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.
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Sherwin-Williams Co. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Selected Financial Data since 2005
- Analysis of Revenues
- Analysis of Debt
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Economic Profit
Sherwin-Williams Co., economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The period under review demonstrates a fluctuating relationship between net operating profit after taxes, cost of capital, and invested capital, ultimately impacting economic profit. While NOPAT generally increased over the five-year span, economic profit remained negative for the majority of the period, though with a notable improvement in the final year.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited an overall upward trend, increasing from US$2,190,395 thousand in 2020 to US$2,962,399 thousand in 2024. Growth was consistent year-over-year, with a slight deceleration between 2022 and 2023 before accelerating again in 2024. This suggests improving operational efficiency or increased revenue generation.
- Cost of Capital
- The cost of capital experienced moderate fluctuations. It initially decreased from 17.39% in 2020 to 17.19% in 2022, then increased to 18.11% in 2024. The increase in the cost of capital in the later years likely reflects broader macroeconomic conditions, such as rising interest rates, impacting the company’s funding costs.
- Invested Capital
- Invested capital increased from US$15,489,500 thousand in 2020 to US$17,346,300 thousand in 2022, indicating expansion or investment in assets. A decrease was observed in 2023 to US$16,412,900 thousand, potentially due to asset sales or reduced investment. Invested capital then rose slightly in 2024 to US$16,707,900 thousand.
- Economic Profit
- Economic profit remained negative throughout the period, ranging from -US$503,536 thousand to -US$387,309 thousand between 2020 and 2021. It worsened again in 2022 to -US$504,017 thousand, before improving to -US$432,861 thousand in 2023. A significant improvement occurred in 2024, with economic profit reaching -US$63,645 thousand. This suggests that while the company generated accounting profit, it did not generate sufficient returns to cover its cost of capital until 2024, when the gap narrowed considerably. The increasing NOPAT and relatively stable invested capital contributed to this improvement, despite the rising cost of capital.
In conclusion, the company demonstrated improving operational profitability as evidenced by NOPAT. However, the cost of capital consistently exceeded the returns generated on invested capital for most of the period, resulting in negative economic profit. The substantial reduction in the economic loss in 2024 indicates a positive trend, suggesting the company is moving towards generating returns that adequately compensate investors.
Net Operating Profit after Taxes (NOPAT)
Sherwin-Williams Co., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for current expected credit losses.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in accrual for product warranty claims.
5 Addition of increase (decrease) in restructuring Plan.
6 Addition of increase (decrease) in equity equivalents to net income.
7 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
9 Addition of after taxes interest expense to net income.
10 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
11 Elimination of after taxes investment income.
- Net Income Trend Analysis
- The net income shows a fluctuating yet overall upward trend over the five-year period. Beginning in 2020 at approximately 2.03 billion US dollars, there is a noticeable decline in 2021 to about 1.86 billion US dollars. However, this decline appears temporary as net income recovers in 2022 to just over 2.02 billion US dollars. The upward trajectory continues more strongly in the subsequent years, with net income rising to nearly 2.39 billion in 2023 and further to approximately 2.68 billion in 2024. These figures suggest improving profitability and potential operational efficiency gains or favorable market conditions beginning in 2022 and sustaining growth through 2024.
- Net Operating Profit After Taxes (NOPAT) Analysis
- NOPAT exhibits a consistent and steady increase throughout the five-year span. Starting from about 2.19 billion US dollars in 2020, it increases each year without decline, reaching around 2.36 billion in 2021, then 2.48 billion in 2022, 2.51 billion in 2023, and culminating at nearly 2.96 billion in 2024. This steady growth indicates progressively efficient core operations and suggests successful management of operating expenses and taxes. The more pronounced increase in later years aligns with the increasing net income, reinforcing the positive operational and financial performance trend.
- Comparative Insights
- While net income experienced a dip in 2021, the continual growth of NOPAT during this period underscores that the core operational profitability remained robust, indicating that the net income downturn may have resulted from non-operational factors or extraordinary items. The consistent rise in NOPAT emphasizes improved operational effectiveness, which appears to translate into increasing net income from 2022 onwards. Overall, the financial data reflect strengthening company profitability and operational efficiency, particularly evident from 2022 through 2024.
Cash Operating Taxes
Sherwin-Williams Co., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
The analysis of the financial data reveals significant trends relating to the provisions for income taxes and cash operating taxes over the five-year period from 2020 to 2024.
- Provisions for Income Taxes
- The provisions for income taxes exhibited notable fluctuations throughout the years. Starting at 488,800 thousand US dollars in 2020, there was a decrease in 2021 to 384,200 thousand US dollars, representing a drop of approximately 21.4%. However, this was followed by a substantial increase in 2022, reaching 553,000 thousand US dollars, which is roughly a 44% rise from the previous year. The upward trend continued into 2023 and 2024, with values rising to 721,100 and 770,400 thousand US dollars respectively. Between 2022 and 2024, the provisions grew by about 39.3%, indicating increasing tax liabilities or adjustments potentially tied to revenue or profit growth.
- Cash Operating Taxes
- Cash operating taxes displayed a similar upward trajectory, despite some fluctuations. The value started at 717,833 thousand US dollars in 2020 and decreased in 2021 to 545,605 thousand US dollars, a reduction of approximately 24%. In 2022, cash operating taxes increased sharply to 791,620 thousand US dollars, exceeding the 2020 level by roughly 10.3%. This growth continued, with values rising to 908,014 in 2023 and 948,147 thousand US dollars in 2024. From 2022 to 2024, there was an incremental increase of around 19.8%, reflecting higher tax payments possibly associated with improved operational results or changes in tax regulations.
Overall, both provisions for income taxes and cash operating taxes show a pattern of initial decline between 2020 and 2021, followed by a consistent and significant increase through 2024. This suggests a possible recovery or expansion phase after 2021, with increasing taxable income or shifts in tax policies impacting the tax expenses.
Invested Capital
Sherwin-Williams Co., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 accrual for product warranty claims.
6 Addition of restructuring Plan.
7 Addition of equity equivalents to shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of construction in progress.
- Total reported debt & leases
- The total reported debt and leases have generally increased over the years, starting from approximately $10.11 billion in 2020 and reaching about $12.10 billion by 2024. Notably, there was a steady rise from 2020 to 2022, peaking at around $12.51 billion. Following this peak, a slight decrease was observed in 2023, with a minor uptick again in 2024. This pattern suggests a tendency toward increasing leverage, with some adjustments made after 2022.
- Shareholders’ equity
- Shareholders’ equity exhibited volatility during the period analyzed. It decreased markedly from approximately $3.61 billion in 2020 to $2.44 billion in 2021, indicating a significant reduction in net assets. However, from 2021 onwards, equity increased steadily, rising to about $4.05 billion by 2024. This recovery and growth imply a restoration of financial strength and potentially improved profitability or capital infusion after the initial decline.
- Invested capital
- The invested capital demonstrated an overall upward trend, increasing from around $15.49 billion in 2020 to approximately $16.71 billion in 2024. There was a peak in 2022 at $17.35 billion, followed by a decline in 2023, and a slight recovery in 2024. The fluctuations in invested capital reflect changes in the company's operational investments and financing structure, consistent with the movements seen in debt and equity during the same periods.
Cost of Capital
Sherwin-Williams Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2024-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Sherwin-Williams Co., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Linde plc | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited a notable improvement over the five-year period. Initially negative, the ratio moved closer to zero, indicating a diminishing gap between the company’s return on invested capital and its weighted average cost of capital.
- Economic Spread Ratio
- The economic spread ratio decreased in absolute value from -3.25% in 2020 to -0.38% in 2024. This suggests a consistent, though initially slow, improvement in the company’s ability to generate returns exceeding its cost of capital. The most significant improvement occurred between 2023 and 2024, with the ratio increasing from -2.64% to -0.38%.
Economic profit remained negative throughout the observed period, although the magnitude of the loss decreased substantially in 2024. This reduction in economic loss aligns with the improvement in the economic spread ratio, indicating that the company is becoming more efficient in its capital allocation.
- Economic Profit
- Economic profit demonstrated a fluctuating pattern of negative values. While negative in all years, the loss narrowed considerably from US$503,536 thousand in 2020 to US$63,645 thousand in 2024. This suggests that the company’s operational performance and/or capital efficiency improved over time, reducing the shortfall between economic profit and zero.
Invested capital experienced an overall increase during the period, with fluctuations observed in intermediate years. The increase in invested capital, coupled with the improving economic spread ratio, suggests that the company is deploying capital more effectively, even as the total amount of capital employed grows.
- Invested Capital
- Invested capital increased from US$15,489,500 thousand in 2020 to US$16,707,900 thousand in 2024. A peak was reached in 2022 at US$17,346,300 thousand, followed by a slight decrease in 2023 before resuming an upward trend. This indicates strategic capital allocation decisions and potential growth initiatives.
The convergence of the economic spread ratio towards zero, alongside the decreasing magnitude of economic loss, suggests a positive trajectory in the company’s financial performance and value creation potential.
Economic Profit Margin
Sherwin-Williams Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Net sales | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Linde plc | ||||||
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited a consistent pattern of improvement over the five-year period. Initially negative, the margin demonstrated a decreasing negative value, ultimately approaching zero by the end of the observed timeframe. This suggests a narrowing gap between the company’s economic profit and its net sales.
- Economic Profit Margin Trend
- The economic profit margin began at -2.74% in 2020. It improved to -1.94% in 2021, representing a positive shift, although remaining negative. A slight deterioration was noted in 2022, with the margin at -2.28%. Further improvement occurred in 2023, reaching -1.88%. The most significant positive change occurred between 2023 and 2024, with the margin substantially increasing to -0.28%.
The movement in economic profit margin correlates with the trend in economic profit. While economic profit remained negative throughout the period, its negative value lessened over time, mirroring the improvement in the economic profit margin. This indicates that the company’s performance, as measured by economic profit, is trending towards greater value creation, even if it has not yet achieved positive economic profit.
- Net Sales Impact
- Net sales increased consistently from 2020 to 2024, moving from US$18,361,700 thousand to US$23,098,500 thousand. This growth in sales likely contributed to the improved economic profit margin, as the negative economic profit was applied to a larger revenue base, resulting in a smaller percentage margin.
The substantial improvement in the economic profit margin in 2024 is particularly noteworthy. This suggests that the company’s strategies to enhance profitability and capital efficiency are gaining traction. Continued monitoring of these trends will be crucial to determine if the company can achieve positive economic profit in future periods.