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 – 19.28% × 21,994,132 = -3,074,526
Economic profit remained consistently negative from 2017 through 2022, indicating that the organization failed to generate returns exceeding its cost of capital throughout the analyzed period. The magnitude of this economic loss expanded significantly toward the end of the period, culminating in a substantial deficit in 2022.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility, peaking in 2021 at US$ 1,895,230 thousand before experiencing a sharp contraction to US$ 1,166,223 thousand in 2022. This recent decline represents a return to levels observed in 2017 and 2018, effectively erasing several years of operational profit growth.
- Invested Capital
- Invested capital followed a general upward trajectory, increasing from US$ 13,507,821 thousand in 2017 to US$ 21,994,132 thousand in 2022. A particularly notable surge occurred between 2021 and 2022, where capital expanded by approximately US$ 5 billion.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating within a narrow range between 18.47% and 20.82%. This consistently high hurdle rate necessitated substantial NOPAT growth to achieve a positive economic value added, a threshold that was not met in any of the reported years.
- Economic Profit Performance
- The economic profit reached its highest point (least negative) in 2019 at -US$ 1,102,084 thousand. However, the convergence of a sharp decrease in NOPAT and a simultaneous surge in invested capital in 2022 resulted in the economic profit plummeting to -US$ 3,074,526 thousand, marking the most severe erosion of value in the observed timeframe.
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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.
- Net Income Attributable to Common Shareholders
- The net income attributable to common shareholders demonstrates a generally positive trend from June 30, 2017, to June 30, 2021, increasing from approximately 983 million US dollars to over 1.74 billion US dollars. This represents a significant growth over this four-year period, highlighting strong profitability. However, there is a notable decline in the year ending June 30, 2022, where net income falls to roughly 1.32 billion US dollars, which suggests some challenges or increased expenses affecting profitability in the most recent period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT follows a similar upward trajectory from June 30, 2017, through June 30, 2021, rising from about 1.13 billion US dollars to approximately 1.90 billion US dollars. This consistent increase reflects improving operating efficiency and effective tax management during this period. However, there is a significant reduction in NOPAT in the year ending June 30, 2022, falling to nearly 1.17 billion US dollars, indicating a considerable drop in operating profitability or increased tax expenses most recently.
- Summary of Trends
- Both net income and NOPAT demonstrate strong growth over the initial five-year period, suggesting favorable operational performance and profitability enhancements. The peak values recorded in the year ending June 30, 2021, indicate the company's highest profitability during the timeframe examined. The sharp declines in both metrics for the year ending June 30, 2022, signal a reversal of this trend and may imply emerging financial challenges or external factors impacting profitability. The divergence in the magnitude of decrease between net income and NOPAT in 2022 could also point to changes in non-operating items or tax effects during that period.
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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).
- Income Taxes
- The income taxes show a fluctuating trend over the six-year period. Beginning at 344,797 thousand US dollars in 2017, the figure notably increased to 640,962 thousand US dollars in 2018. After this peak, there was a decline in 2019, with the value dropping to 420,494 thousand US dollars. The downward trajectory continued into 2020, reaching a low of 305,924 thousand US dollars. However, a substantial recovery occurred in 2021, rising again to 500,096 thousand US dollars. In 2022, income taxes decreased to 298,040 thousand US dollars, marking one of the lower points across the given years.
- Cash Operating Taxes
- Cash operating taxes exhibit more volatility and a generally increasing trend throughout the same period. Starting at 367,985 thousand US dollars in 2017, values soared to a high of 745,009 thousand US dollars in 2018, the largest increase observed. In 2019, these taxes declined to 429,023 thousand US dollars but remained higher than the 2017 baseline. The downward movement persisted into 2020, registering 357,562 thousand US dollars. However, in contrast to income taxes, cash operating taxes surged significantly in 2021, reaching 604,610 thousand US dollars, and escalated further to 703,301 thousand US dollars in 2022.
- General Observations
- There is a noticeable divergence in the trends of income taxes and cash operating taxes, particularly evident in the later years. While income taxes fell sharply in 2022 relative to the prior year, cash operating taxes continued to experience substantial growth. This discrepancy may indicate differences in accounting treatment, timing of tax payments, or underlying operational cash flow changes. The initial spike for both tax measures in 2018 suggests extraordinary activities or tax events occurred in that year, followed by varying recoveries and declines in subsequent periods. Overall, the analysis reveals a dynamic tax expense environment with significant annual fluctuations.
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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.
- Total reported debt & leases
-
The total reported debt and leases fluctuated significantly over the period analyzed. It initially decreased from approximately 6.08 billion USD in mid-2017 to about 5.16 billion USD in mid-2018. Subsequently, it experienced a sharp increase to roughly 7.23 billion USD in mid-2019, continuing to rise to around 8.60 billion USD in mid-2020. A notable decline occurred in mid-2021, dropping to approximately 6.72 billion USD, followed by a substantial increase to nearly 11.62 billion USD by mid-2022. This trend indicates considerable volatility and an overall increasing debt load in recent years, particularly the marked increase between mid-2021 and mid-2022.
- Shareholders’ equity
-
Shareholders' equity showed a consistent upward trend throughout the analyzed period. Starting at around 5.26 billion USD in mid-2017, it steadily increased each year, reaching approximately 5.86 billion USD in mid-2018, 5.96 billion USD in mid-2019, and 6.11 billion USD in mid-2020. A significant rise occurred between mid-2020 and mid-2021, where equity increased sharply to about 8.40 billion USD. The growth continued at a slower pace, reaching approximately 8.85 billion USD by mid-2022. This steady increase suggests strengthening equity capital and potentially retained earnings accumulated over the years.
- Invested capital
-
Invested capital, representing the aggregate of debt and equity financing, exhibited considerable growth. Beginning at approximately 13.51 billion USD in mid-2017, it slightly declined to roughly 13.02 billion USD in mid-2018. Thereafter, a consistent upward trajectory is evident: rising to about 15.27 billion USD in mid-2019, followed by 17.53 billion USD in mid-2020. A marginal decrease to approximately 16.93 billion USD was noted in mid-2021, but invested capital surged substantially to nearly 22.0 billion USD by mid-2022. The data indicate increased resource deployment backed by both debt and equity, with particularly robust growth in the most recent year.
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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 | × | 24.21% | = | 18.52% | ||
| 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 | 19.28% | ||||||||||
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 | × | 24.21% | = | 20.25% | ||
| 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 | 20.82% | ||||||||||
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 | × | 24.21% | = | 17.94% | ||
| 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 | 18.79% | ||||||||||
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 | × | 24.21% | = | 17.54% | ||
| 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 | 18.47% | ||||||||||
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 | × | 24.21% | = | 19.64% | ||
| 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 | 20.24% | ||||||||||
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 | × | 24.21% | = | 18.55% | ||
| 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 | 19.23% | ||||||||||
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 | (3,074,526) | (1,628,363) | (1,828,236) | (1,102,084) | (1,450,337) | (1,465,265) | |
| 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 | -13.98% | -9.62% | -10.43% | -7.22% | -11.14% | -10.85% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Boeing Co. | -20.46% | -19.06% | — | — | — | — | |
| Caterpillar Inc. | -6.38% | -5.79% | — | — | — | — | |
| Eaton Corp. plc | -9.76% | -9.37% | — | — | — | — | |
| GE Aerospace | -13.79% | -18.70% | — | — | — | — | |
| Honeywell International Inc. | -3.09% | -2.00% | — | — | — | — | |
| Lockheed Martin Corp. | 14.31% | 15.29% | — | — | — | — | |
| RTX Corp. | -4.69% | -4.16% | — | — | — | — | |
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 × -3,074,526 ÷ 21,994,132 = -13.98%
4 Click competitor name to see calculations.
The financial analysis for the period ending June 30, 2017, through June 30, 2022, reveals a persistent inability to generate positive economic value. Throughout the entire six-year duration, economic profit remained negative, indicating that the returns on invested capital did not exceed the company's cost of capital.
- Economic Profit Trends
- Economic profit exhibited significant volatility while remaining in negative territory. After a period of relative stability between 2017 and 2018, there was a partial recovery in 2019, where losses narrowed to -1.10 billion. However, this trend reversed sharply by 2020. The most critical deterioration occurred in 2022, with economic profit dropping to -3.07 billion, marking the lowest point in the analyzed period.
- Invested Capital Expansion
- Invested capital showed a general upward trajectory, increasing from 13.51 billion in 2017 to 21.99 billion in 2022. While there were minor contractions in 2018 and 2021, the overall growth in the capital base is evident. A substantial increase in invested capital was observed in 2022, rising by approximately 5 billion from the previous year.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative across all periods, confirming a consistent value-destruction phase. The ratio reached its most favorable level in 2019 at -7.22%, coinciding with the peak in economic profit. Conversely, the ratio widened to -13.98% by 2022. The correlation between the surge in invested capital and the widening of the negative spread in 2022 suggests that the additional capital deployed failed to produce a proportional increase in after-tax operating income, thereby exacerbating the gap between the actual return and the cost of capital.
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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 | (3,074,526) | (1,628,363) | (1,828,236) | (1,102,084) | (1,450,337) | (1,465,265) | |
| 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 | -19.38% | -11.35% | -13.35% | -7.70% | -10.14% | -12.18% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Boeing Co. | -15.62% | -15.14% | — | — | — | — | |
| Caterpillar Inc. | -6.18% | -6.67% | — | — | — | — | |
| Eaton Corp. plc | -14.47% | -14.06% | — | — | — | — | |
| GE Aerospace | -12.51% | -18.88% | — | — | — | — | |
| Honeywell International Inc. | -4.08% | -2.79% | — | — | — | — | |
| Lockheed Martin Corp. | 5.77% | 6.53% | — | — | — | — | |
| RTX Corp. | -7.69% | -7.22% | — | — | — | — | |
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 × -3,074,526 ÷ 15,861,608 = -19.38%
3 Click competitor name to see calculations.
The analysis of economic performance from June 30, 2017, to June 30, 2022, reveals a persistent failure to generate positive economic value. Despite a general upward trajectory in net sales over the six-year period, economic profit remained consistently negative, indicating that the returns generated were insufficient to cover the company's cost of capital.
- Economic Profit Trends
- Economic profit exhibited significant volatility, remaining in negative territory throughout the period. A period of relative improvement was observed between 2017 and 2019, with losses narrowing from -1,465,265 thousand USD to -1,102,084 thousand USD. However, this improvement was not sustained, as losses widened again in 2020 and 2021, eventually culminating in a substantial decline to -3,074,526 thousand USD by June 30, 2022.
- Net Sales Growth
- Net sales demonstrated a general growth pattern, increasing from 12,029,312 thousand USD in 2017 to 15,861,608 thousand USD in 2022. A brief contraction occurred in 2020, when sales fell to 13,695,520 thousand USD, before rebounding strongly in the subsequent two years. The data shows that while the top line expanded, this growth did not correlate with an increase in economic value creation.
- Economic Profit Margin Volatility
- The economic profit margin mirrored the fluctuations in economic profit, characterized by a persistent negative state. The margin improved from -12.18% in 2017 to a period high of -7.70% in 2019. This trend reversed sharply thereafter, with the margin dropping to -13.35% in 2020 and reaching a period low of -19.38% in 2022. The divergence in 2022 is particularly notable, as the record high in net sales coincided with the worst economic profit margin in the observed period, suggesting a significant increase in the cost of capital or a marked decrease in capital efficiency.
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