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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

Phillips 66, economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net operating profit after taxes (NOPAT)¹	5,344)	5,129)	4,664)	4,480)	3,281)
Cost of capital²	14.56%	15.35%	15.27%	15.07%	15.56%
Invested capital³	50,827)	48,544)	49,009)	46,215)	42,469)

Economic profit⁴	(2,058)	(2,324)	(2,819)	(2,485)	(3,328)

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

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
= 5,344 – 14.56% × 50,827 = -2,058

Between 2015 and 2019, a consistent upward trend in operational profitability was observed, although this growth was insufficient to offset the cost of capital. While the magnitude of economic loss decreased over the period, the company consistently operated with negative economic profit, indicating that the returns generated were lower than the required return on invested capital.

Net Operating Profit After Taxes (NOPAT): A sustained increase is evident, with NOPAT rising from 3,281 million USD in 2015 to 5,344 million USD in 2019. This represents a steady improvement in core operational earning power across the five-year period.
Invested Capital and Cost of Capital: Invested capital grew from 42,469 million USD in 2015 to 50,827 million USD in 2019, experiencing a slight contraction in 2018 before rising again. The cost of capital remained relatively stable, fluctuating within a narrow range between 14.56% and 15.56%.
Economic Profit Performance: Economic profit remained negative throughout the analyzed timeframe, signifying that the organization did not generate sufficient returns to cover its cost of capital. However, the deficit narrowed from -3,328 million USD in 2015 to -2,058 million USD in 2019. This improvement indicates a reduction in value destruction, driven largely by the growth in NOPAT outpacing the growth of the capital charge.

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Phillips 66, NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Net income attributable to Phillips 66	3,076)	5,595)	5,106)	1,555)	4,227)
Deferred income tax expense (benefit)¹	182)	252)	(1,889)	610)	483)
Increase (decrease) in allowances²	19)	(7)	(5)	(21)	(16)
Increase (decrease) in LIFO reserve³	1,400)	(1,400)	1,000)	2,000)	(1,700)
Increase (decrease) in equity equivalents⁴	1,601)	(1,155)	(894)	2,589)	(1,233)
Interest and debt expense	458)	504)	438)	338)	310)
Interest expense, operating lease liability⁵	48)	61)	69)	59)	77)
Adjusted interest and debt expense	506)	565)	507)	397)	387)
Tax benefit of interest and debt expense⁶	(106)	(119)	(178)	(139)	(135)
Adjusted interest and debt expense, after taxes⁷	400)	446)	330)	258)	251)
Interest income	(43)	(45)	(31)	(18)	(27)
Investment income, before taxes	(43)	(45)	(31)	(18)	(27)
Tax expense (benefit) of investment income⁸	9)	9)	11)	6)	9)
Investment income, after taxes⁹	(34)	(36)	(20)	(12)	(18)
Net income (loss) attributable to noncontrolling interest	301)	278)	142)	89)	53)
Net operating profit after taxes (NOPAT)	5,344)	5,129)	4,664)	4,480)	3,281)

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowances.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in equity equivalents to net income attributable to Phillips 66.

⁵ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,261 × 3.80% = 48

⁶ 2019 Calculation
Tax benefit of interest and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= 506 × 21.00% = 106

⁷ Addition of after taxes interest expense to net income attributable to Phillips 66.

⁸ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 43 × 21.00% = 9

⁹ Elimination of after taxes investment income.

The financial data reveals distinct trends in net income and net operating profit after taxes (NOPAT) over the five-year period.

Net Income Attributable to Phillips 66: Net income experienced significant volatility throughout the period. Starting at US$4,227 million in 2015, net income decreased sharply to US$1,555 million in 2016, representing a notable decline. However, in the following years, net income rebounded strongly, rising to US$5,106 million in 2017 and further increasing to US$5,595 million in 2018. In 2019, net income declined again to US$3,076 million. This pattern indicates fluctuating profitability with considerable short-term variations.
Net Operating Profit After Taxes (NOPAT): NOPAT shows a more consistent upward trend over the same period. Beginning at US$3,281 million in 2015, NOPAT increased steadily to US$4,480 million in 2016, US$4,664 million in 2017, US$5,129 million in 2018, and finally US$5,344 million in 2019. This gradual growth suggests improving core operational efficiency and profitability despite the fluctuations in net income.

In summary, while net income experienced notable fluctuations, particularly with a steep drop in 2016 followed by a peak in 2018, NOPAT demonstrated a steady and gradual improvement throughout the period. This contrast may indicate effects from non-operational factors influencing net income, whereas operating performance exhibited consistent enhancement.

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Phillips 66, cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Income tax expense (benefit)	801)	1,572)	(1,693)	547)	1,764)
Less: Deferred income tax expense (benefit)	182)	252)	(1,889)	610)	483)
Add: Tax savings from interest and debt expense	106)	119)	178)	139)	135)
Less: Tax imposed on investment income	9)	9)	11)	6)	9)
Cash operating taxes	716)	1,429)	363)	70)	1,407)

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

The financial data reveals considerable fluctuations in both income tax expense (benefit) and cash operating taxes over the five-year period.

Income Tax Expense (Benefit): There is a notable volatility in income tax expense figures, beginning with a high expense of 1,764 million USD in 2015, dropping sharply to 547 million USD in 2016. In 2017, the data shows a significant income tax benefit reflected by a negative value of -1,693 million USD. This is followed by a rebound to a positive expense of 1,572 million USD in 2018, before declining again to 801 million USD in 2019. This pattern indicates substantial variability, which could be due to changes in taxable income, tax rate adjustments, or extraordinary tax items within the company’s operational framework.
Cash Operating Taxes: The cash operating taxes also display considerable variation. The taxes paid almost drop from 1,407 million USD in 2015 to just 70 million USD in 2016, then rise to 363 million USD in 2017. A sharp increase occurs in 2018 to 1,429 million USD, followed by a decrease to 716 million USD in 2019. This trend, although somewhat aligned with the income tax expense, suggests fluctuating cash outflows related to tax operations, potentially reflecting changes in operational profitability, deferred tax payments, or differences between cash and accounting tax treatments.

Overall, the data suggests a highly dynamic tax position with considerable year-to-year changes. The negative income tax figure in 2017 particularly stands out as an anomaly, indicating either a tax benefit or adjustment that significantly reduced the tax expense for that year. The disparity between cash operating taxes and income tax expense in some years also implies timing differences between recorded tax expense and actual tax payments.

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Phillips 66, invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Short-term debt	547)	67)	41)	550)	44)
Long-term debt	11,216)	11,093)	10,069)	9,588)	8,843)
Operating lease liability¹	1,261)	1,391)	1,608)	1,372)	1,756)
Total reported debt & leases	13,024)	12,551)	11,718)	11,510)	10,643)
Stockholders’ equity	24,910)	24,653)	25,085)	22,390)	23,100)
Net deferred tax (assets) liabilities²	5,505)	5,226)	4,917)	6,651)	5,880)
Allowances³	41)	22)	29)	34)	55)
Estimated excess of current replacement cost over LIFO cost of inventories⁴	4,300)	2,900)	4,300)	3,300)	1,300)
Equity equivalents⁵	9,846)	8,148)	9,246)	9,985)	7,235)
Accumulated other comprehensive (income) loss, net of tax⁶	788)	692)	617)	995)	653)
Noncontrolling interests	2,259)	2,500)	2,343)	1,335)	838)
Adjusted stockholders’ equity	37,803)	35,993)	37,291)	34,705)	31,826)
Invested capital	50,827)	48,544)	49,009)	46,215)	42,469)

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

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 LIFO reserve. See details »

⁵ Addition of equity equivalents to stockholders’ equity.

⁶ Removal of accumulated other comprehensive income.

Total reported debt & leases: The total reported debt and leases show a continuous upward trend from 2015 through 2019. The value increased steadily each year from $10,643 million in 2015 to $13,024 million in 2019, indicating a rise in the company’s financial obligations over the period.
Stockholders’ equity: Stockholders' equity experienced fluctuations during the period. It decreased slightly from $23,100 million in 2015 to $22,390 million in 2016, then increased to a peak of $25,085 million in 2017. This was followed by a marginal decline in 2018 and a minor recovery in 2019, ending at $24,910 million. Overall, equity remained relatively stable with modest variations.
Invested capital: Invested capital showed a consistent growth trend over the five years. Beginning at $42,469 million in 2015, it rose each year and reached $50,827 million in 2019. This increase suggests ongoing capital investment and expansion activities.

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Phillips 66, cost of capital calculations

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	39,221)	39,221)	÷	53,683)	=	0.73	0.73	×	18.71%	=	13.67%
Debt³	13,201)	13,201)	÷	53,683)	=	0.25	0.25	×	4.25% × (1 – 21.00%)	=	0.83%
Operating lease liability⁴	1,261)	1,261)	÷	53,683)	=	0.02	0.02	×	3.80% × (1 – 21.00%)	=	0.07%
Total:	53,683)					1.00					14.56%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	44,290)	44,290)	÷	56,793)	=	0.78	0.78	×	18.71%	=	14.59%
Debt³	11,111)	11,111)	÷	56,793)	=	0.20	0.20	×	4.39% × (1 – 21.00%)	=	0.68%
Operating lease liability⁴	1,391)	1,391)	÷	56,793)	=	0.02	0.02	×	4.39% × (1 – 21.00%)	=	0.08%
Total:	56,793)					1.00					15.35%

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	46,029)	46,029)	÷	58,724)	=	0.78	0.78	×	18.71%	=	14.66%
Debt³	11,088)	11,088)	÷	58,724)	=	0.19	0.19	×	4.31% × (1 – 35.00%)	=	0.53%
Operating lease liability⁴	1,608)	1,608)	÷	58,724)	=	0.03	0.03	×	4.31% × (1 – 35.00%)	=	0.08%
Total:	58,724)					1.00					15.27%

Based on: 10-K (reporting date: 2017-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	40,731)	40,731)	÷	52,811)	=	0.77	0.77	×	18.71%	=	14.43%
Debt³	10,708)	10,708)	÷	52,811)	=	0.20	0.20	×	4.32% × (1 – 35.00%)	=	0.57%
Operating lease liability⁴	1,372)	1,372)	÷	52,811)	=	0.03	0.03	×	4.32% × (1 – 35.00%)	=	0.07%
Total:	52,811)					1.00					15.07%

Based on: 10-K (reporting date: 2016-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	42,244)	42,244)	÷	52,692)	=	0.80	0.80	×	18.71%	=	15.00%
Debt³	8,692)	8,692)	÷	52,692)	=	0.16	0.16	×	4.38% × (1 – 35.00%)	=	0.47%
Operating lease liability⁴	1,756)	1,756)	÷	52,692)	=	0.03	0.03	×	4.38% × (1 – 35.00%)	=	0.09%
Total:	52,692)					1.00					15.56%

Based on: 10-K (reporting date: 2015-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Phillips 66, economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(2,058)	(2,324)	(2,819)	(2,485)	(3,328)
Invested capital²	50,827)	48,544)	49,009)	46,215)	42,469)
Performance Ratio
Economic spread ratio³	-4.05%	-4.79%	-5.75%	-5.38%	-7.84%
Benchmarks
Economic Spread Ratio, Competitors⁴
Chevron Corp.	—	—	—	—	—
ConocoPhillips	—	—	—	—	—
Exxon Mobil Corp.	—	—	—	—	—

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,058 ÷ 50,827 = -4.05%

⁴ Click competitor name to see calculations.

Between 2015 and 2019, the financial performance relative to the cost of capital remained in negative territory, although a consistent trend toward recovery is evident. While the organization did not generate positive economic value during this five-year window, the magnitude of the economic loss diminished over time.

Invested Capital Trends: Invested capital experienced a general upward trajectory, increasing from 42,469 million USD in 2015 to 50,827 million USD in 2019. A slight contraction was noted in 2018, where capital decreased to 48,544 million USD, before rebounding in the following year.
Economic Profit Analysis: Economic profit remained negative throughout the analyzed period, indicating that operating returns were insufficient to cover the cost of capital. The most significant loss occurred in 2015 at -3,328 million USD. Following a slight fluctuation in 2017, the losses trended upward, improving to -2,058 million USD by December 31, 2019.
Economic Spread Ratio Interpretation: The economic spread ratio remained negative for the duration of the period, confirming a persistent gap between the return on invested capital and the required rate of return. However, the ratio demonstrated a steady improvement, moving from -7.84% in 2015 to -4.05% in 2019. This narrowing of the spread indicates an increase in capital efficiency and a reduction in the rate of value destruction over the five-year interval.

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Phillips 66, economic profit margin calculation, comparison to benchmarks

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Selected Financial Data (US$ in millions)
Economic profit¹	(2,058)	(2,324)	(2,819)	(2,485)	(3,328)
Sales and other operating revenues	107,293)	111,461)	102,354)	84,279)	98,975)
Performance Ratio
Economic profit margin²	-1.92%	-2.08%	-2.75%	-2.95%	-3.36%
Benchmarks
Economic Profit Margin, Competitors³
Chevron Corp.	—	—	—	—	—
ConocoPhillips	—	—	—	—	—
Exxon Mobil Corp.	—	—	—	—	—

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

¹ Economic profit. See details »

² 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales and other operating revenues
= 100 × -2,058 ÷ 107,293 = -1.92%

³ Click competitor name to see calculations.

Between 2015 and 2019, a consistent trend of negative economic profit was observed, indicating that the company did not generate returns exceeding its cost of capital during this period. However, there is a clear trajectory of improvement, as both the absolute economic loss and the economic profit margin moved closer to a break-even point by the end of the five-year window.

Economic Profit Trends: The absolute economic profit remained negative throughout the period, starting at -3,328 million USD in 2015 and concluding at -2,058 million USD in 2019. While a temporary reversal occurred in 2017, where losses widened to -2,819 million USD from -2,485 million USD in the previous year, the overall trend reflects a reduction in the value destroyed over time.
Revenue Performance: Sales and other operating revenues exhibited volatility, with a notable decline in 2016 to 84,279 million USD. This was followed by a period of growth, peaking in 2018 at 111,461 million USD before a slight contraction to 107,293 million USD in 2019. The fluctuations in revenue suggest a sensitivity to market conditions or pricing volatility inherent in the operational environment.
Economic Profit Margin Analysis: The economic profit margin demonstrated a steady and linear improvement from -3.36% in 2015 to -1.92% in 2019. Notably, the margin improved even in 2017 despite the increase in absolute economic loss, driven by a significant increase in operating revenues. This suggests that while the total cost of capital was not fully covered, the efficiency of value generation relative to the scale of operations improved consistently each year.

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Phillips 66 (NYSE:PSX)

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