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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Oracle Corp., economic profit calculation

US$ in millions

12 months ended:	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015
Net operating profit after taxes (NOPAT)¹	10,144	10,943	4,255	10,264	10,298	9,942
Cost of capital²	8.39%	9.12%	8.87%	9.13%	9.15%	9.43%
Invested capital³	87,978	72,089	72,343	78,705	65,186	67,473

Economic profit⁴	2,762	4,366	(2,161)	3,081	4,331	3,580

Based on: 10-K (filing date: 2020-06-22), 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).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2020 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 10,144 – 8.39% × 87,978 = 2,762

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 increased from 2018 to 2019 but then slightly decreased from 2019 to 2020.

Oracle Corp., NOPAT calculation

US$ in millions

12 months ended:	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015
Net income	10,135	11,083	3,825	9,335	8,901	9,938
Deferred income tax expense (benefit)¹	(851)	(1,191)	(611)	(486)	(105)	(548)
Increase (decrease) in allowances for doubtful trade receivables²	38	1	51	(8)	42	(21)
Increase (decrease) in deferred revenues³	(444)	77	219	644	553	(35)
Increase (decrease) in restructuring plans accrued⁴	(111)	(20)	18	(19)	163	(49)
Increase (decrease) in equity equivalents⁵	(1,368)	(1,133)	(323)	131	653	(653)
Interest expense	1,995	2,082	2,025	1,798	1,467	1,143
Interest expense, operating lease liability⁶	67	74	49	50	37	42
Adjusted interest expense	2,062	2,156	2,074	1,848	1,504	1,185
Tax benefit of interest expense⁷	(433)	(453)	(606)	(647)	(526)	(415)
Adjusted interest expense, after taxes⁸	1,629	1,704	1,469	1,201	978	771
Interest income	(527)	(1,092)	(1,201)	(802)	(538)	(349)
Investment income, before taxes	(527)	(1,092)	(1,201)	(802)	(538)	(349)
Tax expense (benefit) of investment income⁹	111	229	351	281	188	122
Investment income, after taxes¹⁰	(416)	(863)	(850)	(521)	(350)	(227)
Net income (loss) attributable to noncontrolling interest	164	152	135	118	116	113
Net operating profit after taxes (NOPAT)	10,144	10,943	4,255	10,264	10,298	9,942

Based on: 10-K (filing date: 2020-06-22), 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).

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 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,098 × 3.20% = 67

⁷ 2020 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 2,062 × 21.00% = 433

⁸ Addition of after taxes interest expense to net income.

⁹ 2020 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 527 × 21.00% = 111

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 increased from 2018 to 2019 but then slightly decreased from 2019 to 2020.

Oracle Corp., cash operating taxes calculation

US$ in millions

12 months ended:	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015
Provision for income taxes	1,928	1,185	9,066	2,182	2,541	2,896
Less: Deferred income tax expense (benefit)	(851)	(1,191)	(611)	(486)	(105)	(548)
Add: Tax savings from interest expense	433	453	606	647	526	415
Less: Tax imposed on investment income	111	229	351	281	188	122
Cash operating taxes	3,101	2,600	9,932	3,034	2,984	3,737

Based on: 10-K (filing date: 2020-06-22), 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).

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 decreased from 2018 to 2019 but then slightly increased from 2019 to 2020.

Oracle Corp., invested capital calculation (financing approach)

US$ in millions

	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015
Notes payable, current	2,371	4,494	4,491	9,797	3,750	1,999
Notes payable and other borrowings, non-current	69,226	51,673	56,128	48,112	40,105	39,959
Operating lease liability¹	2,098	2,158	1,462	1,541	1,125	1,116
Total reported debt & leases	73,695	58,325	62,081	59,450	44,980	43,074
Total Oracle Corporation stockholders’ equity	12,074	21,785	45,726	53,860	47,289	48,663
Net deferred tax (assets) liabilities²	(3,211)	(2,432)	(1,434)	(683)	(1,131)	(993)
Allowances for doubtful trade receivables³	409	371	370	319	327	285
Deferred revenues⁴	8,599	9,043	9,054	8,835	8,191	7,638
Restructuring plans accrued⁵	151	262	282	264	283	120
Equity equivalents⁶	5,948	7,244	8,272	8,735	7,670	7,050
Accumulated other comprehensive (income) loss, net of tax⁷	1,716	1,628	1,636	803	816	996
Noncontrolling interests	643	578	498	386	501	435
Adjusted total Oracle Corporation stockholders’ equity	20,381	31,235	56,132	63,784	56,276	57,144
Construction in progress⁸	(280)	(158)	(229)	(235)	(97)	(93)
Marketable securities⁹	(5,818)	(17,313)	(45,641)	(44,294)	(35,973)	(32,652)
Invested capital	87,978	72,089	72,343	78,705	65,186	67,473

Based on: 10-K (filing date: 2020-06-22), 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).

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 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.

Oracle Corp., cost of capital calculations

	Capital (fair value)¹	Weights					Cost of capital
Equity²	169,146	169,146	÷	252,257	=	0.67	0.67	×	11.20%	=	7.51%
Borrowings³	81,013	81,013	÷	252,257	=	0.32	0.32	×	3.40% × (1 – 21.00%)	=	0.86%
Operating lease liability⁴	2,098	2,098	÷	252,257	=	0.01	0.01	×	3.20% × (1 – 21.00%)	=	0.02%
Total:	252,257					1.00					8.39%

Based on: 10-K (filing date: 2020-06-22).

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	187,206	187,206	÷	247,877	=	0.76	0.76	×	11.20%	=	8.46%
Borrowings³	58,513	58,513	÷	247,877	=	0.24	0.24	×	3.45% × (1 – 21.00%)	=	0.64%
Operating lease liability⁴	2,158	2,158	÷	247,877	=	0.01	0.01	×	3.45% × (1 – 21.00%)	=	0.02%
Total:	247,877					1.00					9.12%

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	175,569	175,569	÷	238,644	=	0.74	0.74	×	11.20%	=	8.24%
Borrowings³	61,613	61,613	÷	238,644	=	0.26	0.26	×	3.38% × (1 – 29.20%)	=	0.62%
Operating lease liability⁴	1,462	1,462	÷	238,644	=	0.01	0.01	×	3.38% × (1 – 29.20%)	=	0.01%
Total:	238,644					1.00					8.87%

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	209,937	209,937	÷	271,891	=	0.77	0.77	×	11.20%	=	8.64%
Borrowings³	60,413	60,413	÷	271,891	=	0.22	0.22	×	3.25% × (1 – 35.00%)	=	0.47%
Operating lease liability⁴	1,541	1,541	÷	271,891	=	0.01	0.01	×	3.25% × (1 – 35.00%)	=	0.01%
Total:	271,891					1.00					9.13%

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	164,950	164,950	÷	213,026	=	0.77	0.77	×	11.20%	=	8.67%
Borrowings³	46,950	46,950	÷	213,026	=	0.22	0.22	×	3.30% × (1 – 35.00%)	=	0.47%
Operating lease liability⁴	1,125	1,125	÷	213,026	=	0.01	0.01	×	3.30% × (1 – 35.00%)	=	0.01%
Total:	213,026					1.00					9.15%

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	178,039	178,039	÷	223,256	=	0.80	0.80	×	11.20%	=	8.93%
Borrowings³	44,100	44,100	÷	223,256	=	0.20	0.20	×	3.80% × (1 – 35.00%)	=	0.49%
Operating lease liability⁴	1,116	1,116	÷	223,256	=	0.01	0.01	×	3.80% × (1 – 35.00%)	=	0.01%
Total:	223,256					1.00					9.43%

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 »

Oracle Corp., economic spread ratio calculation, comparison to benchmarks

	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	2,762	4,366	(2,161)	3,081	4,331	3,580
Invested capital²	87,978	72,089	72,343	78,705	65,186	67,473
Performance Ratio
Economic spread ratio³	3.14%	6.06%	-2.99%	3.91%	6.64%	5.31%
Benchmarks
Economic Spread Ratio, Competitors⁴
Adobe Inc.	10.05%	8.13%	5.73%	10.44%	9.55%	0.31%
Alphabet Inc.	—	20.45%	22.01%	7.40%	14.65%	10.04%
Autodesk Inc.	1.95%	-19.13%	-31.10%	-28.88%	-10.35%	-9.64%
Facebook Inc.	—	15.02%	24.13%	24.47%	12.48%	-3.38%
International Business Machines Corp.	—	-2.87%	-3.18%	-5.95%	-1.88%	1.89%
Intuit Inc.	8.30%	22.11%	19.79%	24.40%	22.63%	15.95%
Microsoft Corp.	37.21%	30.61%	10.00%	25.09%	42.24%	18.53%
salesforce.com inc.	-9.27%	-5.17%	-4.59%	-6.02%	-4.60%	-7.17%
ServiceNow Inc.	—	4.05%	0.05%	0.58%	-26.32%	-14.31%

Based on: 10-K (filing date: 2020-06-22), 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).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 2,762 ÷ 87,978 = 3.14%

⁴ Click competitor name to see calculations.

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 improved from 2018 to 2019 but then slightly deteriorated from 2019 to 2020.

Oracle Corp., economic profit margin calculation, comparison to benchmarks

	May 31, 2020	May 31, 2019	May 31, 2018	May 31, 2017	May 31, 2016	May 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	2,762	4,366	(2,161)	3,081	4,331	3,580

Revenues	39,068	39,506	39,831	37,728	37,047	38,226
Add: Increase (decrease) in deferred revenues	(444)	77	219	644	553	(35)
Adjusted revenues	38,624	39,583	40,050	38,372	37,600	38,191
Performance Ratio
Economic profit margin²	7.15%	11.03%	-5.40%	8.03%	11.52%	9.37%
Benchmarks
Economic Profit Margin, Competitors³
Adobe Inc.	14.42%	12.22%	9.39%	13.61%	12.39%	0.47%
Alphabet Inc.	—	12.68%	13.95%	4.37%	11.68%	9.56%
Autodesk Inc.	2.57%	-31.19%	-45.27%	-43.08%	-13.05%	-11.55%
Facebook Inc.	—	13.95%	26.06%	25.04%	17.46%	-5.97%
International Business Machines Corp.	—	-4.91%	-4.47%	-8.10%	-2.51%	2.35%
Intuit Inc.	9.33%	14.72%	13.15%	13.56%	12.79%	10.10%
Microsoft Corp.	24.53%	20.61%	6.59%	19.17%	21.77%	8.15%
salesforce.com inc.	-22.64%	-10.11%	-7.23%	-10.56%	-6.60%	-11.05%
ServiceNow Inc.	—	2.97%	0.05%	0.47%	-19.77%	-12.60%

Based on: 10-K (filing date: 2020-06-22), 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).

¹ Economic profit. See details »

² 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × 2,762 ÷ 38,624 = 7.15%

³ Click competitor name to see calculations.

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 improved from 2018 to 2019 but then slightly deteriorated from 2019 to 2020.

Oracle Corp. (NYSE:ORCL)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin