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.
Economic Profit
Parker-Hannifin Corp., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).
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
= 1,166,223 – 19.24% × 21,994,132 = -3,065,246
The analysis of economic profit from June 30, 2017, to June 30, 2022, reveals a consistent failure to generate value above the cost of capital. Economic profit remained negative throughout the entire six-year period, indicating that the net operating profit after taxes was insufficient to cover the capital charge associated with the invested capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility over the observed period. After a steady increase between 2017 and 2019, profits dipped in 2020 before reaching a peak of 1,895,230 thousand US dollars in 2021. However, a sharp decline occurred by June 30, 2022, with NOPAT falling to 1,166,223 thousand US dollars, returning to levels similar to those seen in 2017.
- Invested Capital and Cost of Capital
- Invested capital showed a strong overall upward trajectory, growing from 13,507,821 thousand US dollars in 2017 to 21,994,132 thousand US dollars in 2022. This expansion was particularly pronounced in the final year. Simultaneously, the cost of capital remained relatively stable but high, fluctuating within a narrow range between 18.43% and 20.77%.
- Economic Profit Trends
- The economic profit remained in negative territory for all reported years. While there was a slight improvement in 2019, where the deficit narrowed to -1,095,982 thousand US dollars, the trend reversed thereafter. The most significant deterioration occurred in 2022, with economic profit dropping to -3,065,246 thousand US dollars. This decline was driven by the combination of a substantial increase in invested capital and a simultaneous decrease in NOPAT, which expanded the gap between operating returns and the cost of capital.
The divergence between the growing base of invested capital and the volatile, non-scaling NOPAT suggests a diminishing return on invested capital relative to the high cost of capital. The widening negative economic profit in 2022 highlights an increasing inability to cover the required return on the company's expanded capital base.
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Net Operating Profit after Taxes (NOPAT)
Parker-Hannifin Corp., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in equity equivalents to net income attributable to common shareholders.
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 136,360 × 1.60% = 2,182
6 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 257,434 × 21.00% = 54,061
7 Addition of after taxes interest expense to net income attributable to common shareholders.
The financial performance from June 30, 2017, through June 30, 2022, is characterized by a period of growth and volatility, with both Net Operating Profit After Taxes (NOPAT) and net income peaking in 2021 before experiencing a notable decline in 2022.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited a general upward trajectory between 2017 and 2019, rising from 1,132,702 thousand to 1,718,681 thousand. A temporary contraction occurred in 2020, with values falling to 1,466,070 thousand, followed by a peak of 1,895,230 thousand in 2021. However, 2022 saw a significant reduction to 1,166,223 thousand, representing a return to levels near those seen in 2017.
- Net Income Attributable to Common Shareholders Trends
- Net income followed a pattern closely aligned with NOPAT, increasing from 983,412 thousand in 2017 to 1,512,364 thousand in 2019. After a dip to 1,206,341 thousand in 2020, net income reached its highest point in 2021 at 1,746,100 thousand, before decreasing to 1,315,605 thousand in 2022.
- Comparative Analysis of NOPAT and Net Income
- From 2017 to 2021, NOPAT remained consistently higher than net income, suggesting that operating performance provided a stronger basis for value creation than the final bottom-line figure, likely due to the impact of interest expenses and other non-operating items. A reversal of this pattern is observed in 2022, where net income (1,315,605 thousand) exceeded NOPAT (1,166,223 thousand), indicating that non-operating gains or a reduction in operating costs relative to net profit influenced the final results for that period.
- Volatility and Peak Performance
- The period between 2019 and 2022 demonstrates significant fluctuation. The sharp increase in both metrics during 2021 suggests a period of high operational efficiency or increased demand, while the subsequent drop in 2022 reflects a correction or a shift in the operating environment that impacted operating profitability more severely than net income.
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Cash Operating Taxes
Parker-Hannifin Corp., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).
An analysis of the fiscal period from 2017 to 2022 reveals a consistent variance between reported income taxes and cash operating taxes. Cash operating taxes remained higher than reported income taxes in every year of the observed period, indicating a persistent gap between accrual-based tax expenses and actual cash outflows.
- Income Tax Volatility
- Reported income taxes demonstrated significant instability, characterized by a sharp peak of 640,962 thousand US$ in 2018, followed by a general decline to 298,040 thousand US$ by 2022. The lowest point occurred in 2020 at 305,924 thousand US$, reflecting substantial fluctuations in the accounting tax expense over the six-year duration.
- Cash Operating Tax Trends
- Cash operating taxes exhibited a pattern of volatility similar to income taxes through 2020, reaching an initial peak of 745,009 thousand US$ in 2018. However, unlike reported income taxes, cash operating taxes surged in the final two years, rising from 604,610 thousand US$ in 2021 to 703,301 thousand US$ in 2022.
- Comparative Divergence
- A pronounced divergence between the two metrics emerged in 2022. While reported income taxes reached their lowest level of the period, cash operating taxes climbed to their second-highest level. This created a variance of 405,261 thousand US$, the widest margin observed in the data set, suggesting a significant increase in actual cash tax payments relative to the tax expense recorded on the income statement.
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Invested Capital
Parker-Hannifin Corp., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).
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 LIFO reserve. See details »
5 Addition of equity equivalents to shareholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
8 Subtraction of marketable securities and other investments.
Invested capital exhibited an overall upward trajectory between 2017 and 2022, increasing from 13.51 billion USD to 21.99 billion USD. This growth indicates a substantial expansion of the capital base over the analyzed period, although the progression was non-linear, featuring minor contractions in 2018 and 2021.
- Shareholders' Equity Trends
- Equity maintained a consistent growth pattern throughout the period. A steady climb was observed from 2017 to 2020, followed by a significant increase in 2021, where equity rose from approximately 6.11 billion USD to 8.40 billion USD. By June 30, 2022, equity reached 8.85 billion USD, suggesting a sustained strengthening of the company's internal funding and retained earnings.
- Debt and Lease Obligations
- Debt and lease liabilities displayed higher volatility compared to equity. After an initial decrease in 2018, debt rose through 2020. A reduction occurred in 2021, with debt falling to 6.72 billion USD, before a sharp escalation in 2022 to 11.62 billion USD. This final peak represents the most significant single-year increase in the capital structure during the period.
- Composition of Invested Capital
- The growth in total invested capital was driven by both equity and debt, but the balance shifted toward debt in the final year. While equity provided a stable foundation of growth, the substantial rise in invested capital observed in 2022 was primarily catalyzed by the surge in reported debt and leases, which then constituted more than half of the total invested capital.
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Cost of Capital
Parker-Hannifin Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 36,646,215) | 36,646,215) | ÷ | 47,914,012) | = | 0.76 | 0.76 | × | 24.16% | = | 18.48% | ||
| Notes payable and long-term debt3 | 11,131,437) | 11,131,437) | ÷ | 47,914,012) | = | 0.23 | 0.23 | × | 4.14% × (1 – 21.00%) | = | 0.76% | ||
| Operating lease liability4 | 136,360) | 136,360) | ÷ | 47,914,012) | = | 0.00 | 0.00 | × | 1.60% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 47,914,012) | 1.00 | 19.24% | ||||||||||
Based on: 10-K (reporting date: 2022-06-30).
1 US$ in thousands
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 39,183,577) | 39,183,577) | ÷ | 46,844,947) | = | 0.84 | 0.84 | × | 24.16% | = | 20.21% | ||
| Notes payable and long-term debt3 | 7,527,273) | 7,527,273) | ÷ | 46,844,947) | = | 0.16 | 0.16 | × | 4.42% × (1 – 21.00%) | = | 0.56% | ||
| Operating lease liability4 | 134,097) | 134,097) | ÷ | 46,844,947) | = | 0.00 | 0.00 | × | 1.80% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 46,844,947) | 1.00 | 20.77% | ||||||||||
Based on: 10-K (reporting date: 2021-06-30).
1 US$ in thousands
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 26,969,656) | 26,969,656) | ÷ | 36,407,330) | = | 0.74 | 0.74 | × | 24.16% | = | 17.89% | ||
| Notes payable and long-term debt3 | 9,297,901) | 9,297,901) | ÷ | 36,407,330) | = | 0.26 | 0.26 | × | 4.22% × (1 – 21.00%) | = | 0.85% | ||
| Operating lease liability4 | 139,773) | 139,773) | ÷ | 36,407,330) | = | 0.00 | 0.00 | × | 2.10% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 36,407,330) | 1.00 | 18.75% | ||||||||||
Based on: 10-K (reporting date: 2020-06-30).
1 US$ in thousands
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,297,657) | 20,297,657) | ÷ | 28,023,035) | = | 0.72 | 0.72 | × | 24.16% | = | 17.50% | ||
| Notes payable and long-term debt3 | 7,599,427) | 7,599,427) | ÷ | 28,023,035) | = | 0.27 | 0.27 | × | 4.30% × (1 – 21.00%) | = | 0.92% | ||
| Operating lease liability4 | 125,951) | 125,951) | ÷ | 28,023,035) | = | 0.00 | 0.00 | × | 4.30% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 28,023,035) | 1.00 | 18.43% | ||||||||||
Based on: 10-K (reporting date: 2019-06-30).
1 US$ in thousands
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,703,715) | 22,703,715) | ÷ | 27,992,535) | = | 0.81 | 0.81 | × | 24.16% | = | 19.59% | ||
| Notes payable and long-term debt3 | 5,086,851) | 5,086,851) | ÷ | 27,992,535) | = | 0.18 | 0.18 | × | 4.47% × (1 – 28.10%) | = | 0.58% | ||
| Operating lease liability4 | 201,970) | 201,970) | ÷ | 27,992,535) | = | 0.01 | 0.01 | × | 4.47% × (1 – 28.10%) | = | 0.02% | ||
| Total: | 27,992,535) | 1.00 | 20.20% | ||||||||||
Based on: 10-K (reporting date: 2018-06-30).
1 US$ in thousands
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,941,339) | 20,941,339) | ÷ | 27,334,363) | = | 0.77 | 0.77 | × | 24.16% | = | 18.51% | ||
| Notes payable and long-term debt3 | 6,179,729) | 6,179,729) | ÷ | 27,334,363) | = | 0.23 | 0.23 | × | 4.50% × (1 – 35.00%) | = | 0.66% | ||
| Operating lease liability4 | 213,295) | 213,295) | ÷ | 27,334,363) | = | 0.01 | 0.01 | × | 4.50% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 27,334,363) | 1.00 | 19.19% | ||||||||||
Based on: 10-K (reporting date: 2017-06-30).
1 US$ in thousands
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Parker-Hannifin Corp., economic spread ratio calculation, comparison to benchmarks
| Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Economic profit1 | (3,065,246) | (1,620,552) | (1,821,072) | (1,095,982) | (1,444,512) | (1,459,556) | |
| Invested capital2 | 21,994,132) | 16,926,500) | 17,529,292) | 15,269,283) | 13,016,451) | 13,507,821) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -13.94% | -9.57% | -10.39% | -7.18% | -11.10% | -10.81% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Boeing Co. | -20.44% | -19.05% | — | — | — | — | |
| Caterpillar Inc. | -6.34% | -5.74% | — | — | — | — | |
| Eaton Corp. plc | -9.74% | -9.35% | — | — | — | — | |
| GE Aerospace | -13.77% | -18.68% | — | — | — | — | |
| Honeywell International Inc. | -3.10% | -2.01% | — | — | — | — | |
| Lockheed Martin Corp. | 14.24% | 15.22% | — | — | — | — | |
| RTX Corp. | -4.74% | -4.20% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -3,065,246 ÷ 21,994,132 = -13.94%
4 Click competitor name to see calculations.
The financial performance over the six-year period from 2017 to 2022 is characterized by a persistent failure to generate positive economic profit, indicating that the returns on invested capital did not exceed the company's cost of capital.
- Economic Profit
- Economic profit remained negative throughout the entire period. A modest improvement was observed between 2017 and 2019, with losses narrowing from approximately $1.46 billion to $1.10 billion. However, this trend reversed in 2020 and reached a critical low in 2022, where economic profit fell to negative $3.07 billion. This represents a significant acceleration in value destruction toward the end of the analyzed timeframe.
- Invested Capital
- The invested capital base exhibited a general upward trend, expanding from $13.51 billion in 2017 to $21.99 billion in 2022. The most substantial increase occurred between 2021 and 2022, where capital rose by approximately $5.07 billion. The simultaneous increase in invested capital and the deepening of economic losses suggest that the additional capital deployed failed to generate sufficient returns to cover the cost of that capital.
- Economic Spread Ratio
- The economic spread ratio remained consistently negative, confirming a systemic inability to achieve a return above the cost of capital. The ratio fluctuated over the period, reaching its highest point of -7.18% in 2019 before deteriorating to its lowest point of -13.94% in 2022. The widening of the negative spread in the final year indicates a marked decline in capital efficiency and an increase in the gap between the actual return on capital and the required rate of return.
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Economic Profit Margin
Parker-Hannifin Corp., economic profit margin calculation, comparison to benchmarks
| Jun 30, 2022 | Jun 30, 2021 | Jun 30, 2020 | Jun 30, 2019 | Jun 30, 2018 | Jun 30, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| Economic profit1 | (3,065,246) | (1,620,552) | (1,821,072) | (1,095,982) | (1,444,512) | (1,459,556) | |
| Net sales | 15,861,608) | 14,347,640) | 13,695,520) | 14,320,324) | 14,302,392) | 12,029,312) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -19.32% | -11.29% | -13.30% | -7.65% | -10.10% | -12.13% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Boeing Co. | -15.61% | -15.13% | — | — | — | — | |
| Caterpillar Inc. | -6.14% | -6.62% | — | — | — | — | |
| Eaton Corp. plc | -14.45% | -14.04% | — | — | — | — | |
| GE Aerospace | -12.48% | -18.85% | — | — | — | — | |
| Honeywell International Inc. | -4.09% | -2.80% | — | — | — | — | |
| Lockheed Martin Corp. | 5.74% | 6.50% | — | — | — | — | |
| RTX Corp. | -7.77% | -7.30% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -3,065,246 ÷ 15,861,608 = -19.32%
3 Click competitor name to see calculations.
The financial performance between June 30, 2017, and June 30, 2022, is characterized by a persistent failure to generate positive economic profit despite a general expansion in net sales. The company consistently operated below its cost of capital throughout the entire six-year period, indicating that the returns on invested capital were insufficient to cover the required rate of return.
- Economic Profit Trends
- Economic profit remained negative for the duration of the observed period. A period of relative improvement was noted between 2017 and 2019, with the deficit narrowing from -1,459,556 thousand USD to -1,095,982 thousand USD. However, this trend reversed sharply after 2019, leading to a significant increase in economic loss that peaked at -3,065,246 thousand USD in 2022.
- Net Sales Performance
- Net sales showed an overall growth trajectory, rising from 12,029,312 thousand USD in 2017 to 15,861,608 thousand USD in 2022. A brief contraction occurred in 2020, where sales fell to 13,695,520 thousand USD, followed by a strong recovery. Despite the increase in top-line revenue, the growth did not correlate with an improvement in economic value creation.
- Economic Profit Margin Dynamics
- The economic profit margin reflected the instability of the company's value creation capabilities. The margin improved from -12.13% in 2017 to a peak of -7.65% in 2019. This was followed by a period of deterioration, culminating in a sharp decline to -19.32% by June 30, 2022. The widening of the negative margin in 2022, coinciding with record net sales, suggests that the costs of capital or operational inefficiencies increased at a rate significantly higher than revenue growth.
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