Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Sherwin-Williams Co. (NYSE:SHW)

Economic Value Added (EVA)

Advanced level

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

Sherwin-Williams Co., economic profit calculation

US$ in thousands

Microsoft Excel LibreOffice Calc
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 1,653,866  1,337,643  1,583,368  1,194,112  1,043,219 
Cost of capital2 13.42% 12.94% 12.27% 14.29% 13.98%
Invested capital3 16,419,600  16,856,052  17,945,212  5,976,971  4,992,118 
 
Economic profit4 (549,115) (843,733) (619,184) 339,851  345,266 

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24).

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
= 1,653,86613.42% × 16,419,600 = -549,115

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.’s economic profit decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Net Operating Profit after Taxes (NOPAT)

Sherwin-Williams Co., NOPAT calculation

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net income 1,541,300  1,108,746  1,772,262  1,132,703  1,053,849 
Deferred income tax expense (benefit)1 (131,100) (143,378) (606,135) (68,241) 4,976 
Increase (decrease) in allowance for doubtful accounts2 (9,400) (7,114) 12,547  (8,970) (4,350)
Increase (decrease) in LIFO reserve3 (37,300) 147,824  33,608  2,293  (80,807)
Increase (decrease) in accrual for product warranty claims4 (14,800) (94,358) 117,006  2,541  4,155 
Increase (decrease) in liabilities associated with qualified exit costs5 (4,000) (6,333) 9,537  (3,229) (1,439)
Increase (decrease) in equity equivalents6 (196,600) (103,359) (433,437) (75,606) (77,465)
Interest expense 349,300  366,734  263,471  154,088  61,791 
Interest expense, operating lease liability7 67,950  59,129  57,412  61,665  42,431 
Adjusted interest expense 417,250  425,863  320,883  215,753  104,222 
Tax benefit of interest expense8 (87,622) (89,431) (112,309) (75,513) (36,478)
Adjusted interest expense, after taxes9 329,627  336,432  208,574  140,239  67,744 
Interest and net investment income (25,900) (5,286) (8,571) (4,960) (1,399)
Investment income, before taxes (25,900) (5,286) (8,571) (4,960) (1,399)
Tax expense (benefit) of investment income10 5,439  1,110  3,000  1,736  490 
Investment income, after taxes11 (20,461) (4,176) (5,571) (3,224) (909)
(Income) loss from discontinued operations, net of tax12 —  —  41,540  —  — 
Net operating profit after taxes (NOPAT) 1,653,866  1,337,643  1,583,368  1,194,112  1,043,219 

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24).

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 liabilities associated with qualified exit costs.

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

7 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,742,300 × 3.90% = 67,950

8 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 417,250 × 21.00% = 87,622

9 Addition of after taxes interest expense to net income.

10 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 25,900 × 21.00% = 5,439

11 Elimination of after taxes investment income.

12 Elimination of discontinued operations.

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.’s NOPAT decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Cash Operating Taxes

Sherwin-Williams Co., cash operating taxes calculation

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Provisions (credits) for income taxes 440,500  250,904  (244,043) 462,530  495,117 
Less: Deferred income tax expense (benefit) (131,100) (143,378) (606,135) (68,241) 4,976 
Add: Tax savings from interest expense 87,622  89,431  112,309  75,513  36,478 
Less: Tax imposed on investment income 5,439  1,110  3,000  1,736  490 
Cash operating taxes 653,783  482,603  471,401  604,548  526,129 

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24).

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.’s cash operating taxes increased from 2017 to 2018 and from 2018 to 2019.

Invested Capital

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

US$ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Short-term borrowings 204,700  328,403  633,731  40,739  39,462 
Current portion of long-term debt 429,800  307,191  1,179  700,475  3,154 
Long-term debt, excluding current portion 8,050,700  8,708,057  9,885,745  1,211,326  1,920,196 
Operating lease liability1 1,742,300  1,699,113  1,649,766  1,382,618  1,274,211 
Total reported debt & leases 10,427,500  11,042,764  12,170,421  3,335,158  3,237,023 
Shareholders’ equity 4,123,300  3,730,745  3,692,188  1,878,441  867,910 
Net deferred tax (assets) liabilities2 911,600  1,054,528  1,370,021  8,077  41,737 
Allowance for doubtful accounts3 36,500  45,883  52,997  40,450  49,420 
Excess of FIFO over LIFO4 339,800  436,010  286,961  253,353  251,060 
Accrual for product warranty claims5 42,300  57,067  151,425  34,419  31,878 
Liabilities associated with qualified exit costs6 3,100  7,052  13,385  3,848  7,077 
Equity equivalents7 1,333,300  1,600,540  1,874,789  340,147  381,172 
Accumulated other comprehensive (income) loss, net of tax8 679,500  629,934  384,870  540,351  587,095 
Adjusted shareholders’ equity 6,136,100  5,961,219  5,951,847  2,758,939  1,836,177 
Construction in progress9 (144,000) (147,931) (177,056) (117,126) (81,082)
Invested capital 16,419,600  16,856,052  17,945,212  5,976,971  4,992,118 

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24).

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 liabilities associated with qualified exit costs.

7 Addition of equity equivalents to shareholders’ equity.

8 Removal of accumulated other comprehensive income.

9 Subtraction of construction in progress.

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.’s invested capital decreased from 2017 to 2018 and from 2018 to 2019.

Cost of Capital

Sherwin-Williams Co., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 52,877,832  52,877,832  ÷ 63,831,332  = 0.83 0.83 × 15.60% = 12.92%
Debt3 9,211,200  9,211,200  ÷ 63,831,332  = 0.14 0.14 × 3.61% × (1 – 21.00%) = 0.41%
Operating lease liability4 1,742,300  1,742,300  ÷ 63,831,332  = 0.03 0.03 × 3.90% × (1 – 21.00%) = 0.08%
Total: 63,831,332  1.00 13.42%

Based on: 10-K (filing date: 2020-02-21).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 40,784,913  40,784,913  ÷ 51,415,340  = 0.79 0.79 × 15.60% = 12.37%
Debt3 8,931,314  8,931,314  ÷ 51,415,340  = 0.17 0.17 × 3.48% × (1 – 21.00%) = 0.48%
Operating lease liability4 1,699,113  1,699,113  ÷ 51,415,340  = 0.03 0.03 × 3.48% × (1 – 21.00%) = 0.09%
Total: 51,415,340  1.00 12.94%

Based on: 10-K (filing date: 2019-02-22).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 37,428,328  37,428,328  ÷ 49,854,732  = 0.75 0.75 × 15.60% = 11.71%
Debt3 10,776,638  10,776,638  ÷ 49,854,732  = 0.22 0.22 × 3.48% × (1 – 35.00%) = 0.49%
Operating lease liability4 1,649,766  1,649,766  ÷ 49,854,732  = 0.03 0.03 × 3.48% × (1 – 35.00%) = 0.07%
Total: 49,854,732  1.00 12.27%

Based on: 10-K (filing date: 2018-02-23).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 29,154,777  29,154,777  ÷ 32,494,563  = 0.90 0.90 × 15.60% = 13.99%
Debt3 1,957,168  1,957,168  ÷ 32,494,563  = 0.06 0.06 × 4.46% × (1 – 35.00%) = 0.17%
Operating lease liability4 1,382,618  1,382,618  ÷ 32,494,563  = 0.04 0.04 × 4.46% × (1 – 35.00%) = 0.12%
Total: 32,494,563  1.00 14.29%

Based on: 10-K (filing date: 2017-02-22).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 23,963,551  23,963,551  ÷ 27,241,949  = 0.88 0.88 × 15.60% = 13.72%
Debt3 2,004,186  2,004,186  ÷ 27,241,949  = 0.07 0.07 × 3.33% × (1 – 35.00%) = 0.16%
Operating lease liability4 1,274,211  1,274,211  ÷ 27,241,949  = 0.05 0.05 × 3.33% × (1 – 35.00%) = 0.10%
Total: 27,241,949  1.00 13.98%

Based on: 10-K (filing date: 2016-02-24).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »


Economic Spread Ratio

Sherwin-Williams Co., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US$ in thousands)
Economic profit1 (549,115) (843,733) (619,184) 339,851  345,266 
Invested capital2 16,419,600  16,856,052  17,945,212  5,976,971  4,992,118 
Performance Ratio
Economic spread ratio3 -3.34% -5.01% -3.45% 5.69% 6.92%

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24).

1 Economic profit. See details »

2 Invested capital. See details »

3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -549,115 ÷ 16,419,600 = -3.34%

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.’s economic spread ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Economic Profit Margin

Sherwin-Williams Co., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US$ in thousands)
Economic profit1 (549,115) (843,733) (619,184) 339,851  345,266 
Net sales 17,900,800  17,534,493  14,983,788  11,855,602  11,339,304 
Performance Ratio
Economic profit margin2 -3.07% -4.81% -4.13% 2.87% 3.04%

Based on: 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24).

1 Economic profit. See details »

2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -549,115 ÷ 17,900,800 = -3.07%

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company’s 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.’s economic profit margin deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.