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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Philip Morris International Inc. pages available for free this week:
- Statement of Comprehensive Income
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- Analysis of Liquidity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2008
- Total Asset Turnover since 2008
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Economic Profit
Philip Morris International Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The period under review demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially increased, then declined over the five-year span. Simultaneously, the cost of capital exhibited some volatility, while invested capital showed a more substantial increase before stabilizing and decreasing slightly. These factors collectively influenced the trend in economic profit.
- NOPAT Trend
- Net operating profit after taxes rose from US$8,950 million in 2020 to US$10,188 million in 2021, representing a significant increase. However, NOPAT subsequently decreased to US$9,635 million in 2022, US$8,804 million in 2023, and further to US$8,281 million in 2024. This indicates a consistent downward trend in operating profitability after accounting for taxes.
- Cost of Capital Fluctuation
- The cost of capital experienced moderate fluctuations. It increased from 9.55% in 2020 to 10.12% in 2021, decreased to 9.71% in 2022 and 9.40% in 2023, before rising again to 10.16% in 2024. These changes suggest sensitivity to broader economic conditions or company-specific risk factors.
- Invested Capital Dynamics
- Invested capital decreased from US$31,958 million in 2020 to US$29,268 million in 2021. A substantial increase was then observed, reaching US$47,466 million in 2022 and US$51,440 million in 2023. In 2024, invested capital decreased slightly to US$48,390 million. This pattern suggests significant capital deployment in 2022 and 2023, followed by a modest reduction in 2024.
- Economic Profit Analysis
- Economic profit mirrored the NOPAT trend, initially increasing from US$5,898 million in 2020 to a peak of US$7,227 million in 2021. It then declined consistently to US$5,028 million in 2022, US$3,968 million in 2023, and US$3,364 million in 2024. The decreasing economic profit indicates that while the company generated profit, it did so at a decreasing rate relative to the capital employed, and the cost of that capital.
Overall, the observed trends suggest a period of initial strong economic performance followed by a decline in profitability and economic profit. While invested capital increased significantly during the middle years of the period, the subsequent decrease in NOPAT outweighed the benefits of increased capital deployment, resulting in a consistent reduction in economic profit.
Net Operating Profit after Taxes (NOPAT)
Philip Morris International Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances.
3 Addition of increase (decrease) in accrued product warranty.
4 Addition of increase (decrease) in restructuring related liabilities.
5 Addition of increase (decrease) in equity equivalents to net earnings attributable to PMI.
6 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net earnings attributable to PMI.
9 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
The financial data indicates a fluctuating but generally declining trend in the profitability metrics over the analyzed periods. Both net earnings attributable to the company and net operating profit after taxes (NOPAT) show variations that merit close attention.
- Net Earnings Attributable to PMI
- Starting at $8,056 million in 2020, net earnings increased to a peak of $9,109 million in 2021, reflecting a strong growth phase. However, subsequent years show a downward trajectory, with earnings declining to $9,048 million in 2022, then more sharply to $7,813 million in 2023, and further down to $7,057 million in 2024. This sequence suggests a notable slowdown in profitability, especially from 2022 onwards.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT follows a similar pattern, beginning at $8,950 million in 2020 and rising to a high of $10,188 million in 2021. A decline ensues thereafter, decreasing to $9,635 million in 2022, $8,804 million in 2023, and finally $8,281 million in 2024. The reduction in operating profit after tax signals that operational efficiency or operating conditions may have deteriorated during the latter period.
Overall, the data reflects a peak in both earnings and operating profits in 2021, followed by a consistent downward trend through 2024. This pattern could indicate emerging challenges in sustaining profitability, necessitating further analysis of operational factors, market conditions, or cost structures contributing to this decline.
Cash Operating Taxes
Philip Morris International Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Provision for income taxes
- The provision for income taxes exhibited fluctuations over the observed periods. Starting at $2,377 million in 2020, the figure increased to $2,671 million in 2021, representing a notable rise. However, it subsequently decreased to $2,244 million in 2022, indicating a reduction in tax provisions that year. Following this dip, provisions increased again in 2023 to $2,339 million and continued the upward trend more sharply in 2024, reaching $3,017 million. Overall, the pattern shows variability with a significant increase in the most recent year.
- Cash operating taxes
- Cash operating taxes displayed an overall upward trend from 2020 to 2024. The amount was $2,656 million in 2020 and increased steadily to $2,825 million in 2021. A slight decline occurred in 2022 to $2,606 million, but this was followed by substantial increases in 2023 and 2024, reaching $2,899 million and $3,381 million respectively. The consistent growth, especially in the final two years, reflects an increasing cash tax burden despite minor fluctuations earlier.
Invested Capital
Philip Morris International Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 accrued product warranty.
5 Addition of restructuring related liabilities.
6 Addition of equity equivalents to total PMI stockholders’ deficit.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
- Total reported debt & leases
- The total reported debt and leases exhibit a fluctuating trend over the examined periods. Initially, there was a decrease from 32,243 million USD at the end of 2020 to 28,342 million USD in 2021. However, this was followed by a notable increase in 2022, reaching 43,737 million USD, and then a further rise to 48,562 million USD in 2023. In 2024, the figure slightly declined to 46,299 million USD. Overall, the debt levels have increased substantially after the initial drop, reflecting a significant rise in financial obligations in recent years.
- Total PMI stockholders’ deficit
- The stockholders’ deficit showed an improvement from -12,567 million USD in 2020 to -8,957 million USD in 2022, indicating a reduction in the deficit over these years. However, this improvement was reversed in 2023 and 2024, with the deficit increasing to -11,225 million USD and further to -11,750 million USD, respectively. This pattern suggests a temporary recovery in equity position was followed by a deterioration in the latest two years.
- Invested capital
- Invested capital decreased from 31,958 million USD in 2020 to 29,268 million USD in 2021, showing a contraction in invested resources. Subsequently, a sharp increase is observed in 2022, rising to 47,466 million USD, and further to 51,440 million USD in 2023. In 2024, there is a slight decrease to 48,390 million USD. The data indicates an expansion in invested capital after 2021, suggesting increased investment activities or asset base growth during this period, with a minor reduction in the most recent year.
Cost of Capital
Philip Morris International Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, including finance lease obligations3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt, including finance lease obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, including finance lease obligations3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt, including finance lease obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, including finance lease obligations3 | ÷ | = | × | × (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 Debt, including finance lease obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, including finance lease obligations3 | ÷ | = | × | × (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 Debt, including finance lease obligations. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt, including finance lease obligations3 | ÷ | = | × | × (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 Debt, including finance lease obligations. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Philip Morris International Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited a fluctuating pattern over the five-year period. Initially, the ratio demonstrated growth, followed by a consistent decline. Economic profit decreased year-over-year from 2020 to 2024, while invested capital showed an initial decrease, a substantial increase, and then a slight decrease.
- Economic Spread Ratio Trend
- The economic spread ratio increased from 18.46% in 2020 to a peak of 24.69% in 2021. Subsequently, a downward trend was observed, with the ratio declining to 10.59% in 2022, 7.71% in 2023, and further to 6.95% in 2024. This indicates a diminishing ability to generate returns exceeding the cost of capital.
- Economic Profit
- Economic profit began at US$5,898 million in 2020 and rose to US$7,227 million in 2021. From 2021 onward, economic profit experienced a consistent decline, reaching US$5,028 million in 2022, US$3,968 million in 2023, and US$3,364 million in 2024. This suggests a weakening in the company’s ability to generate wealth above its cost of capital.
- Invested Capital
- Invested capital decreased from US$31,958 million in 2020 to US$29,268 million in 2021. A significant increase was then recorded, rising to US$47,466 million in 2022 and US$51,440 million in 2023. In 2024, invested capital slightly decreased to US$48,390 million. The increase in invested capital, coupled with the decline in economic profit, likely contributed to the observed decrease in the economic spread ratio.
The combined effect of decreasing economic profit and fluctuating invested capital resulted in a consistent decline in the economic spread ratio. While invested capital increased substantially in 2022 and 2023, the corresponding economic profit did not increase proportionally, leading to a lower return on invested capital and a reduced economic spread.
Economic Profit Margin
Philip Morris International Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Net revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin demonstrates a consistent decline over the five-year period. While economic profit initially increased, its growth rate did not keep pace with revenue expansion, resulting in a decreasing margin.
- Economic Profit Margin Trend
- In 2020, the economic profit margin stood at 20.56%. This figure rose to a peak of 23.01% in 2021, representing the highest margin observed during the analyzed timeframe.
- Following 2021, a clear downward trend emerges. The margin decreased to 15.83% in 2022, then further to 11.28% in 2023.
- This decline continued into 2024, with the economic profit margin reaching 8.88%, the lowest value recorded within the period.
The observed decrease in the economic profit margin, despite increasing net revenues, suggests that the cost of capital, or other factors impacting economic profit calculation, are growing at a faster rate than the company’s ability to generate profit from revenue. This warrants further investigation into the underlying drivers of economic profit and potential strategies to improve margin performance.
- Relationship to Net Revenues
- Net revenues exhibited consistent growth throughout the period, increasing from US$28,694 million in 2020 to US$37,878 million in 2024. However, this revenue growth was not sufficient to maintain the initial economic profit margin levels.
- The divergence between revenue growth and margin decline indicates a potential issue with profitability relative to the capital employed to generate those revenues.
The consistent reduction in economic profit margin signals a potential weakening in the company’s ability to generate returns exceeding its cost of capital. Continued monitoring of this metric, alongside a detailed analysis of its components, is recommended.