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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

Raytheon Co., 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	3,427)	3,010)	2,393)	2,456)	2,171)
Cost of capital²	11.38%	11.21%	11.26%	10.92%	10.76%
Invested capital³	26,688)	26,081)	23,548)	23,509)	22,413)

Economic profit⁴	390)	87)	(259)	(112)	(241)

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
= 3,427 – 11.38% × 26,688 = 390

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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.	Raytheon Co. economic profit increased from 2017 to 2018 and from 2018 to 2019.

Raytheon Co., 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 Raytheon Company	3,343)	2,909)	2,024)	2,211)	2,074)
Deferred income tax expense (benefit)¹	(28)	(24)	252)	109)	(56)
Increase (decrease) in allowance for doubtful accounts²	(5)	4)	—)	3)	1)
Increase (decrease) in equity equivalents³	(33)	(20)	252)	112)	(55)
Interest expense	180)	184)	205)	232)	233)
Interest expense, operating lease liability⁴	28)	33)	35)	47)	42)
Adjusted interest expense	208)	217)	240)	279)	275)
Tax benefit of interest expense⁵	(44)	(46)	(84)	(98)	(96)
Adjusted interest expense, after taxes⁶	165)	172)	156)	181)	179)
Interest income	(42)	(31)	(21)	(16)	(11)
Investment income, before taxes	(42)	(31)	(21)	(16)	(11)
Tax expense (benefit) of investment income⁷	9)	7)	7)	6)	4)
Investment income, after taxes⁸	(33)	(24)	(14)	(10)	(7)
(Income) loss from discontinued operations, net of tax⁹	(1)	1)	(2)	(1)	(13)
Net income (loss) attributable to noncontrolling interest	(14)	(27)	(23)	(37)	(7)
Net operating profit after taxes (NOPAT)	3,427)	3,010)	2,393)	2,456)	2,171)

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 allowance for doubtful accounts.

³ Addition of increase (decrease) in equity equivalents to net income attributable to Raytheon Company.

⁴ 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 919 × 3.10% = 28

⁵ 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 208 × 21.00% = 44

⁶ Addition of after taxes interest expense to net income attributable to Raytheon Company.

⁷ 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 42 × 21.00% = 9

⁸ Elimination of after taxes investment income.

⁹ Elimination of discontinued operations.

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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.	Raytheon Co. NOPAT increased from 2017 to 2018 and from 2018 to 2019.

Raytheon Co., 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
Provision for federal and foreign income taxes	658)	264)	1,114)	857)	733)
Less: Deferred income tax expense (benefit)	(28)	(24)	252)	109)	(56)
Add: Tax savings from interest expense	44)	46)	84)	98)	96)
Less: Tax imposed on investment income	9)	7)	7)	6)	4)
Cash operating taxes	721)	327)	939)	840)	881)

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.	Raytheon Co. cash operating taxes decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.

Raytheon Co., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
Commercial paper and current portion of long-term debt	1,499)	300)	300)	—)	—)
Long-term debt, excluding current portion	3,261)	4,755)	4,750)	5,335)	5,330)
Operating lease liability¹	919)	842)	909)	1,086)	976)
Total reported debt & leases	5,679)	5,897)	5,959)	6,421)	6,306)
Total Raytheon Company stockholders’ equity	12,223)	11,472)	9,963)	10,066)	10,128)
Net deferred tax (assets) liabilities²	(513)	(329)	(532)	(746)	(887)
Allowance for doubtful accounts³	7)	12)	8)	8)	5)
Equity equivalents⁴	(506)	(317)	(524)	(738)	(882)
Accumulated other comprehensive (income) loss, net of tax⁵	9,260)	8,618)	7,935)	7,411)	7,176)
Redeemable noncontrolling interests	32)	411)	512)	449)	355)
Noncontrolling interests in subsidiaries	—)	—)	—)	—)	202)
Adjusted total Raytheon Company stockholders’ equity	21,009)	20,184)	17,886)	17,188)	16,979)
Short-term investments⁶	—)	—)	(297)	(100)	(872)
Invested capital	26,688)	26,081)	23,548)	23,509)	22,413)

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 equity equivalents to total Raytheon Company stockholders’ equity.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of short-term investments.

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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.	Raytheon Co. invested capital increased from 2017 to 2018 and from 2018 to 2019.

Raytheon Co., cost of capital calculations

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	63,975)	63,975)	÷	70,231)	=	0.91	0.91	×	12.19%	=	11.11%
Commercial paper and long-term debt³	5,337)	5,337)	÷	70,231)	=	0.08	0.08	×	4.01% × (1 – 21.00%)	=	0.24%
Operating lease liability⁴	919)	919)	÷	70,231)	=	0.01	0.01	×	3.10% × (1 – 21.00%)	=	0.03%
Total:	70,231)					1.00					11.38%

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

¹ US$ in millions

² Equity. See details »

³ Commercial paper and long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	51,068)	51,068)	÷	57,273)	=	0.89	0.89	×	12.19%	=	10.87%
Commercial paper and long-term debt³	5,363)	5,363)	÷	57,273)	=	0.09	0.09	×	3.95% × (1 – 21.00%)	=	0.29%
Operating lease liability⁴	842)	842)	÷	57,273)	=	0.01	0.01	×	3.95% × (1 – 21.00%)	=	0.05%
Total:	57,273)					1.00					11.21%

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

¹ US$ in millions

² Equity. See details »

³ Commercial paper and long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	61,331)	61,331)	÷	67,833)	=	0.90	0.90	×	12.19%	=	11.02%
Commercial paper and long-term debt³	5,593)	5,593)	÷	67,833)	=	0.08	0.08	×	3.87% × (1 – 35.00%)	=	0.21%
Operating lease liability⁴	909)	909)	÷	67,833)	=	0.01	0.01	×	3.87% × (1 – 35.00%)	=	0.03%
Total:	67,833)					1.00					11.26%

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

¹ US$ in millions

² Equity. See details »

³ Commercial paper and long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	44,506)	44,506)	÷	51,440)	=	0.87	0.87	×	12.19%	=	10.55%
Commercial paper and long-term debt³	5,848)	5,848)	÷	51,440)	=	0.11	0.11	×	4.29% × (1 – 35.00%)	=	0.32%
Operating lease liability⁴	1,086)	1,086)	÷	51,440)	=	0.02	0.02	×	4.29% × (1 – 35.00%)	=	0.06%
Total:	51,440)					1.00					10.92%

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

¹ US$ in millions

² Equity. See details »

³ Commercial paper and long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	37,844)	37,844)	÷	44,646)	=	0.85	0.85	×	12.19%	=	10.33%
Commercial paper and long-term debt³	5,826)	5,826)	÷	44,646)	=	0.13	0.13	×	4.29% × (1 – 35.00%)	=	0.36%
Operating lease liability⁴	976)	976)	÷	44,646)	=	0.02	0.02	×	4.29% × (1 – 35.00%)	=	0.06%
Total:	44,646)					1.00					10.76%

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

¹ US$ in millions

² Equity. See details »

³ Commercial paper and long-term debt. See details »

⁴ Operating lease liability. See details »

Raytheon Co., 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	390)	87)	(259)	(112)	(241)
Invested capital²	26,688)	26,081)	23,548)	23,509)	22,413)
Performance Ratio
Economic spread ratio³	1.46%	0.33%	-1.10%	-0.48%	-1.07%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-19.84%	—	—	—	—
Caterpillar Inc.	1.19%	—	—	—	—
Cummins Inc.	4.70%	—	—	—	—
Eaton Corp. plc	-3.79%	—	—	—	—
General Electric Co.	-6.50%	—	—	—	—
Honeywell International Inc.	3.06%	—	—	—	—
Lockheed Martin Corp.	18.13%	—	—	—	—
RTX Corp.	0.24%	—	—	—	—

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 × 390 ÷ 26,688 = 1.46%

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.	Raytheon Co. economic spread ratio improved from 2017 to 2018 and from 2018 to 2019.

Raytheon Co., 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	390)	87)	(259)	(112)	(241)
Net sales	29,176)	27,058)	25,348)	24,069)	23,247)
Performance Ratio
Economic profit margin²	1.34%	0.32%	-1.02%	-0.47%	-1.04%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-9.21%	—	—	—	—
Caterpillar Inc.	1.29%	—	—	—	—
Cummins Inc.	3.01%	—	—	—	—
Eaton Corp. plc	-5.22%	—	—	—	—
General Electric Co.	-9.66%	—	—	—	—
Honeywell International Inc.	3.56%	—	—	—	—
Lockheed Martin Corp.	7.78%	—	—	—	—
RTX Corp.	0.32%	—	—	—	—

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 ÷ Net sales
= 100 × 390 ÷ 29,176 = 1.34%

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.	Raytheon Co. economic profit margin improved from 2017 to 2018 and from 2018 to 2019.

Raytheon Co. (NYSE:RTN)

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