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
Phillips 66, economic profit calculation
US$ in millions
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 – 14.51% × 50,827 = -2,031
An analysis of the financial performance from 2015 to 2019 reveals a persistent deficit in economic profit, although a general trend toward value recovery is evident. While the organization consistently failed to generate returns exceeding its cost of capital, the magnitude of the economic loss decreased over the five-year period, indicating a narrowing gap between operating returns and the required return on invested capital.
- Net Operating Profit After Taxes (NOPAT)
- A consistent upward trajectory is observed in NOPAT, which grew from 3,281 million USD in 2015 to 5,344 million USD in 2019. This steady increase in operational profitability served as the primary driver in reducing the annual economic deficit.
- Invested Capital and Cost of Capital
- Invested capital expanded from 42,469 million USD in 2015 to 50,827 million USD in 2019, despite a slight contraction in 2018. The cost of capital remained relatively stable throughout the period, fluctuating within a narrow range between 14.51% and 15.50%, with the lowest rate recorded in the final year of the analysis.
- Economic Profit and Value Creation
- Economic profit remained negative across all five years, signifying that the company did not create economic value for its shareholders during this timeframe. However, the economic loss improved from 3,303 million USD in 2015 to 2,031 million USD in 2019. The improvement is attributed to the growth in NOPAT outpacing the increase in the total capital charge.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Net Operating Profit after Taxes (NOPAT)
Phillips 66, NOPAT calculation
US$ in millions
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.
A comparative analysis of the core operational profitability and bottom-line earnings reveals a divergence between Net Operating Profit After Taxes (NOPAT) and net income attributable to shareholders from 2015 to 2019.
- Net Operating Profit After Taxes (NOPAT) Trend
- A consistent and steady upward trajectory is observed in NOPAT, which increased from 3,281 million US dollars in 2015 to 5,344 million US dollars by 2019. This sustained growth indicates a strengthening of core operational efficiency and an improvement in the company's ability to generate profit from its primary business activities, independent of its capital structure and financing costs.
- Net Income Volatility
- In contrast to the stability of NOPAT, net income exhibited significant volatility during the same period. A sharp decline occurred in 2016, with earnings dropping to 1,555 million US dollars, followed by a recovery and peak of 5,595 million US dollars in 2018. By 2019, net income decreased again to 3,076 million US dollars, reflecting a susceptibility to non-operating factors, tax adjustments, or interest expenses that do not impact operational performance.
- Operational vs. Net Profitability Divergence
- The variance between NOPAT and net income highlights distinct financial phases. In 2016, NOPAT significantly exceeded net income, suggesting that while operations remained strong, bottom-line results were suppressed by non-operating losses or high financing costs. Conversely, in 2018, net income surpassed NOPAT, indicating a period where non-operating gains or favorable financial structuring enhanced the final earnings. By 2019, the gap widened again, as NOPAT reached its five-year peak while net income declined, emphasizing that operational growth did not translate directly into proportional increases in net shareholder earnings.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Cash Operating Taxes
Phillips 66, cash operating taxes calculation
US$ in millions
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 tax profile from 2015 to 2019 is characterized by significant volatility in both accounting tax expenses and actual cash tax outflows. The figures indicate a lack of stability in tax obligations, with substantial swings occurring over the five-year period.
- Income Tax Expense Trends
- The income tax expense exhibited extreme fluctuations, beginning at 1,764 million US$ in 2015 and declining sharply to a tax benefit of 1,693 million US$ in 2017. This benefit represents a significant reversal of tax costs, followed by a rapid return to an expense of 1,572 million US$ in 2018, and a subsequent reduction to 801 million US$ in 2019.
- Cash Operating Tax Analysis
- Cash operating taxes followed an erratic trajectory. A precipitous drop is observed between 2015 and 2016, falling from 1,407 million US$ to 70 million US$. While there was a modest increase to 363 million US$ in 2017, cash outflows peaked in 2018 at 1,429 million US$, before decreasing to 716 million US$ by the end of 2019.
- Divergence Between Accounting Expense and Cash Flow
- A critical disconnect between accrual-based tax expenses and cash payments occurred in 2017. During this period, the company recorded a tax benefit of 1,693 million US$, yet continued to experience a cash outflow for operating taxes amounting to 363 million US$. This divergence suggests the presence of non-cash tax adjustments or deferred tax assets that decoupled the reported expense from the actual liquidity impact. Conversely, the 2018 fiscal year showed a strong correlation between the two metrics, as both the expense and cash payments surged to similar levels.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Invested Capital
Phillips 66, invested capital calculation (financing approach)
US$ in millions
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.
Invested capital exhibited an overall upward trajectory between 2015 and 2019, increasing from US$ 42,469 million to US$ 50,827 million. Although a marginal contraction occurred in 2018, the five-year period is characterized by a general expansion of the capital base.
- Total Reported Debt and Leases
- A consistent year-over-year increase is observed in total debt and leases, which rose from US$ 10,643 million in 2015 to US$ 13,024 million by the end of 2019. This steady growth indicates a progressive increase in leverage or lease obligations over the period.
- Stockholders' Equity
- Equity levels demonstrated more volatility than debt, starting at US$ 23,100 million in 2015, declining to US$ 22,390 million in 2016, and peaking at US$ 25,085 million in 2017. By 2019, equity stood at US$ 24,910 million, reflecting a relatively stable contribution from shareholders despite periodic fluctuations.
- Invested Capital Dynamics
- The growth in total invested capital was primarily driven by the continuous accumulation of debt and leases. The slight decrease in invested capital observed in 2018 is attributable to a decline in stockholders' equity that offset the simultaneous increase in reported debt.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Cost of Capital
Phillips 66, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 39,221) | 39,221) | ÷ | 53,683) | = | 0.73 | 0.73 | × | 18.63% | = | 13.61% | ||
| 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 | 14.51% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 44,290) | 44,290) | ÷ | 56,793) | = | 0.78 | 0.78 | × | 18.63% | = | 14.53% | ||
| 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 | 15.29% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 46,029) | 46,029) | ÷ | 58,724) | = | 0.78 | 0.78 | × | 18.63% | = | 14.60% | ||
| 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 | 15.21% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 40,731) | 40,731) | ÷ | 52,811) | = | 0.77 | 0.77 | × | 18.63% | = | 14.37% | ||
| 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 | 15.01% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 42,244) | 42,244) | ÷ | 52,692) | = | 0.80 | 0.80 | × | 18.63% | = | 14.94% | ||
| 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 | 15.50% | ||||||||||
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 »
Economic Spread Ratio
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 | (2,031) | (2,296) | (2,791) | (2,459) | (3,303) | |
| Invested capital2 | 50,827) | 48,544) | 49,009) | 46,215) | 42,469) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -4.00% | -4.73% | -5.69% | -5.32% | -7.78% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| ExxonMobil Holdings 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 × -2,031 ÷ 50,827 = -4.00%
4 Click competitor name to see calculations.
An analysis of the economic value added metrics reveals a consistent trend of narrowing economic losses from 2015 through 2019. Although the entity failed to generate positive economic profit during this five-year period, there is a clear trajectory toward improvement in both absolute economic profit and the economic spread ratio, occurring simultaneously with an expansion of the invested capital base.
- Economic Profit
- Economic profit remained negative throughout the observed period, indicating that the returns on invested capital were insufficient to cover the cost of that capital. However, the magnitude of these losses decreased from 3,303 million USD in 2015 to 2,031 million USD by 2019. This recovery suggests a gradual improvement in operational efficiency or a reduction in the cost of capital relative to earnings.
- Invested Capital
- Invested capital exhibited a steady upward trend, rising from 42,469 million USD in 2015 to 50,827 million USD in 2019. This increase represents a growth of approximately 19.7% over the period, signaling continued capital deployment into the business despite the negative economic profit.
- Economic Spread Ratio
- The economic spread ratio, which measures the difference between the return on invested capital and the weighted average cost of capital, improved from -7.78% in 2015 to -4.00% in 2019. The narrowing of this negative spread indicates that the company is reducing the gap between its actual performance and its required rate of return, moving closer to a break-even point of economic value creation.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?
Economic Profit Margin
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 | (2,031) | (2,296) | (2,791) | (2,459) | (3,303) | |
| Sales and other operating revenues | 107,293) | 111,461) | 102,354) | 84,279) | 98,975) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -1.89% | -2.06% | -2.73% | -2.92% | -3.34% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| ExxonMobil Holdings 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 × -2,031 ÷ 107,293 = -1.89%
3 Click competitor name to see calculations.
The analysis of economic value added reveals a consistent trajectory of improvement in the economic profit margin over the five-year period from 2015 to 2019. While economic profit remained negative throughout the entire period, indicating that the company did not generate returns above its cost of capital, the relative magnitude of this deficit decreased steadily in proportion to total revenue.
- Economic Profit Trends
- Economic profit exhibited a general upward trend, moving from a deficit of US$ 3,303 million in 2015 to a deficit of US$ 2,031 million in 2019. Although a slight reversal occurred in 2017, where the deficit widened to US$ 2,791 million from US$ 2,459 million in 2016, the subsequent years showed a sustained reduction in the economic loss.
- Revenue Performance
- Sales and other operating revenues experienced volatility, with a notable dip in 2016 to US$ 84,279 million before peaking in 2018 at US$ 111,461 million. The revenue base expanded overall from 2015 to 2019, providing a larger denominator that contributed to the compression of the economic profit margin.
- Economic Profit Margin Analysis
- The economic profit margin demonstrated a continuous and linear improvement, rising from -3.34% in 2015 to -1.89% in 2019. This steady progression suggests an increase in capital efficiency or a narrowing gap between the return on invested capital and the weighted average cost of capital relative to the scale of operations.
AI Ask an analyst for more
Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.
How can I help you?