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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

Sherwin-Williams Co., economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net operating profit after taxes (NOPAT)¹	2,357,407)	2,190,395)	1,657,866)	1,343,976)	1,573,831)
Cost of capital²	12.36%	12.39%	12.18%	11.76%	11.15%
Invested capital³	15,808,100)	15,489,500)	16,416,500)	16,849,000)	17,931,827)

Economic profit⁴	404,126)	271,075)	(341,634)	(636,930)	(426,056)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,357,407 – 12.36% × 15,808,100 = 404,126

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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.	Sherwin-Williams Co. economic profit increased from 2019 to 2020 and from 2020 to 2021.

Sherwin-Williams Co., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income	1,864,400)	2,030,400)	1,541,300)	1,108,746)	1,772,262)
Deferred income tax expense (benefit)¹	(80,300)	(145,300)	(131,100)	(143,378)	(606,135)
Increase (decrease) in allowance for doubtful accounts²	(4,600)	17,000)	(9,400)	(7,114)	12,547)
Increase (decrease) in LIFO reserve³	280,900)	(27,700)	(37,300)	147,824)	33,608)
Increase (decrease) in accrual for product warranty claims⁴	(8,100)	1,000)	(14,800)	(94,358)	117,006)
Increase (decrease) in equity equivalents⁵	187,900)	(155,000)	(192,600)	(97,026)	(442,974)
Interest expense	334,700)	340,400)	349,300)	366,734)	263,471)
Interest expense, operating lease liability⁶	56,412)	61,928)	67,950)	59,129)	57,412)
Adjusted interest expense	391,112)	402,328)	417,250)	425,863)	320,883)
Tax benefit of interest expense⁷	(82,134)	(84,489)	(87,622)	(89,431)	(112,309)
Adjusted interest expense, after taxes⁸	308,978)	317,839)	329,627)	336,432)	208,574)
Interest and net investment income	(4,900)	(3,600)	(25,900)	(5,286)	(8,571)
Investment income, before taxes	(4,900)	(3,600)	(25,900)	(5,286)	(8,571)
Tax expense (benefit) of investment income⁹	1,029)	756)	5,439)	1,110)	3,000)
Investment income, after taxes¹⁰	(3,871)	(2,844)	(20,461)	(4,176)	(5,571)
(Income) loss from discontinued operations, net of tax¹¹	—)	—)	—)	—)	41,540)
Net operating profit after taxes (NOPAT)	2,357,407)	2,190,395)	1,657,866)	1,343,976)	1,573,831)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in accrual for product warranty claims.

⁵ Addition of increase (decrease) in equity equivalents to net income.

⁶ 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,880,400 × 3.00% = 56,412

⁷ 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 391,112 × 21.00% = 82,134

⁸ Addition of after taxes interest expense to net income.

⁹ 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 4,900 × 21.00% = 1,029

¹⁰ Elimination of after taxes investment income.

¹¹ 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.	Sherwin-Williams Co. NOPAT increased from 2019 to 2020 and from 2020 to 2021.

Sherwin-Williams Co., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Provisions (credits) for income taxes	384,200)	488,800)	440,500)	250,904)	(244,043)
Less: Deferred income tax expense (benefit)	(80,300)	(145,300)	(131,100)	(143,378)	(606,135)
Add: Tax savings from interest expense	82,134)	84,489)	87,622)	89,431)	112,309)
Less: Tax imposed on investment income	1,029)	756)	5,439)	1,110)	3,000)
Cash operating taxes	545,605)	717,833)	653,783)	482,603)	471,401)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

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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.	Sherwin-Williams Co. cash operating taxes increased from 2019 to 2020 but then decreased significantly from 2020 to 2021.

Sherwin-Williams Co., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Short-term borrowings	763,500)	100)	204,700)	328,403)	633,731)
Current portion of long-term debt	260,600)	25,100)	429,800)	307,191)	1,179)
Long-term debt, excluding current portion	8,590,900)	8,266,900)	8,050,700)	8,708,057)	9,885,745)
Operating lease liability¹	1,880,400)	1,821,400)	1,742,300)	1,699,113)	1,649,766)
Total reported debt & leases	11,495,400)	10,113,500)	10,427,500)	11,042,764)	12,170,421)
Shareholders’ equity	2,437,200)	3,610,800)	4,123,300)	3,730,745)	3,692,188)
Net deferred tax (assets) liabilities²	705,400)	778,500)	911,600)	1,054,528)	1,370,021)
Allowance for doubtful accounts³	48,900)	53,500)	36,500)	45,883)	52,997)
Excess of FIFO over LIFO⁴	593,000)	312,100)	339,800)	436,010)	286,961)
Accrual for product warranty claims⁵	35,200)	43,300)	42,300)	57,067)	151,425)
Equity equivalents⁶	1,382,500)	1,187,400)	1,330,200)	1,593,488)	1,861,404)
Accumulated other comprehensive (income) loss, net of tax⁷	698,400)	718,300)	679,500)	629,934)	384,870)
Adjusted shareholders’ equity	4,518,100)	5,516,500)	6,133,000)	5,954,167)	5,938,462)
Construction in progress⁸	(205,400)	(140,500)	(144,000)	(147,931)	(177,056)
Invested capital	15,808,100)	15,489,500)	16,416,500)	16,849,000)	17,931,827)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

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 equity equivalents to shareholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction in progress.

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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.	Sherwin-Williams Co. invested capital decreased from 2019 to 2020 but then slightly increased from 2020 to 2021.

Sherwin-Williams Co., cost of capital calculations

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	69,577,080)	69,577,080)	÷	82,000,280)	=	0.85	0.85	×	14.10%	=	11.97%
Debt³	10,542,800)	10,542,800)	÷	82,000,280)	=	0.13	0.13	×	3.29% × (1 – 21.00%)	=	0.33%
Operating lease liability⁴	1,880,400)	1,880,400)	÷	82,000,280)	=	0.02	0.02	×	3.00% × (1 – 21.00%)	=	0.05%
Total:	82,000,280)					1.00					12.36%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	64,236,476)	64,236,476)	÷	75,791,476)	=	0.85	0.85	×	14.10%	=	11.95%
Debt³	9,733,600)	9,733,600)	÷	75,791,476)	=	0.13	0.13	×	3.67% × (1 – 21.00%)	=	0.37%
Operating lease liability⁴	1,821,400)	1,821,400)	÷	75,791,476)	=	0.02	0.02	×	3.40% × (1 – 21.00%)	=	0.06%
Total:	75,791,476)					1.00					12.39%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	52,876,910)	52,876,910)	÷	63,830,410)	=	0.83	0.83	×	14.10%	=	11.68%
Debt³	9,211,200)	9,211,200)	÷	63,830,410)	=	0.14	0.14	×	3.61% × (1 – 21.00%)	=	0.41%
Operating lease liability⁴	1,742,300)	1,742,300)	÷	63,830,410)	=	0.03	0.03	×	3.90% × (1 – 21.00%)	=	0.08%
Total:	63,830,410)					1.00					12.18%

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

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	40,785,840)	40,785,840)	÷	51,416,267)	=	0.79	0.79	×	14.10%	=	11.19%
Debt³	8,931,314)	8,931,314)	÷	51,416,267)	=	0.17	0.17	×	3.48% × (1 – 21.00%)	=	0.48%
Operating lease liability⁴	1,699,113)	1,699,113)	÷	51,416,267)	=	0.03	0.03	×	3.48% × (1 – 21.00%)	=	0.09%
Total:	51,416,267)					1.00					11.76%

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

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	37,427,388)	37,427,388)	÷	49,853,792)	=	0.75	0.75	×	14.10%	=	10.59%
Debt³	10,776,638)	10,776,638)	÷	49,853,792)	=	0.22	0.22	×	3.48% × (1 – 35.00%)	=	0.49%
Operating lease liability⁴	1,649,766)	1,649,766)	÷	49,853,792)	=	0.03	0.03	×	3.48% × (1 – 35.00%)	=	0.07%
Total:	49,853,792)					1.00					11.15%

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

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Sherwin-Williams Co., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	404,126)	271,075)	(341,634)	(636,930)	(426,056)
Invested capital²	15,808,100)	15,489,500)	16,416,500)	16,849,000)	17,931,827)
Performance Ratio
Economic spread ratio³	2.56%	1.75%	-2.08%	-3.78%	-2.38%
Benchmarks
Economic Spread Ratio, Competitors⁴
Linde plc	-6.50%	-8.01%	-8.35%	—	—

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 404,126 ÷ 15,808,100 = 2.56%

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.	Sherwin-Williams Co. economic spread ratio improved from 2019 to 2020 and from 2020 to 2021.

Sherwin-Williams Co., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	404,126)	271,075)	(341,634)	(636,930)	(426,056)
Net sales	19,944,600)	18,361,700)	17,900,800)	17,534,493)	14,983,788)
Performance Ratio
Economic profit margin²	2.03%	1.48%	-1.91%	-3.63%	-2.84%
Benchmarks
Economic Profit Margin, Competitors³
Linde plc	-15.31%	-23.15%	-23.24%	—	—

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 404,126 ÷ 19,944,600 = 2.03%

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.	Sherwin-Williams Co. economic profit margin improved from 2019 to 2020 and from 2020 to 2021.

Sherwin-Williams Co. (NYSE:SHW)

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