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.
Paying user area
Try for free
Reynolds American Inc. pages available for free this week:
- Common-Size Income Statement
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Capital Asset Pricing Model (CAPM)
- Operating Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Revenues
The data is hidden behind: . Unhide it.
Get full access to the entire website from $10.42/mo, or
get 1-month access to Reynolds American Inc. for $22.49.
This is a one-time payment. There is no automatic renewal.
We accept:
Economic Profit
Reynolds American Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2016 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial performance from 2012 to 2016 is characterized by a significant transformation in the capital structure and a subsequent impact on economic value creation. While net operating profit after taxes showed a long-term upward trajectory, a substantial expansion of the invested capital base in 2015 led to a temporary period of economic loss before a strong recovery in 2016.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated an overall growth trend, rising from US$ 1,384 million in 2012 to US$ 6,935 million by 2016. A temporary contraction occurred in 2014, where NOPAT decreased to US$ 1,432 million, followed by a significant acceleration in profitability during the 2015 and 2016 fiscal years.
- Invested Capital and Cost of Capital
- Invested capital remained stable between 2012 and 2014, averaging approximately US$ 10 billion. A massive increase is observed in 2015, with invested capital surging to US$ 45,105 million, which remained largely consistent into 2016. Throughout this period, the cost of capital remained relatively constant, fluctuating within a tight range between 8.62% and 9.19%, indicating a stable weighted average cost of capital despite the increase in asset scale.
- Economic Profit Analysis
- Economic profit showed considerable volatility. Positive value was generated from 2012 to 2014, with a peak of US$ 1,285 million in 2013. In 2015, the economic profit turned negative, reaching US$ -977 million; this occurred because the increase in the capital charge associated with the expanded invested capital base exceeded the NOPAT generated during that year. However, by 2016, economic profit rebounded sharply to US$ 2,830 million, suggesting that the newly deployed capital began yielding returns significantly higher than the cost of capital.
Net Operating Profit after Taxes (NOPAT)
Reynolds American Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in LIFO reserve. See details »
3 Addition of increase (decrease) in deferred revenue, related party.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2016 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2016 Calculation
Tax benefit of interest and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= × 35.00% =
7 Addition of after taxes interest expense to net income.
8 2016 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35.00% =
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
- Net Income
- Net income exhibited a positive trend over the five-year period. Starting at 1,272 million US dollars in 2012, it increased to 1,718 million US dollars in 2013, representing a strong growth. A decline occurred in 2014 to 1,470 million US dollars, followed by a substantial rise in 2015 to 3,253 million US dollars. The upward momentum continued sharply in 2016, reaching 6,073 million US dollars. Overall, this reflects significant growth with some volatility, especially the strong rebound after 2014.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT values followed a pattern similar to net income but with greater relative fluctuations. Beginning at 1,384 million US dollars in 2012, NOPAT increased notably to 2,217 million US dollars in 2013. It then declined to 1,432 million US dollars in 2014, mirroring the dip in net income. A strong recovery was observed in 2015, with NOPAT more than doubling from the prior year to 2,912 million US dollars. This trend continued with an even sharper increase to 6,935 million US dollars in 2016, surpassing the net income growth rate during the same period. This indicates improving operational efficiency or profitability after taxes, especially in the later years.
- Overall Analysis
- Both net income and NOPAT demonstrated significant growth between 2012 and 2016, with a noticeable dip in 2014 followed by rapid recovery and acceleration in the subsequent years. The company's profitability, both at the net income level and operational profit after tax level, suggests effective management of operations and potentially enhanced revenue streams or cost efficiencies post-2014. The sharper rise in NOPAT compared to net income in 2015 and 2016 may indicate improved operational performance relative to other income components such as non-operating expenses or taxes. These patterns imply a strong financial performance trajectory in the latter part of the analyzed period.
Cash Operating Taxes
Reynolds American Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
- Provision for income taxes
- The provision for income taxes exhibited an overall increasing trend from 2012 to 2016. The value rose notably from 681 million in 2012 to 1023 million in 2013, indicating a significant increase early in the period. However, in 2014, the provision decreased to 817 million, signaling a temporary decline. Subsequently, there was a sharp and substantial increase to 3131 million in 2015, followed by a further increase to 3618 million in 2016. This pattern suggests a considerable rise in tax liability or changes in tax provision accounting during the latter years.
- Cash operating taxes
- Cash operating taxes showed some fluctuations but generally increased over the five-year span. Starting at 805 million in 2012, the amount remained relatively stable at 801 million in 2013. It rose to 1096 million in 2014, marking the beginning of a more pronounced increase. In 2015, cash operating taxes surged dramatically to 3988 million, representing a significant outflow compared to prior years. However, there was a decline to 3456 million in 2016, indicating some reduction in cash taxes paid, though still well above earlier period levels. This suggests modifications in operational cash tax payments or timing differences.
Invested Capital
Reynolds American Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of LIFO reserve. See details »
4 Addition of deferred revenue, related party.
5 Addition of equity equivalents to shareholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction-in-process.
8 Subtraction of marketable securities.
- Total reported debt & leases
-
The total reported debt and leases remained relatively stable between 2012 and 2014, with values hovering slightly above 5,100 million US dollars. However, there was a significant increase in 2015, where the figure more than tripled to 17,473 million US dollars. This substantial rise was followed by a decline in 2016 to 13,190 million US dollars, though the amount remained considerably higher than in the initial three years.
- Shareholders’ equity
-
Shareholders’ equity displayed a slight downward trend from 2012 to 2014, decreasing from 5,257 million US dollars to 4,522 million US dollars. In 2015, it experienced a substantial increase to 18,252 million US dollars, continuing to rise in 2016 to 21,711 million US dollars. This growth mirrors the pattern seen in total reported debt but extends to an even higher level by the end of the period.
- Invested capital
-
Invested capital remained relatively constant and stable from 2012 through 2014, with values just below and around the 10,000 million US dollars mark. There was a marked escalation in 2015 to 45,105 million US dollars, sustaining a similar level in 2016 at 44,972 million US dollars. This sharp increase corresponds with the shifts in both debt and equity, indicating a considerable expansion in the company's capital base during this period.
- Overall Analysis
-
The financial data reveals a period of relative stability from 2012 to 2014, followed by a pronounced transformation starting in 2015. Both total reported debt and shareholders’ equity saw massive increases, which drove a nearly fourfold surge in invested capital. Although total debt decreased somewhat in 2016, it remained significantly elevated compared to the earlier years. The simultaneous rise in equity suggests that the company may have undertaken major financing and capital restructuring initiatives during 2015, resulting in a substantial enlargement of its financial structure. This shift likely reflects strategic decisions impacting the capital composition, potentially involving acquisitions, capital infusion, or other large-scale financial activities.
Cost of Capital
Reynolds American Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2014-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2013-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2012-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Reynolds American Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2016 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
An analysis of the economic performance from 2012 to 2016 reveals significant volatility in value creation, characterized by a major structural shift in the capital base during 2015. The period is defined by an initial phase of moderate growth, a sharp contraction in economic value, and a subsequent strong recovery.
- Economic Profit
- Economic profit exhibited a fluctuating trajectory, starting at 472 million USD in 2012 and peaking at 1,285 million USD in 2013. A downward trend followed in 2014, culminating in a significant deficit of 977 million USD in 2015. However, 2016 marked a substantial recovery, with economic profit reaching its highest level in the observed period at 2,830 million USD.
- Invested Capital
- The capital base remained relatively stable between 2012 and 2014, hovering around 10 billion USD. A pivotal shift occurred in 2015, where invested capital surged to 45,105 million USD, representing an increase of approximately 363% over the previous year. This expanded capital base remained consistent through 2016 at 44,972 million USD.
- Economic Spread Ratio
- The economic spread ratio reflects the volatility of the profit margins relative to the capital employed. After peaking at 12.27% in 2013, the ratio declined to 5.52% in 2014 and turned negative to -2.17% in 2015. This negative spread coincides with the massive increase in invested capital, suggesting that the additional capital did not generate returns exceeding the cost of capital in the immediate term. By 2016, the ratio recovered to 6.29%, indicating a return to positive value creation relative to the enlarged capital base.
Economic Profit Margin
Reynolds American Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net sales, includes excise taxes | ||||||
| Add: Increase (decrease) in deferred revenue, related party | ||||||
| Adjusted net sales, includes excise taxes | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Economic profit. See details »
2 2016 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales, includes excise taxes
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic performance of the organization between 2012 and 2016 was characterized by significant volatility in value creation, despite a general upward trajectory in adjusted net sales toward the end of the period. The relationship between revenue growth and economic profit demonstrates a non-linear correlation, particularly during the 2015 fiscal year.
- Economic Profit Trends
- Economic profit experienced substantial fluctuations, beginning at 472 million USD in 2012 and peaking initially at 1,285 million USD in 2013. A subsequent decline occurred in 2014, culminating in a deficit of 977 million USD in 2015. However, a sharp recovery was observed in 2016, with economic profit reaching its highest point in the analyzed period at 2,830 million USD.
- Adjusted Net Sales Analysis
- Revenue remained relatively stable from 2012 to 2014, fluctuating around 12 billion USD. A significant growth phase began in 2015, with sales increasing to 14,885 million USD, and continuing upward to 16,918 million USD by 2016. This indicates an expansion in scale that did not immediately translate into positive economic value in 2015.
- Economic Profit Margin Volatility
- The economic profit margin mirrored the volatility of the absolute profit figures. After rising from 3.86% in 2012 to 10.74% in 2013, the margin contracted to 4.45% in 2014 and plummeted to -6.56% in 2015. This negative margin in 2015 is particularly notable as it coincided with a period of increasing sales, suggesting that the cost of capital exceeded the net operating profit during that window. The period concluded with a significant surge in efficiency, reaching a peak margin of 16.73% in 2016.
Overall, the data indicates a period of instability in economic value added that resolved into a state of high profitability by 2016. The divergence observed in 2015 highlights a critical disconnect between top-line revenue growth and the generation of economic profit, which was subsequently corrected in 2016 to achieve the most efficient margin of the five-year sequence.