- The economic profit shows considerable fluctuation across the reviewed years. Starting at 1,850 million USD in 2018, it significantly decreases to 121 million USD in 2019. This is followed by a strong recovery in 2020 to 1,741 million USD, then a substantial increase to 5,550 million USD in 2021. However, in 2022, economic profit declines again to 2,167 million USD. The variability indicates periods of both operational challenges and exceptional performance.
- Invested Capital
- Invested capital demonstrates a steady upward trend over the period. Beginning at 24,076 million USD in 2018, it slightly decreases in 2019 to 23,507 million USD, then increases consistently through 2020, 2021, and 2022, reaching 30,111 million USD. This trend suggests ongoing investment and growth in the company's asset base or capital employed.
- Economic Spread Ratio
- The economic spread ratio exhibits marked volatility similar to economic profit. It starts at 7.69% in 2018 but drastically falls to 0.52% in 2019. The ratio then recovers to 6.54% in 2020, peaks at 20.09% in 2021, reflecting highly efficient capital usage, before dropping to 7.2% in 2022. The sharp peak in 2021 signifies a period of particularly strong returns on invested capital.
- Overall Analysis
- Overall, the data reveal a pattern of significant fluctuations in profitability and returns relative to invested capital, with economic profit and spread ratio both showing steep falls in 2019 and highest peaks in 2021. Invested capital steadily expands, indicating ongoing commitment to growth or asset base expansion. The year 2021 stands out as an exceptional performance period, whereas 2019 appears to be a challenging year. The subsequent decline from peak values in 2022 suggests normalization or adjustment following the prior exceptional results.
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.
- Sales Trends
- Sales experienced a general upward trajectory from 2018 through 2020, increasing from approximately 30,095 million US dollars to 36,799 million US dollars. However, in 2021 there was a slight decline to 35,667 million US dollars, followed by a modest recovery in 2022 to 36,602 million US dollars. This suggests a relatively stable revenue base with minor fluctuations in the most recent years.
- Economic Profit Trends
- The economic profit showed significant volatility over the five-year period. Starting at 1,850 million US dollars in 2018, it dropped sharply to 121 million US dollars in 2019, then rebounded substantially to 1,741 million US dollars in 2020. The peak was observed in 2021 with a strong increase to 5,550 million US dollars, followed by a decrease to 2,167 million US dollars in 2022. This indicates uneven profit generation performance, with a pronounced peak in 2021.
- Economic Profit Margin Trends
- The economic profit margin mirrored the volatility seen in economic profit. It sharply declined from 6.15% in 2018 to 0.36% in 2019, rose again to 4.73% in 2020, and peaked at 15.56% in 2021. This was followed by a decline to 5.92% in 2022. Such fluctuations in margin reflect significant variability in profitability relative to sales.
- Overall Insights
- The data reveals that while sales maintained a generally positive and steady growth with minor dips, the economic profit and economic profit margin experienced pronounced instability. The peak in 2021 for both economic profit and margin suggests an exceptional performance year, potentially driven by operational efficiencies, market conditions, or other external factors. The subsequent decline in 2022 indicates potential challenges in sustaining that level of profitability. These patterns suggest a need to understand drivers behind profit volatility despite relatively stable sales performance.