Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Procter & Gamble Co. (NYSE:PG)

Economic Value Added (EVA)

Advanced level

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

Procter & Gamble Co., economic profit calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Net operating profit after taxes (NOPAT)1 12,785  3,768  8,451  10,404  10,191  8,462 
Cost of capital2 5.78% 5.78% 5.60% 5.61% 5.63% 5.58%
Invested capital3 101,100  89,875  92,231  97,151  103,095  107,203 
 
Economic profit4 6,942  (1,429) 3,288  4,950  4,387  2,478 

Based on: 10-K (filing date: 2020-08-06), 10-K (filing date: 2019-08-06), 10-K (filing date: 2018-08-07), 10-K (filing date: 2017-08-07), 10-K (filing date: 2016-08-09), 10-K (filing date: 2015-08-07).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2020 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 12,785 – 5.78% × 101,100 = 6,942

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. Procter & Gamble Co.’s economic profit decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.

Net Operating Profit after Taxes (NOPAT)

Procter & Gamble Co., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Net earnings attributable to Procter & Gamble 13,027  3,897  9,750  15,326  10,508  7,036 
Deferred income tax expense (benefit)1 (596) (411) (1,844) 48  (38) (803)
Increase (decrease) in restructuring reserves2 4  (45) 236  (38) (74) 8 
Increase (decrease) in equity equivalents3 (592) (456) (1,608) 10  (112) (795)
Interest expense 465  509  506  465  579  626 
Interest expense, operating lease liability4 38  20  24  24  29  30 
Adjusted interest expense 503  529  530  489  608  656 
Tax benefit of interest expense5 (106) (111) (149) (171) (213) (230)
Adjusted interest expense, after taxes6 398  418  381  318  395  427 
(Gain) loss on marketable securities (2) 17  (7) (10) (1) (3)
Interest income (155) (220) (247) (171) (182) (151)
Investment income, before taxes (157) (203) (254) (181) (183) (154)
Tax expense (benefit) of investment income7 33  43  71  63  64  54 
Investment income, after taxes8 (124) (160) (183) (118) (119) (100)
(Income) loss from discontinued operations, net of tax9 —  —  —  (5,217) (577) 1,786 
Net income (loss) attributable to noncontrolling interest 76  69  111  85  96  108 
Net operating profit after taxes (NOPAT) 12,785  3,768  8,451  10,404  10,191  8,462 

Based on: 10-K (filing date: 2020-08-06), 10-K (filing date: 2019-08-06), 10-K (filing date: 2018-08-07), 10-K (filing date: 2017-08-07), 10-K (filing date: 2016-08-09), 10-K (filing date: 2015-08-07).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in restructuring reserves.

3 Addition of increase (decrease) in equity equivalents to net earnings attributable to Procter & Gamble.

4 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 891 × 4.30% = 38

5 2020 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 503 × 21.00% = 106

6 Addition of after taxes interest expense to net earnings attributable to Procter & Gamble.

7 2020 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 157 × 21.00% = 33

8 Elimination of after taxes investment income.

9 Elimination of discontinued operations.

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. Procter & Gamble Co.’s NOPAT decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.

Cash Operating Taxes

Procter & Gamble Co., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Tax expense 2,731  2,103  3,465  3,063  3,342  2,916 
Less: Deferred income tax expense (benefit) (596) (411) (1,844) 48  (38) (803)
Add: Tax savings from interest expense 106  111  149  171  213  230 
Less: Tax imposed on investment income 33  43  71  63  64  54 
Cash operating taxes 3,400  2,583  5,387  3,123  3,529  3,895 

Based on: 10-K (filing date: 2020-08-06), 10-K (filing date: 2019-08-06), 10-K (filing date: 2018-08-07), 10-K (filing date: 2017-08-07), 10-K (filing date: 2016-08-09), 10-K (filing date: 2015-08-07).

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. Procter & Gamble Co.’s cash operating taxes decreased from 2018 to 2019 but then slightly increased from 2019 to 2020.

Invested Capital

Procter & Gamble Co., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Debt due within one year 11,183  9,697  10,423  13,554  11,653  12,021 
Long-term debt, excluding due within one year 23,537  20,395  20,863  18,038  18,945  18,329 
Operating lease liability1 891  1,143  1,253  1,403  1,440  1,483 
Total reported debt & leases 35,611  31,235  32,539  32,995  32,038  31,833 
Shareholders’ equity attributable to Procter & Gamble 46,521  47,194  52,293  55,184  57,341  62,419 
Net deferred tax (assets) liabilities2 4,008  4,453  4,192  6,104  5,832  6,945 
Restructuring reserves3 472  468  513  277  315  389 
Equity equivalents4 4,480  4,921  4,705  6,381  6,147  7,334 
Accumulated other comprehensive (income) loss, net of tax5 16,165  14,936  14,749  14,632  15,907  12,780 
Noncontrolling interest 357  385  590  594  642  631 
Adjusted shareholders’ equity attributable to Procter & Gamble 67,523  67,436  72,337  76,791  80,037  83,164 
Construction in progress6 (2,034) (2,579) (3,223) (2,935) (2,706) (2,997)
Investment securities7 —  (6,217) (9,422) (9,700) (6,274) (4,797)
Invested capital 101,100  89,875  92,231  97,151  103,095  107,203 

Based on: 10-K (filing date: 2020-08-06), 10-K (filing date: 2019-08-06), 10-K (filing date: 2018-08-07), 10-K (filing date: 2017-08-07), 10-K (filing date: 2016-08-09), 10-K (filing date: 2015-08-07).

1 Addition of capitalized operating leases.

2 Elimination of deferred taxes from assets and liabilities. See details »

3 Addition of restructuring reserves.

4 Addition of equity equivalents to shareholders’ equity attributable to Procter & Gamble.

5 Removal of accumulated other comprehensive income.

6 Subtraction of construction in progress.

7 Subtraction of investment securities.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Procter & Gamble Co.’s invested capital decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.

Cost of Capital

Procter & Gamble Co., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 329,929  329,929  ÷ 368,495  = 0.90 0.90 × 6.28% = 5.63%
Short-term and long-term debt3 37,675  37,675  ÷ 368,495  = 0.10 0.10 × 1.78% × (1 – 21.00%) = 0.14%
Operating lease liability4 891  891  ÷ 368,495  = 0.00 0.00 × 4.30% × (1 – 21.00%) = 0.01%
Total: 368,495  1.00 5.78%

Based on: 10-K (filing date: 2020-08-06).

1 US$ in millions

2 Equity. See details »

3 Short-term and long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 285,958  285,958  ÷ 318,788  = 0.90 0.90 × 6.28% = 5.64%
Short-term and long-term debt3 31,687  31,687  ÷ 318,788  = 0.10 0.10 × 1.79% × (1 – 21.00%) = 0.14%
Operating lease liability4 1,143  1,143  ÷ 318,788  = 0.00 0.00 × 1.79% × (1 – 21.00%) = 0.01%
Total: 318,788  1.00 5.78%

Based on: 10-K (filing date: 2019-08-06).

1 US$ in millions

2 Equity. See details »

3 Short-term and long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 205,609  205,609  ÷ 238,915  = 0.86 0.86 × 6.28% = 5.41%
Short-term and long-term debt3 32,053  32,053  ÷ 238,915  = 0.13 0.13 × 1.90% × (1 – 28.10%) = 0.18%
Operating lease liability4 1,253  1,253  ÷ 238,915  = 0.01 0.01 × 1.90% × (1 – 28.10%) = 0.01%
Total: 238,915  1.00 5.60%

Based on: 10-K (filing date: 2018-08-07).

1 US$ in millions

2 Equity. See details »

3 Short-term and long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 233,173  233,173  ÷ 267,850  = 0.87 0.87 × 6.28% = 5.47%
Short-term and long-term debt3 33,274  33,274  ÷ 267,850  = 0.12 0.12 × 1.70% × (1 – 35.00%) = 0.14%
Operating lease liability4 1,403  1,403  ÷ 267,850  = 0.01 0.01 × 1.70% × (1 – 35.00%) = 0.01%
Total: 267,850  1.00 5.61%

Based on: 10-K (filing date: 2017-08-07).

1 US$ in millions

2 Equity. See details »

3 Short-term and long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 229,486  229,486  ÷ 264,181  = 0.87 0.87 × 6.28% = 5.46%
Short-term and long-term debt3 33,255  33,255  ÷ 264,181  = 0.13 0.13 × 2.00% × (1 – 35.00%) = 0.16%
Operating lease liability4 1,440  1,440  ÷ 264,181  = 0.01 0.01 × 2.00% × (1 – 35.00%) = 0.01%
Total: 264,181  1.00 5.63%

Based on: 10-K (filing date: 2016-08-09).

1 US$ in millions

2 Equity. See details »

3 Short-term and long-term debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 204,744  204,744  ÷ 238,605  = 0.86 0.86 × 6.28% = 5.39%
Short-term and long-term debt3 32,378  32,378  ÷ 238,605  = 0.14 0.14 × 2.05% × (1 – 35.00%) = 0.18%
Operating lease liability4 1,483  1,483  ÷ 238,605  = 0.01 0.01 × 2.05% × (1 – 35.00%) = 0.01%
Total: 238,605  1.00 5.58%

Based on: 10-K (filing date: 2015-08-07).

1 US$ in millions

2 Equity. See details »

3 Short-term and long-term debt. See details »

4 Operating lease liability. See details »

Economic Spread Ratio

Procter & Gamble Co., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Selected Financial Data (US$ in millions)
Economic profit1 6,942  (1,429) 3,288  4,950  4,387  2,478 
Invested capital2 101,100  89,875  92,231  97,151  103,095  107,203 
Performance Ratio
Economic spread ratio3 6.87% -1.59% 3.56% 5.10% 4.26% 2.31%

Based on: 10-K (filing date: 2020-08-06), 10-K (filing date: 2019-08-06), 10-K (filing date: 2018-08-07), 10-K (filing date: 2017-08-07), 10-K (filing date: 2016-08-09), 10-K (filing date: 2015-08-07).

1 Economic profit. See details »

2 Invested capital. See details »

3 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 6,942 ÷ 101,100 = 6.87%

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. Procter & Gamble Co.’s economic spread ratio deteriorated from 2018 to 2019 but then improved from 2019 to 2020 exceeding 2018 level.

Economic Profit Margin

Procter & Gamble Co., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015
Selected Financial Data (US$ in millions)
Economic profit1 6,942  (1,429) 3,288  4,950  4,387  2,478 
Net sales 70,950  67,684  66,832  65,058  65,299  76,279 
Performance Ratio
Economic profit margin2 9.79% -2.11% 4.92% 7.61% 6.72% 3.25%

Based on: 10-K (filing date: 2020-08-06), 10-K (filing date: 2019-08-06), 10-K (filing date: 2018-08-07), 10-K (filing date: 2017-08-07), 10-K (filing date: 2016-08-09), 10-K (filing date: 2015-08-07).

1 Economic profit. See details »

2 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 6,942 ÷ 70,950 = 9.79%

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company’s 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. Procter & Gamble Co.’s economic profit margin deteriorated from 2018 to 2019 but then improved from 2019 to 2020 exceeding 2018 level.