Microsoft Excel LibreOffice Calc

TJX Cos. Inc. (TJX)

Economic Value Added (EVA)

Difficulty: Advanced

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

TJX Cos. Inc., economic profit calculation

USD $ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
Net operating profit after taxes (NOPAT)1 2,657,254  2,466,478  2,529,147  2,524,474  2,412,743  2,164,875 
Cost of capital2 8.07% 8.12% 8.38% 8.34% 8.40% 8.48%
Invested capital3 16,160,847  14,935,402  13,469,411  13,017,789  11,971,690  10,137,306 
Economic profit4 1,353,037  1,254,161  1,399,829  1,438,250  1,407,176  1,305,712 

Source: Based on data from TJX Cos. Inc. Annual Reports

2018 Calculations

1 NOPAT. See Details »

2 Cost of capital. See Details »

3 Invested capital. See Details »

4 Economic profit = NOPAT – Cost of capital × Invested capital
= 2,657,254 – 8.07% × 16,160,847 = 1,353,037

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. TJX Cos. Inc.'s economic profit declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Net Operating Profit after Taxes (NOPAT)

TJX Cos. Inc., NOPAT calculation

USD $ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
Net income 2,607,948  2,298,234  2,277,658  2,215,128  2,137,396  1,906,687 
Deferred income tax expense (benefit)1 (137,125) (5,841) 30,783  102,070  52,647  13,232 
Increase (decrease) in equity equivalents2 (137,125) (5,841) 30,783  102,070  52,647  13,232 
Interest expense, excluding capitalized interest 64,295  61,671  60,269  55,380  46,091  40,832 
Interest expense, operating lease obligations3 249,605  224,289  293,148  279,100  311,534  347,681 
Adjusted interest expense, excluding capitalized interest 313,900  285,960  353,417  334,480  357,625  388,513 
Tax benefit of interest expense, excluding capitalized interest4 (105,784) (100,086) (123,696) (117,068) (125,169) (135,980)
Adjusted interest expense, excluding capitalized interest, after taxes5 208,116  185,874  229,721  217,412  232,456  252,533 
Interest income (32,707) (18,137) (13,869) (15,593) (15,010) (11,657)
Investment income, before taxes (32,707) (18,137) (13,869) (15,593) (15,010) (11,657)
Tax expense (benefit) of investment income6 11,022  6,348  4,854  5,458  5,254  4,080 
Investment income, after taxes7 (21,685) (11,789) (9,015) (10,135) (9,757) (7,577)
Net operating profit after taxes (NOPAT) 2,657,254  2,466,478  2,529,147  2,524,474  2,412,743  2,164,875 

Source: Based on data from TJX Cos. Inc. Annual Reports

2018 Calculations

1 Elimination of deferred tax expense. See Details »

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

3 Addition of interest expense on capitalized operating leases. See Details »

4 Tax benefit of interest expense, excluding capitalized interest = Adjusted interest expense, excluding capitalized interest × Statutory income tax rate
= 313,900 × 34% = 105,784

5 Addition of after taxes interest expense to net income.

6 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 32,707 × 34% = 11,022

7 Elimination of after taxes investment income.

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. TJX Cos. Inc.'s NOPAT declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Cash Operating Taxes

TJX Cos. Inc., cash operating taxes calculation

USD $ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
Provision for income taxes 1,248,640  1,424,809  1,380,642  1,334,756  1,182,093  1,170,664 
Less: Deferred income tax expense (benefit) (137,125) (5,841) 30,783  102,070  52,647  13,232 
Add: Tax savings from interest expense, excluding capitalized interest 105,784  100,086  123,696  117,068  125,169  135,980 
Less: Tax imposed on investment income 11,022  6,348  4,854  5,458  5,254  4,080 
Cash operating taxes 1,480,527  1,524,388  1,468,701  1,344,296  1,249,361  1,289,332 

Source: Based on data from TJX Cos. Inc. Annual Reports

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. TJX Cos. Inc.'s cash operating taxes increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.

Invested Capital

TJX Cos. Inc., invested capital calculation (financing approach)

USD $ in thousands

Microsoft Excel LibreOffice Calc
Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
Long-term debt 2,230,607  2,227,599  1,624,054  1,623,864  1,274,216  774,552 
PV of operating lease payments1 8,619,738  7,738,413  6,951,852  6,597,580  6,249,827  5,466,011 
Total reported debt & leases 10,850,345  9,966,012  8,575,906  8,221,444  7,524,043  6,240,563 
Shareholders' equity 5,148,309  4,510,599  4,307,075  4,264,230  4,229,893  3,665,937 
Net deferred tax (assets) liabilities2 226,499  307,807  271,271  260,353  312,924  253,267 
Equity equivalents3 226,499  307,807  271,271  260,353  312,924  253,267 
Accumulated other comprehensive (income) loss, net of tax4 441,859  694,226  667,472  554,385  199,532  213,392 
Adjusted shareholders' equity 5,816,667  5,512,632  5,245,818  5,078,968  4,742,349  4,132,596 
Short-term investments5 (506,165) (543,242) (352,313) (282,623) (294,702) (235,853)
Invested capital 16,160,847  14,935,402  13,469,411  13,017,789  11,971,690  10,137,306 

Source: Based on data from TJX Cos. Inc. Annual Reports

1 Addition of capitalized operating leases. See Details »

2 Elimination of deferred taxes from assets and liabilities. See Details »

3 Addition of equity equivalents to shareholders' equity.

4 Removal of accumulated other comprehensive income.

5 Subtraction of short-term investments.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. TJX Cos. Inc.'s invested capital increased from 2016 to 2017 and from 2017 to 2018.

Cost of Capital

TJX Cos. Inc., cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 52,655,268  52,655,268  ÷ 63,435,006  = 0.83 0.83 × 9.38% = 7.79%
Long-term debt3 2,160,000  2,160,000  ÷ 63,435,006  = 0.03 0.03 × 2.51% × (1 – 34%) = 0.06%
PV of operating lease payments4 8,619,738  8,619,738  ÷ 63,435,006  = 0.14 0.14 × 2.51% × (1 – 34%) = 0.23%
Total: 63,435,006  1.00 8.07%

Source: Based on data from TJX Cos. Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 50,814,379  50,814,379  ÷ 60,722,792  = 0.84 0.84 × 9.38% = 7.85%
Long-term debt3 2,170,000  2,170,000  ÷ 60,722,792  = 0.04 0.04 × 2.51% × (1 – 35%) = 0.06%
PV of operating lease payments4 7,738,413  7,738,413  ÷ 60,722,792  = 0.13 0.13 × 2.51% × (1 – 35%) = 0.21%
Total: 60,722,792  1.00 8.12%

Source: Based on data from TJX Cos. Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 52,092,920  52,092,920  ÷ 60,744,773  = 0.86 0.86 × 9.38% = 8.05%
Long-term debt3 1,700,000  1,700,000  ÷ 60,744,773  = 0.03 0.03 × 3.66% × (1 – 35%) = 0.07%
PV of operating lease payments4 6,951,852  6,951,852  ÷ 60,744,773  = 0.11 0.11 × 3.66% × (1 – 35%) = 0.27%
Total: 60,744,773  1.00 8.38%

Source: Based on data from TJX Cos. Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 47,877,323  47,877,323  ÷ 56,204,904  = 0.85 0.85 × 9.38% = 7.99%
Long-term debt3 1,730,000  1,730,000  ÷ 56,204,904  = 0.03 0.03 × 3.66% × (1 – 35%) = 0.07%
PV of operating lease payments4 6,597,580  6,597,580  ÷ 56,204,904  = 0.12 0.12 × 3.66% × (1 – 35%) = 0.28%
Total: 56,204,904  1.00 8.34%

Source: Based on data from TJX Cos. Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 43,058,380  43,058,380  ÷ 50,648,207  = 0.85 0.85 × 9.38% = 7.98%
Long-term debt3 1,340,000  1,340,000  ÷ 50,648,207  = 0.03 0.03 × 4.35% × (1 – 35%) = 0.07%
PV of operating lease payments4 6,249,827  6,249,827  ÷ 50,648,207  = 0.12 0.12 × 4.35% × (1 – 35%) = 0.35%
Total: 50,648,207  1.00 8.40%

Source: Based on data from TJX Cos. Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Long-term debt. See Details »

4 PV of operating lease payments. See Details »

Fair Value1 Weights Cost of Capital
Equity2 34,291,238  34,291,238  ÷ 40,668,249  = 0.84 0.84 × 9.38% = 7.91%
Long-term debt3 911,000  911,000  ÷ 40,668,249  = 0.02 0.02 × 5.54% × (1 – 35%) = 0.08%
PV of operating lease payments4 5,466,011  5,466,011  ÷ 40,668,249  = 0.13 0.13 × 5.54% × (1 – 35%) = 0.48%
Total: 40,668,249  1.00 8.48%

Source: Based on data from TJX Cos. Inc. Annual Reports

1 USD $ in thousands

2 Equity. See Details »

3 Long-term debt. See Details »

4 PV of operating lease payments. See Details »

Economic Spread

TJX Cos. Inc., economic spread calculation

Microsoft Excel LibreOffice Calc
Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
Selected Financial Data (USD $ in thousands)
Economic profit1 1,353,037  1,254,161  1,399,829  1,438,250  1,407,176  1,305,712 
Invested capital2 16,160,847  14,935,402  13,469,411  13,017,789  11,971,690  10,137,306 
Ratio
Economic spread3 8.37% 8.40% 10.39% 11.05% 11.75% 12.88%

Source: Based on data from TJX Cos. Inc. Annual Reports

2018 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × 1,353,037 ÷ 16,160,847 = 8.37%

Ratio Description The company
Economic spread The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. TJX Cos. Inc.'s economic spread deteriorated from 2016 to 2017 and from 2017 to 2018.

Economic Profit Margin

TJX Cos. Inc., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
Selected Financial Data (USD $ in thousands)
Economic profit1 1,353,037  1,254,161  1,399,829  1,438,250  1,407,176  1,305,712 
Net sales 35,864,664  33,183,744  30,944,938  29,078,407  27,422,696  25,878,372 
Ratio
Economic profit margin2 3.77% 3.78% 4.52% 4.95% 5.13% 5.05%

Source: Based on data from TJX Cos. Inc. Annual Reports

2018 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 1,353,037 ÷ 35,864,664 = 3.77%

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. TJX Cos. Inc.'s economic profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.