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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	11.40%	11.98%	11.88%	11.73%	12.09%
Invested capital³	50,827)	48,544)	49,009)	46,215)	42,469)

Economic profit⁴	(451)	(685)	(1,157)	(942)	(1,854)

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 – 11.40% × 50,827 = -451

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Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Phillips 66 economic profit increased from 2017 to 2018 and from 2018 to 2019.

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.

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Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Phillips 66 NOPAT increased from 2017 to 2018 and from 2018 to 2019.

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).

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Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Phillips 66 cash operating taxes increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level.

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.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Phillips 66 invested capital decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

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	×	14.38%	=	10.51%
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					11.40%

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	×	14.38%	=	11.21%
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					11.98%

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	×	14.38%	=	11.27%
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					11.88%

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	×	14.38%	=	11.09%
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					11.73%

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	×	14.38%	=	11.53%
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					12.09%

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	(451)	(685)	(1,157)	(942)	(1,854)
Invested capital²	50,827)	48,544)	49,009)	46,215)	42,469)
Performance Ratio
Economic spread ratio³	-0.89%	-1.41%	-2.36%	-2.04%	-4.37%
Benchmarks
Economic Spread Ratio, Competitors⁴
Chevron Corp.	-12.59%	—	—	—	—
ConocoPhillips	-0.33%	—	—	—	—
Exxon Mobil Corp.	-5.71%	—	—	—	—
Marathon Petroleum Corp.	-3.03%	—	—	—	—
Occidental Petroleum Corp.	-10.58%	—	—	—	—
Valero Energy Corp.	-3.08%	—	—	—	—

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 × -451 ÷ 50,827 = -0.89%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Phillips 66 economic spread ratio improved from 2017 to 2018 and from 2018 to 2019.

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	(451)	(685)	(1,157)	(942)	(1,854)
Sales and other operating revenues	107,293)	111,461)	102,354)	84,279)	98,975)
Performance Ratio
Economic profit margin²	-0.42%	-0.61%	-1.13%	-1.12%	-1.87%
Benchmarks
Economic Profit Margin, Competitors³
Chevron Corp.	-17.62%	—	—	—	—
ConocoPhillips	-0.59%	—	—	—	—
Exxon Mobil Corp.	-6.79%	—	—	—	—
Marathon Petroleum Corp.	-2.00%	—	—	—	—
Occidental Petroleum Corp.	-43.67%	—	—	—	—
Valero Energy Corp.	-1.16%	—	—	—	—

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 × -451 ÷ 107,293 = -0.42%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Phillips 66 economic profit margin improved from 2017 to 2018 and from 2018 to 2019.

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