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.
Economic Profit
Texas Pacific Land Corp., economic profit 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 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
= 389,641 – 25.04% × 1,117,290 = 109,837
The analysis of economic profit over the five-year period reveals significant volatility, characterized by a peak in 2022 followed by a notable contraction in 2023. Although positive economic profit was maintained throughout the period, the capacity to generate value above the cost of capital fluctuated in alignment with operating profit trends and an expanding capital base.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited considerable variance, with a significant trough in 2020 at 182,624 thousand US$. A subsequent recovery led to a period peak in 2022 of 444,863 thousand US$, before retreating to 389,641 thousand US$ in 2023. The volatility in NOPAT served as the primary driver for the fluctuations observed in the overall economic profit.
- Invested Capital Growth
- A sustained upward trajectory in invested capital is observed from 2021 through 2023. After a slight dip in 2020, the capital base expanded from 555,694 thousand US$ to 1,117,290 thousand US$ by the end of 2023. This represents a substantial increase in the resources deployed to generate operating returns.
- Cost of Capital Consistency
- The cost of capital remained remarkably stable, fluctuating minimally between 25.03% and 25.04%. This high and constant hurdle rate indicates a stringent requirement for operating returns to ensure that the organization creates economic value rather than eroding it.
- Economic Profit Dynamics
- Economic profit experienced a sharp decline in 2020, falling to 43,481 thousand US$, before climbing to a maximum of 234,329 thousand US$ in 2022. However, 2023 marked a significant downturn to 109,837 thousand US$. A critical divergence is noted in the final year: while invested capital reached its highest level in the sequence, economic profit decreased. This indicates that the return on the additional capital invested in 2023 did not meet the 25.04% cost of capital threshold, thereby compressing the total economic profit.
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Net Operating Profit after Taxes (NOPAT)
Texas Pacific Land Corp., NOPAT calculation
US$ 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
= 2,024 × 4.70% = 95
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 95 × 21.00% = 20
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
= 28,630 × 21.00% = 6,012
9 Elimination of after taxes investment income.
The financial performance between 2019 and 2023 is characterized by significant volatility, featuring a sharp contraction followed by a robust recovery and a subsequent slight stabilization. Both Net Income and Net Operating Profit After Taxes (NOPAT) exhibit a high degree of correlation, moving in tandem across the five-year period.
- Net Operating Profit After Taxes (NOPAT) Trends
- A substantial decline in operational profitability occurred in 2020, with NOPAT falling from 348,876 thousand US$ to 182,624 thousand US$. This downturn was reversed starting in 2021, leading to a peak in 2022 where NOPAT reached 444,863 thousand US$. A moderate contraction is observed in 2023, with the figure adjusting to 389,641 thousand US$.
- Comparative Analysis of Net Income and NOPAT
- The narrow variance between Net Income and NOPAT suggests that non-operating items, such as interest expenses or investment income, have a limited impact on the overall bottom line. In the early part of the period (2019-2020), NOPAT remained higher than Net Income. However, by 2023, this relationship inverted, with Net Income reporting 405,645 thousand US$ against a NOPAT of 389,641 thousand US$, indicating a shift in the composition of earnings.
- Growth Volatility and Recovery
- The period is defined by a sharp V-shaped recovery. From the 2020 trough, NOPAT increased by approximately 143% to reach its 2022 zenith. The subsequent decline in 2023 represents a minor correction rather than a reversal of the growth trend established post-2020.
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Cash Operating Taxes
Texas Pacific Land Corp., cash operating taxes calculation
US$ 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 analysis of cash operating taxes reveals a period of significant volatility between 2019 and 2023, characterized by an initial decline, a sharp recovery, and a subsequent moderate correction. This trajectory closely mirrors the movements in reported income tax expenses, indicating a high degree of correlation between accounting tax accruals and actual cash tax outflows.
- Cash Operating Tax Trends
- Cash operating taxes decreased from 57,519 thousand US dollars in 2019 to 46,023 thousand US dollars in 2020. A substantial reversal followed, with values rising to 93,269 thousand US dollars in 2021 and peaking at 119,954 thousand US dollars in 2022. The period concluded with a reduction to 104,525 thousand US dollars in 2023.
- Comparative Analysis with Income Tax Expense
- In 2019, a notable gap existed where income tax expense significantly exceeded cash operating taxes. However, from 2020 through 2023, these two metrics converged. In 2020 and 2021, cash operating taxes were nearly equivalent to or slightly higher than the reported income tax expense, suggesting that deferred tax liabilities were either being settled or that tax payments were being accelerated relative to the income statement recognition.
- Economic Value Added (EVA) Impact
- The sharp increase in cash operating taxes between 2020 and 2022 represents a significant increase in cash outflows, which directly reduces the cash-based NOPAT (Net Operating Profit After Tax) used in EVA calculations. The reduction in cash taxes observed in 2023 may contribute to a relative improvement in cash-flow efficiency compared to the 2022 peak.
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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 analysis of the capital structure from 2019 to 2023 reveals a substantial expansion in the total invested capital base, driven almost exclusively by an increase in equity. Invested capital grew from 575,173 thousand in 2019 to 1,117,290 thousand by the end of 2023, indicating a significant increase in the resources deployed to generate economic value.
- Invested Capital Growth
- Following a minor contraction between 2019 and 2020, invested capital entered a period of accelerated growth. The value increased from 555,694 thousand in 2020 to 1,117,290 thousand in 2023, representing a total increase of approximately 101% over that three-year interval.
- Equity Dynamics
- Total equity serves as the primary driver of the invested capital trend. After a decline to 485,184 thousand in 2020, equity grew consistently each year, reaching 1,043,196 thousand by December 31, 2023. The strong upward trajectory of equity suggests a strategy of internal capital accumulation or capital infusions, which significantly strengthens the balance sheet.
- Debt and Lease Position
- Debt and lease obligations remained minimal and immaterial relative to the total capital base throughout the period. The balance fluctuated within a narrow range, starting at 3,367 thousand in 2019 and ending at 2,024 thousand in 2023. This minimal reliance on external leverage indicates a capital structure funded nearly entirely by equity, resulting in very low financial risk associated with debt servicing.
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Cost of Capital
Texas Pacific Land Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,674,252) | 11,674,252) | ÷ | 11,676,276) | = | 1.00 | 1.00 | × | 25.05% | = | 25.04% | ||
| Operating lease liability3 | 2,024) | 2,024) | ÷ | 11,676,276) | = | 0.00 | 0.00 | × | 4.70% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 11,676,276) | 1.00 | 25.04% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,766,011) | 13,766,011) | ÷ | 13,768,799) | = | 1.00 | 1.00 | × | 25.05% | = | 25.04% | ||
| Operating lease liability3 | 2,788) | 2,788) | ÷ | 13,768,799) | = | 0.00 | 0.00 | × | 4.70% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 13,768,799) | 1.00 | 25.04% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 7,839,171) | 7,839,171) | ÷ | 7,841,290) | = | 1.00 | 1.00 | × | 25.05% | = | 25.04% | ||
| Operating lease liability3 | 2,119) | 2,119) | ÷ | 7,841,290) | = | 0.00 | 0.00 | × | 4.50% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 7,841,290) | 1.00 | 25.04% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 8,623,760) | 8,623,760) | ÷ | 8,626,581) | = | 1.00 | 1.00 | × | 25.05% | = | 25.04% | ||
| Operating lease liability3 | 2,821) | 2,821) | ÷ | 8,626,581) | = | 0.00 | 0.00 | × | 3.47% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 8,626,581) | 1.00 | 25.04% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 5,260,303) | 5,260,303) | ÷ | 5,263,670) | = | 1.00 | 1.00 | × | 25.05% | = | 25.03% | ||
| Operating lease liability3 | 3,367) | 3,367) | ÷ | 5,263,670) | = | 0.00 | 0.00 | × | 3.78% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 5,263,670) | 1.00 | 25.03% | ||||||||||
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 | 109,837) | 234,329) | 88,025) | 43,481) | 204,894) | |
| Invested capital2 | 1,117,290) | 840,706) | 718,143) | 555,694) | 575,173) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 9.83% | 27.87% | 12.26% | 7.82% | 35.62% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | -3.78% | 6.72% | -2.40% | — | — | |
| ConocoPhillips | 6.55% | 19.29% | 4.98% | — | — | |
| ExxonMobil Holdings Corp. | 3.07% | 11.83% | 3.21% | — | — | |
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 × 109,837 ÷ 1,117,290 = 9.83%
4 Click competitor name to see calculations.
An analysis of the financial performance between 2019 and 2023 reveals significant volatility in value creation metrics alongside a consistent expansion of the capital base.
- Economic Profit Trends
- Economic profit exhibited substantial fluctuations over the five-year period. After a strong performance in 2019, a sharp contraction occurred in 2020, with profit falling from 204,894 thousand to 43,481 thousand. A recovery phase followed, peaking in 2022 at 234,329 thousand before declining again to 109,837 thousand in 2023.
- Invested Capital Growth
- Invested capital showed a steady upward trajectory following a minor dip in 2020. From 2020 to 2023, the capital base grew from 555,694 thousand to 1,117,290 thousand, representing a doubling of invested capital in three years. The most significant increase occurred between 2022 and 2023, where capital expanded by approximately 33%.
- Economic Spread Ratio Analysis
- The economic spread ratio, which measures the efficiency of capital utilization relative to the cost of capital, mirrored the volatility of economic profit. The ratio dropped precipitously from 35.62% in 2019 to 7.82% in 2020. While it recovered strongly to 27.87% by 2022, it experienced a sharp compression to 9.83% in 2023. This recent decline is particularly notable as it coincided with the highest level of invested capital in the period, suggesting a decrease in the marginal return on newly deployed capital.
Overall, the data indicates that while the company has aggressively expanded its capital base, the ability to generate a high spread over the cost of capital has been inconsistent, resulting in an unstable economic profit trajectory.
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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 | 109,837) | 234,329) | 88,025) | 43,481) | 204,894) | |
| Revenues | 631,595) | 667,422) | 450,958) | 302,554) | 490,496) | |
| Add: Increase (decrease) in unearned revenue | 5,140) | 1,938) | (1,910) | 8,787) | 4,012) | |
| Adjusted revenues | 636,735) | 669,360) | 449,048) | 311,341) | 494,508) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 17.25% | 35.01% | 19.60% | 13.97% | 41.43% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | -4.08% | 6.05% | -2.98% | — | — | |
| ConocoPhillips | 9.48% | 18.56% | 8.30% | — | — | |
| ExxonMobil Holdings Corp. | 2.82% | 8.82% | 3.16% | — | — | |
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 × 109,837 ÷ 636,735 = 17.25%
3 Click competitor name to see calculations.
The economic profit margin exhibited significant volatility between 2019 and 2023, characterized by a sharp contraction in 2020, a robust recovery peaking in 2022, and a subsequent decline in 2023.
- Economic Profitability Trends
- Economic profit experienced a substantial decline from US$ 204.89 million in 2019 to US$ 43.48 million in 2020. A recovery phase followed, with profit reaching a five-year peak of US$ 234.33 million in 2022 before retreating to US$ 109.84 million by the end of 2023.
- Revenue Dynamics
- Adjusted revenues followed a similar trajectory to economic profit, dropping from US$ 494.51 million in 2019 to US$ 311.34 million in 2020. Growth resumed thereafter, peaking at US$ 669.36 million in 2022 and remaining relatively stable at US$ 636.74 million in 2023.
- Economic Profit Margin Analysis
- The economic profit margin fluctuated considerably, starting at 41.43% in 2019 and falling to a low of 13.97% in 2020. Although the margin rebounded to 35.01% in 2022, it contracted sharply to 17.25% in 2023. This final decline is notable because it occurred despite revenues remaining near peak levels, suggesting that the cost of capital or operating expenses increased relative to the economic value generated.
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