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 – 24.83% × 1,117,290 = 112,210
The analysis of economic value added reveals a period of fluctuating value creation characterized by a significant expansion of the capital base alongside volatile operating returns. While economic profit remained positive throughout the five-year period, indicating that the entity consistently generated returns exceeding its cost of capital, the magnitude of this value creation has been inconsistent.
- Net Operating Profit After Taxes (NOPAT) Performance
- A volatile trajectory is observed in NOPAT, which experienced a sharp contraction in 2020, falling to 182,624 thousand US$. A strong recovery followed, peaking in 2022 at 444,863 thousand US$ before receding to 389,641 thousand US$ in 2023. This volatility suggests that operating profitability is subject to significant external or cyclical pressures.
- Invested Capital and Capital Charge
- Invested capital demonstrates a consistent upward trend, growing from 575,173 thousand US$ in 2019 to 1,117,290 thousand US$ by 2023. This represents a substantial increase in the resources deployed to generate profit. Given that the cost of capital remained static at approximately 24.83%, the absolute cost of financing these investments increased steadily, placing greater pressure on NOPAT to maintain high levels of economic profit.
- Economic Profit Dynamics
- Economic profit exhibits significant fluctuations, mirroring the volatility of NOPAT but tempered by the growing capital base. The lowest point occurred in 2020 at 44,661 thousand US$, coinciding with the drop in operating profit. Although a peak of 236,115 thousand US$ was reached in 2022, a notable decline to 112,210 thousand US$ occurred in 2023. This 2023 decrease is particularly significant as it resulted from the combined effect of a lower NOPAT and a sharp increase in invested capital, which amplified the capital charge.
Overall, the data indicates that while the entity is capable of generating substantial economic profit, the increasing scale of invested capital requires proportionally higher operating profits to maintain the same level of value creation. The current trend suggests a diminishing rate of economic profit growth relative to the expansion of the capital base.
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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 | × | 24.83% | = | 24.83% | ||
| 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 | 24.83% | ||||||||||
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 | × | 24.83% | = | 24.83% | ||
| 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 | 24.83% | ||||||||||
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 | × | 24.83% | = | 24.83% | ||
| 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 | 24.83% | ||||||||||
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 | × | 24.83% | = | 24.83% | ||
| 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 | 24.83% | ||||||||||
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 | × | 24.83% | = | 24.82% | ||
| 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 | 24.82% | ||||||||||
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 | 112,210) | 236,115) | 89,551) | 44,661) | 206,115) | |
| Invested capital2 | 1,117,290) | 840,706) | 718,143) | 555,694) | 575,173) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 10.04% | 28.09% | 12.47% | 8.04% | 35.84% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | -3.87% | 6.63% | -2.48% | — | — | |
| ConocoPhillips | 6.35% | 19.09% | 4.79% | — | — | |
| Exxon Mobil Corp. | 2.88% | 11.64% | 3.03% | — | — | |
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 × 112,210 ÷ 1,117,290 = 10.04%
4 Click competitor name to see calculations.
The financial performance over the five-year period is characterized by significant volatility in economic value creation, defined by fluctuating economic profits and a consistent expansion of the invested capital base.
- Economic Profit Trends
- Economic profit exhibited a sharp decline between 2019 and 2020, falling from 206,115 thousand USD to 44,661 thousand USD. This was followed by a period of recovery, reaching a five-year peak of 236,115 thousand USD in 2022, before contracting to 112,210 thousand USD in 2023.
- Invested Capital Expansion
- Invested capital showed a sustained upward trajectory following a slight dip in 2020. From 555,694 thousand USD in 2020, the capital base grew steadily to reach 1,117,290 thousand USD by the end of 2023. This indicates a significant increase in the total resources deployed into the company's operations over the observed period.
- Economic Spread Ratio Analysis
- The economic spread ratio demonstrates high volatility, reflecting the instability of economic profit relative to the growing capital base. The ratio dropped precipitously from 35.84% in 2019 to 8.04% in 2020. A strong rebound occurred in 2022, peaking at 28.09%, but the ratio fell again to 10.04% in 2023. The decline in 2023 is particularly notable as it resulted from a dual impact: a reduction in economic profit coupled with a substantial increase in invested capital, signaling a decrease in the efficiency of capital utilization compared to the previous year.
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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 | 112,210) | 236,115) | 89,551) | 44,661) | 206,115) | |
| 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 | 17.62% | 35.27% | 19.94% | 14.34% | 41.68% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | -4.18% | 5.97% | -3.09% | — | — | |
| ConocoPhillips | 9.20% | 18.36% | 7.98% | — | — | |
| Exxon Mobil Corp. | 2.64% | 8.67% | 2.98% | — | — | |
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 × 112,210 ÷ 636,735 = 17.62%
3 Click competitor name to see calculations.
The financial performance from 2019 to 2023 is characterized by significant volatility in both absolute economic profit and the resulting economic profit margin. The metrics exhibit a cyclical pattern of contraction and expansion, with a notable peak in 2022 followed by a sharp decline in 2023.
- Economic Profit Margin Fluctuations
- The economic profit margin began at 41.68% in 2019 before falling sharply to 14.34% in 2020. A subsequent recovery trend saw the margin rise to 19.94% in 2021 and reach a secondary peak of 35.27% in 2022. However, this upward trajectory was reversed in 2023, with the margin contracting to 17.62%.
- Correlation Between Revenue and Economic Profit
- Adjusted revenues and economic profit demonstrate a strong positive correlation over the analyzed period. The lowest values for both metrics occurred in 2020, with adjusted revenues at 311,341 thousand US$ and economic profit at 44,661 thousand US$. Conversely, both metrics reached five-year highs in 2022, with revenues peaking at 669,360 thousand US$ and economic profit reaching 236,115 thousand US$.
- Profitability Efficiency Analysis
- The volatility of the economic profit margin suggests that the generation of value above the cost of capital is highly sensitive to operational shifts. While the 2022 period showed high efficiency in converting revenue into economic profit, the 2023 results indicate a diminished capacity for value creation; economic profit fell by approximately 52.6% despite adjusted revenues remaining relatively stable, decreasing by only 4.5%.
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