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Microsoft Excel LibreOffice Calc

Oracle Corp. (NYSE:ORCL)

Economic Value Added (EVA)

Advanced level

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.

Economic Profit

Oracle Corp., economic profit calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Net operating profit after taxes (NOPAT)1
Cost of capital2
Invested capital3
 
Economic profit4

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-22), 10-K (filing date: 2015-06-25), 10-K (filing date: 2014-06-26).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =

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. Oracle Corp.’s economic profit decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Net Operating Profit after Taxes (NOPAT)

Oracle Corp., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Net income
Deferred income tax expense (benefit)1
Increase (decrease) in allowances for doubtful trade receivables2
Increase (decrease) in deferred revenues3
Increase (decrease) in restructuring plans accrued4
Increase (decrease) in equity equivalents5
Interest expense
Interest expense, operating lease liability6
Adjusted interest expense
Tax benefit of interest expense7
Adjusted interest expense, after taxes8
Interest income
Investment income, before taxes
Tax expense (benefit) of investment income9
Investment income, after taxes10
Net income (loss) attributable to noncontrolling interest
Net operating profit after taxes (NOPAT)

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-22), 10-K (filing date: 2015-06-25), 10-K (filing date: 2014-06-26).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in allowances for doubtful trade receivables.

3 Addition of increase (decrease) in deferred revenues.

4 Addition of increase (decrease) in restructuring plans accrued.

5 Addition of increase (decrease) in equity equivalents to net income.

6 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =

7 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =

8 Addition of after taxes interest expense to net income.

9 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =

10 Elimination of after taxes investment income.

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. Oracle Corp.’s NOPAT decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Cash Operating Taxes

Oracle Corp., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Provision for income taxes
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense
Less: Tax imposed on investment income
Cash operating taxes

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-22), 10-K (filing date: 2015-06-25), 10-K (filing date: 2014-06-26).

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. Oracle Corp.’s cash operating taxes increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Invested Capital

Oracle Corp., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Notes payable and other borrowings, current
Notes payable and other borrowings, non-current
Operating lease liability1
Total reported debt & leases
Total Oracle Corporation stockholders’ equity
Net deferred tax (assets) liabilities2
Allowances for doubtful trade receivables3
Deferred revenues4
Restructuring plans accrued5
Equity equivalents6
Accumulated other comprehensive (income) loss, net of tax7
Noncontrolling interests
Adjusted total Oracle Corporation stockholders’ equity
Construction in progress8
Marketable securities9
Invested capital

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-22), 10-K (filing date: 2015-06-25), 10-K (filing date: 2014-06-26).

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 deferred revenues.

5 Addition of restructuring plans accrued.

6 Addition of equity equivalents to total Oracle Corporation stockholders’ equity.

7 Removal of accumulated other comprehensive income.

8 Subtraction of construction in progress.

9 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. Oracle Corp.’s invested capital decreased from 2017 to 2018 and from 2018 to 2019.

Cost of Capital

Oracle Corp., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Borrowings3 ÷ = × × (1 – 21.00%) =
Operating lease liability4 ÷ = × × (1 – 21.00%) =
Total:

Based on: 10-K (filing date: 2019-06-21).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Borrowings3 ÷ = × × (1 – 29.20%) =
Operating lease liability4 ÷ = × × (1 – 29.20%) =
Total:

Based on: 10-K (filing date: 2018-06-22).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Borrowings3 ÷ = × × (1 – 35.00%) =
Operating lease liability4 ÷ = × × (1 – 35.00%) =
Total:

Based on: 10-K (filing date: 2017-06-27).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Borrowings3 ÷ = × × (1 – 35.00%) =
Operating lease liability4 ÷ = × × (1 – 35.00%) =
Total:

Based on: 10-K (filing date: 2016-06-22).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Borrowings3 ÷ = × × (1 – 35.00%) =
Operating lease liability4 ÷ = × × (1 – 35.00%) =
Total:

Based on: 10-K (filing date: 2015-06-25).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Borrowings3 ÷ = × × (1 – 35.00%) =
Operating lease liability4 ÷ = × × (1 – 35.00%) =
Total:

Based on: 10-K (filing date: 2014-06-26).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Economic Spread Ratio

Oracle Corp., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Selected Financial Data (US$ in millions)
Economic profit1
Invested capital2
Performance Ratio
Economic spread ratio3

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-22), 10-K (filing date: 2015-06-25), 10-K (filing date: 2014-06-26).

1 Economic profit. See details »

2 Invested capital. See details »

3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =

Performance ratio Description The company
Economic spread ratio The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Oracle Corp.’s economic spread ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Economic Profit Margin

Oracle Corp., economic profit margin calculation

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Selected Financial Data (US$ in millions)
Economic profit1
Revenues
Add: Increase (decrease) in deferred revenues
Adjusted revenues
Performance Ratio
Economic profit margin2

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-22), 10-K (filing date: 2015-06-25), 10-K (filing date: 2014-06-26).

1 Economic profit. See details »

2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × ÷ =

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. Oracle Corp.’s economic profit margin deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.