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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Texas Pacific Land Corp. pages available for free this week:
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Analysis of Revenues
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Economic Profit
Texas Pacific Land Corp., economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The analysis of economic profit from 2019 to 2023 reveals a period of significant volatility in value creation, characterized by fluctuating operating returns and a steady expansion of the capital base.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT experienced a sharp decline in 2020, falling from 348.8 million to 182.6 million. A recovery trend followed, with profits peaking at 444.9 million in 2022 before moderating to 389.6 million in 2023. This pattern indicates a cyclical influence on operating performance.
- Invested Capital
- A consistent upward trend in invested capital is observed from 2020 onward. The capital base grew from 555.7 million in 2020 to 1.117 billion by 2023. The most substantial increase occurred between 2022 and 2023, where invested capital rose by approximately 33%.
- Cost of Capital
- The cost of capital remained virtually stagnant throughout the five-year period, maintaining a constant rate between 25.17% and 25.18%. This stability indicates a fixed hurdle rate against which all value creation was measured.
- Economic Profit
- Economic profit exhibited high volatility, mirroring the fluctuations in NOPAT while being influenced by the rising cost of supporting a larger capital base. After a low in 2020 (42.7 million), economic profit surged to a peak of 233.2 million in 2022. However, a significant contraction occurred in 2023, with economic profit dropping to 108.4 million. This 2023 decline is particularly noteworthy as it coincided with the highest level of invested capital, suggesting that the returns on the newly deployed capital did not keep pace with the 25.18% cost of capital.
Net Operating Profit after Taxes (NOPAT)
Texas Pacific Land Corp., NOPAT calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2019-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for expected credit loss.
3 Addition of increase (decrease) in unearned revenue.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income.
8 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
9 Elimination of after taxes investment income.
The financial data reveals fluctuations in profitability figures over the five-year period from 2019 to 2023. Both net income and net operating profit after taxes (NOPAT) demonstrate notable variations that suggest changes in operational performance and earnings capacity.
- Net Income (US$ in thousands)
- Net income initially decreased substantially from 318,728 in 2019 to 176,049 in 2020, indicating a significant dip in profitability. However, this was followed by a recovery in 2021, where net income rose to 269,980. The upward trend continued more strongly in 2022, reaching a peak of 446,362. In 2023, net income slightly declined to 405,645 but remained well above the levels observed in 2019 through 2021, signifying overall growth in earnings over the period.
- Net Operating Profit After Taxes (NOPAT) (US$ in thousands)
- NOPAT exhibited a similar trend to net income. It fell from 348,876 in 2019 to 182,624 in 2020, paralleling the decrease in net income and reflecting weaker operational profitability in that year. Subsequently, NOPAT rebounded to 267,856 in 2021 before surging to a high of 444,863 in 2022. In 2023, it decreased to 389,641, maintaining a level significantly above the early years of the data set. This pattern suggests that the operating efficiency and after-tax profitability improved notably after 2020, despite the slight decline in the most recent year.
In summary, the data highlight a pronounced downturn in 2020 followed by a strong recovery through 2022, with a modest decline in 2023. Both net income and NOPAT exhibit consistent directions, indicating that the changes in reported earnings are underpinned by changes in core operational performance rather than extraordinary items. The sustained improvement after 2020 suggests a positive shift in business conditions or management effectiveness that strengthened profitability during this period.
Cash Operating Taxes
Texas Pacific Land Corp., cash operating taxes calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2019-12-31).
The data reveals significant fluctuations in both income tax expense and cash operating taxes over the five-year period from 2019 to 2023.
- Income Tax Expense
- There is a notable decrease in income tax expense from 83,527 thousand US dollars in 2019 to 43,613 thousand in 2020, reflecting nearly a 48% decline. This is followed by a sharp increase to 93,037 thousand in 2021, which exceeds the 2019 level. The upward trend continues with income tax expense rising to 122,493 thousand in 2022, marking the highest value in the five-year span. In 2023, there is a moderate decline to 111,916 thousand, although this still represents a substantially higher level compared to the earlier years under review.
- Cash Operating Taxes
- Cash operating taxes show a different pattern. Initially, there is a slight decrease from 57,519 thousand in 2019 to 46,023 thousand in 2020. Subsequently, there is a significant increase to 93,269 thousand in 2021, closely paralleling the rise in income tax expense that year. The upward trajectory continues with a peak of 119,954 thousand in 2022. In 2023, cash operating taxes decline to 104,525 thousand but remain substantially elevated compared to the first two years, indicating sustained higher tax-related cash outflows in recent years.
Overall, both income tax expense and cash operating taxes exhibit a considerable dip in 2020, potentially indicative of changes in profitability or tax strategies during that period. From 2021 onwards, there is a marked upward trend resulting in significantly higher tax expenses and cash taxes through 2022, followed by slight decreases in 2023. This dynamic suggests variability in taxable income levels or tax planning outcomes that impacted the company’s tax liabilities and cash payments over these years.
Invested Capital
Texas Pacific Land Corp., invested capital calculation (financing approach)
US$ in thousands
Based on: 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), 10-K (reporting date: 2019-12-31).
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 unearned revenue.
5 Addition of equity equivalents to total equity.
6 Removal of accumulated other comprehensive income.
The financial data reveals significant trends in the company's capital structure and financing over the five-year period ending in 2023.
- Total reported debt & leases
- This metric shows a consistent decline from 2019 through 2023, decreasing from $3.367 million to $2.024 million. The decline is visible except for a slight increase in 2022 compared to 2021. Overall, the downward trend suggests the company has been reducing its reliance on debt and lease obligations over the observed period.
- Total equity
- Total equity experienced fluctuations initially, dropping from $512.1 million in 2019 to $485.2 million in 2020, but subsequently rose sharply. From 2020 onwards, equity increased markedly, reaching $1.043 billion by 2023. This upward trajectory indicates notable growth in the shareholders’ stake and possibly retained earnings or new equity infusions.
- Invested capital
- Invested capital follows a similar pattern to total equity but at a higher absolute level. It declined slightly from $575.2 million in 2019 to $555.7 million in 2020, then increased significantly in subsequent years, culminating in $1.117 billion in 2023. This increase signifies expanding investment in business assets funded through a combination of equity and debt, with the debt portion being relatively reduced.
In summary, the financial data points to a strategic reduction in debt exposure while equity and total invested capital have grown substantially. This may reflect a strengthening of the company’s financial position, with increased capitalization and potentially improved asset base, positioning it for future growth or stability.
Cost of Capital
Texas Pacific Land Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Operating lease liability3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
Economic Spread Ratio
Texas Pacific Land Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial trajectory from 2019 to 2023 reveals a period of inconsistent economic profit generation coupled with a steady increase in the capital employed. While positive economic profit was maintained throughout the period, the efficiency of capital utilization experienced significant fluctuations.
- Economic Profit Trends
- Economic profit exhibited high volatility, experiencing a sharp contraction in 2020 to $42.7 million from a 2019 level of $204.1 million. A strong recovery followed, peaking in 2022 at $233.2 million before receding to $108.4 million in 2023.
- Invested Capital Growth
- The invested capital base demonstrates a consistent upward trend following a minor dip in 2020. Capital grew from $575.2 million in 2019 to $1.117 billion by the end of 2023, representing a substantial expansion of the resource base over the five-year period.
- Economic Spread Ratio Analysis
- The economic spread ratio mirrored the volatility of economic profit, starting at 35.49% in 2019 and dropping to 7.69% in 2020. Although the ratio rebounded to 27.74% in 2022, it experienced a significant compression to 9.70% in 2023. This decline in 2023 is particularly noteworthy as it occurred simultaneously with a record increase in invested capital, indicating a diminished rate of value creation relative to the capital deployed during that fiscal year.
Economic Profit Margin
Texas Pacific Land Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in unearned revenue | ||||||
| Adjusted revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
Based on: 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), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
The economic performance from 2019 to 2023 is characterized by significant volatility in both absolute economic profit and the corresponding profit margin. A cyclical pattern is evident, featuring a sharp contraction in 2020, a robust recovery peaking in 2022, and a subsequent decline in 2023.
- Revenue and Economic Profit Trends
- Adjusted revenues experienced a notable decline from 494,508 thousand US$ in 2019 to 311,341 thousand US$ in 2020. A recovery period followed, with revenues peaking at 669,360 thousand US$ in 2022 before slightly moderating to 636,735 thousand US$ in 2023. Economic profit mirrored this volatility but with greater magnitude, dropping from 204,130 thousand US$ in 2019 to a low of 42,743 thousand US$ in 2020, surging to a five-year peak of 233,212 thousand US$ in 2022, and falling to 108,352 thousand US$ by the end of 2023.
- Economic Profit Margin Analysis
- The economic profit margin exhibited extreme fluctuations, starting at 41.28% in 2019 and plummeting to 13.73% in 2020. This metric recovered steadily to reach 34.84% in 2022. However, a significant compression occurred in 2023, where the margin fell to 17.02%.
- Operational Efficiency and Value Generation
- A critical divergence is observed in the 2023 fiscal year. Despite adjusted revenues remaining relatively stable and near peak levels (636,735 thousand US$ compared to 669,360 thousand US$ in 2022), the economic profit margin decreased by more than half. This indicates that the reduction in economic value added was not driven by a loss of top-line revenue, but rather by an increase in the capital charges or operating costs required to generate those revenues.