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
Raytheon Co., 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
= 3,427 – 14.49% × 26,688 = -442
The financial performance from 2015 to 2019 reflects a consistent trend of operational growth paired with a gradual improvement in economic value generation, although economic profit remained negative throughout the period.
- Net Operating Profit After Taxes (NOPAT)
- A sustained upward trajectory is observed in NOPAT, which increased from 2,171 million US$ in 2015 to 3,427 million US$ by 2019. Aside from a marginal decline in 2017, the growth in operating profit indicates an expansion in the company's ability to generate earnings from its core operations.
- Invested Capital and Cost of Capital
- Invested capital grew steadily from 22,413 million US$ in 2015 to 26,688 million US$ in 2019, representing a significant increase in the resources deployed to generate profit. Concurrently, the cost of capital remained relatively stable, fluctuating within a narrow range between 13.66% and 14.49%. The stability of the cost of capital suggests a consistent risk profile and funding cost over the five-year window.
- Economic Profit Analysis
- Economic profit remained negative for the entire duration, signifying that NOPAT was insufficient to cover the total cost of invested capital. However, a general trend of recovery is evident. The economic loss narrowed from 891 million US$ in 2015 to 442 million US$ in 2019. This improvement is primarily driven by the growth in NOPAT outpacing the growth in the capital charge, suggesting a gradual movement toward achieving positive economic value added.
The overall data suggests that while the company failed to create economic value during this period, the operational efficiency gains reflected in the rising NOPAT have effectively reduced the economic deficit over time.
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Net Operating Profit after Taxes (NOPAT)
Raytheon Co., 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 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.
The financial performance between 2015 and 2019 demonstrates a consistent upward trajectory in both bottom-line profitability and operating efficiency. While a slight contraction occurred in 2017, the subsequent years show a period of accelerated growth in value generation.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT increased from 2,171 million USD in 2015 to 3,427 million USD by 2019. An initial increase was observed between 2015 and 2016, followed by a marginal decline in 2017 to 2,393 million USD. A significant recovery and expansion followed, with NOPAT reaching 3,010 million USD in 2018 and peaking at 3,427 million USD in 2019.
- Correlation Between NOPAT and Net Income
- A strong positive correlation exists between NOPAT and net income throughout the five-year period. NOPAT remained consistently higher than the net income attributable to the company in every year analyzed. This variance indicates that operating performance, independent of the company's capital structure and financing costs, consistently outperformed the final net earnings.
- Profitability Acceleration
- The most pronounced growth phase occurred between 2017 and 2019. During this window, net income rose from 2,024 million USD to 3,343 million USD, while NOPAT grew from 2,393 million USD to 3,427 million USD. This simultaneous surge reflects a substantial improvement in operational profitability and overall earning capacity toward the end of the period.
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Cash Operating Taxes
Raytheon Co., 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 between 2015 and 2019 exhibits significant volatility, characterized by a peak in 2017 followed by a substantial contraction in 2018. Both the provision for federal and foreign income taxes and cash operating taxes follow a similar trajectory, indicating a strong correlation between accrual-based tax expenses and actual cash outflows.
- Provision for Federal and Foreign Income Taxes
- The provision grew steadily from 733 million US$ in 2015 to a peak of 1,114 million US$ in 2017. This was followed by a sharp decline to 264 million US$ in 2018, representing a decrease of approximately 76% within a single year. A partial recovery occurred in 2019, with the provision rising to 658 million US$.
- Cash Operating Taxes
- Cash operating taxes remained relatively stable between 2015 and 2017, ranging from 840 million US$ to 939 million US$. Similar to the provision, a drastic reduction is noted in 2018, where cash outflows fell to 327 million US$. By 2019, these payments increased to 721 million US$, returning toward pre-2018 levels.
- Provision and Cash Flow Variance
- The relationship between the provision and cash operating taxes shifted over the five-year period. In 2015, cash taxes exceeded the provision by 48 million US$. By 2017, this trend reversed, with the provision exceeding cash taxes by 175 million US$. In 2018 and 2019, cash taxes again surpassed the reported provision, suggesting the impact of deferred tax adjustments or the settlement of prior obligations.
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Invested Capital
Raytheon Co., invested capital calculation (financing approach)
US$ 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 equity equivalents to total Raytheon Company stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of short-term investments.
An analysis of the capital structure from 2015 to 2019 reveals a consistent expansion of the total invested capital, which grew from US$ 22,413 million to US$ 26,688 million. This growth indicates a steady increase in the total resources deployed to generate economic value over the five-year period.
- Invested Capital Growth
- A sustained upward trajectory is evident in the invested capital, with the most pronounced acceleration occurring between 2017 and 2018, during which capital increased by US$ 2,533 million. The overall trend suggests a strategic expansion of the company's asset base.
- Debt and Lease Dynamics
- Total reported debt and leases show a general downward trend after 2016. Following a peak of US$ 6,421 million in 2016, these obligations decreased systematically to US$ 5,679 million by December 31, 2019. This reduction reflects a decrease in the reliance on borrowed funds to finance operations.
- Equity Trends
- Stockholders' equity remained relatively flat between 2015 and 2017, fluctuating slightly around the US$ 10 billion mark. However, a significant increase was observed in 2018 and 2019, with equity reaching US$ 12,223 million. This shift indicates that the recent growth in invested capital has been primarily driven by equity accumulation rather than debt issuance.
- Capital Structure Shift
- The divergence between declining debt and increasing equity suggests a strengthening of the balance sheet. The company has successfully expanded its invested capital base while simultaneously reducing its total liabilities, resulting in a lower leverage profile by the end of 2019 compared to the start of the period.
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Cost of Capital
Raytheon Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 63,975) | 63,975) | ÷ | 70,231) | = | 0.91 | 0.91 | × | 15.61% | = | 14.22% | ||
| 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 | 14.49% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 51,068) | 51,068) | ÷ | 57,273) | = | 0.89 | 0.89 | × | 15.61% | = | 13.92% | ||
| 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 | 14.26% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 61,331) | 61,331) | ÷ | 67,833) | = | 0.90 | 0.90 | × | 15.61% | = | 14.12% | ||
| 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 | 14.36% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 44,506) | 44,506) | ÷ | 51,440) | = | 0.87 | 0.87 | × | 15.61% | = | 13.51% | ||
| 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 | 13.88% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 37,844) | 37,844) | ÷ | 44,646) | = | 0.85 | 0.85 | × | 15.61% | = | 13.23% | ||
| 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 | 13.66% | ||||||||||
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 »
Economic Spread Ratio
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 | (442) | (709) | (987) | (808) | (891) | |
| Invested capital2 | 26,688) | 26,081) | 23,548) | 23,509) | 22,413) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -1.65% | -2.72% | -4.19% | -3.44% | -3.97% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX 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 × -442 ÷ 26,688 = -1.65%
4 Click competitor name to see calculations.
Between 2015 and 2019, the entity consistently operated with negative economic profit, indicating that the returns generated were insufficient to cover the cost of the invested capital. However, a positive trend in value recovery is evident in the latter part of the period, as the magnitude of the economic loss narrowed significantly by the end of 2019.
- Invested Capital
- A consistent upward trajectory in invested capital is observed, rising from 22,413 million US dollars in 2015 to 26,688 million US dollars in 2019. This represents a steady expansion of the capital base over the five-year period, with the most significant increase occurring between 2017 and 2018.
- Economic Profit
- Economic profit remained negative throughout the analysis period, reaching a peak deficit of 987 million US dollars in 2017. Following this low point, a notable recovery trend emerged, with the deficit reducing to 709 million US dollars in 2018 and further improving to 442 million US dollars by 2019. This suggests an improvement in the ability to generate returns relative to the cost of capital.
- Economic Spread Ratio
- The economic spread ratio mirrored the volatility of the economic profit, maintaining negative values throughout the period. The ratio declined to its lowest point of -4.19% in 2017 before trending upward to -1.65% in 2019. The narrowing of this spread, despite the simultaneous increase in invested capital, indicates a systematic improvement in capital efficiency and a reduction in the gap between the return on invested capital and the cost of capital.
The convergence of the economic spread ratio toward zero, coupled with the reduction in absolute economic loss, suggests that the organization moved closer to achieving economic value added by the end of 2019, despite the increased scale of its invested capital base.
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Economic Profit Margin
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 | (442) | (709) | (987) | (808) | (891) | |
| Net sales | 29,176) | 27,058) | 25,348) | 24,069) | 23,247) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -1.51% | -2.62% | -3.89% | -3.36% | -3.83% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX 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 ÷ Net sales
= 100 × -442 ÷ 29,176 = -1.51%
3 Click competitor name to see calculations.
The financial trajectory from 2015 to 2019 is characterized by steady revenue expansion coupled with a gradual recovery in economic value creation, although economic profit remained negative throughout the analyzed period.
- Net Sales Performance
- Net sales exhibited consistent year-over-year growth, increasing from 23,247 million USD in 2015 to 29,176 million USD by 2019. This represents a sustained upward trend in top-line performance and market reach.
- Economic Profit Trends
- Economic profit remained negative for the duration of the period, indicating that the company did not generate returns in excess of its cost of capital. After reaching a nadir of -987 million USD in 2017, the figure improved consistently, reaching -442 million USD by 2019. This upward trajectory suggests an incremental narrowing of the value gap.
- Economic Profit Margin Analysis
- The economic profit margin followed a similar pattern to absolute economic profit, hitting its lowest point of -3.89% in 2017. A notable recovery is observed between 2017 and 2019, where the margin improved from -3.89% to -1.51%. This trend indicates that while the company continued to destroy economic value, the rate of value destruction relative to sales decreased significantly over the final two years of the period.
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