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
Time Warner Cable Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2015 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 3,391 – 12.75% × 45,332 = -2,389
The financial performance over the five-year period from 2011 to 2015 is characterized by a persistent inability to generate economic value, as evidenced by consistently negative economic profit figures throughout the duration.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited volatility without a definitive growth trajectory. After reaching a peak of 3,807 million US$ in 2012, the figure fluctuated, ending the period at 3,391 million US$ in 2015. This instability indicates a lack of consistent operational growth in profit generation.
- Cost of Capital
- The cost of capital showed a general upward trend, increasing from 10.02% in 2011 to a peak of 12.75% in 2015. This increase elevated the minimum return required to justify the invested capital, thereby placing greater pressure on operational profitability to achieve a positive economic return.
- Invested Capital
- Invested capital remained relatively stable throughout the analysis period, fluctuating within a narrow range between 44,327 million US$ and 46,124 million US$. The lack of significant expansion or contraction suggests a stagnant asset base that failed to produce proportional increases in profit.
- Economic Profit Trends
- Economic profit remained negative for all five years, signifying that the operating returns were insufficient to cover the cost of the capital employed. The deficit widened significantly, moving from -1,178 million US$ in 2011 to -2,389 million US$ in 2015. This deterioration is primarily attributed to the rising cost of capital coinciding with fluctuating NOPAT, leading to a substantial erosion of economic value by the end of the period.
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Net Operating Profit after Taxes (NOPAT)
Time Warner Cable Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in deferred revenue and subscriber-related liabilities.
4 Addition of increase (decrease) in restructuring reserves.
5 Addition of increase (decrease) in equity equivalents to net income attributable to TWC shareholders.
6 2015 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 681 × 6.22% = 42
7 2015 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,444 × 35.00% = 506
8 Addition of after taxes interest expense to net income attributable to TWC shareholders.
The financial performance between 2011 and 2015 is characterized by volatility in both operating profitability and net earnings. Both net income and net operating profit after taxes (NOPAT) exhibit a similar cyclical pattern, peaking in 2012 and experiencing subsequent fluctuations through 2015.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT demonstrated an initial increase from US$ 3,328 million in 2011 to a peak of US$ 3,807 million in 2012. A contraction occurred in 2013, bringing the value down to US$ 3,388 million, followed by a recovery to US$ 3,745 million in 2014. The period concluded with a decrease to US$ 3,391 million in 2015, returning the figure to levels nearly identical to those seen in 2013.
- Net Income Trends
- Net income attributable to shareholders followed a trajectory closely aligned with NOPAT. From a base of US$ 1,665 million in 2011, earnings rose to US$ 2,155 million in 2012. Subsequent years showed a decline to US$ 1,954 million in 2013, a marginal increase to US$ 2,031 million in 2014, and a final reduction to US$ 1,844 million in 2015.
- Analysis of Operating vs. Net Profitability
- A significant and consistent gap is observed between NOPAT and net income throughout the analyzed period. NOPAT consistently remained substantially higher than net income, indicating that non-operating expenses—most notably interest payments on debt—had a material impact on the final earnings available to shareholders. The high degree of correlation between the movement of NOPAT and net income suggests that the fluctuations in shareholder earnings were primarily driven by operational performance rather than shifts in the company's financing costs or capital structure.
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Cash Operating Taxes
Time Warner Cable Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
The financial data reveals a fluctuating relationship between the income tax provision and cash operating taxes from 2011 to 2015. While the income tax provision remained relatively stable after an initial increase in 2012, cash operating taxes exhibited greater volatility, peaking in 2013 before experiencing a significant decline in 2014.
- Income Tax Provision Trends
- The income tax provision grew from 795 million USD in 2011 to 1,177 million USD in 2012. For the subsequent three years, the provision remained within a consistent range, fluctuating between a low of 1,085 million USD in 2013 and a peak of 1,217 million USD in 2014, eventually settling at 1,144 million USD in 2015.
- Cash Operating Tax Dynamics
- Cash operating taxes showed a sharper upward trajectory in the early period, rising from 705 million USD in 2011 to a peak of 1,281 million USD by 2013. This trend reversed sharply in 2014, where cash taxes dropped to 973 million USD, representing a significant decrease from the preceding year. A moderate recovery occurred in 2015, with taxes increasing to 1,057 million USD.
- Analysis of Variance and EVA Implications
- A notable divergence exists between accrual-based tax provisions and actual cash tax outflows. In 2012 and 2013, cash operating taxes exceeded the income tax provision, indicating higher immediate cash outflows relative to recognized accounting expenses. In contrast, during 2014 and 2015, the income tax provision exceeded cash operating taxes. These variances are significant for Economic Value Added (EVA) analysis, as the use of cash operating taxes instead of accounting provisions provides a more accurate reflection of the actual cash available to the firm and its capital efficiency.
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Invested Capital
Time Warner Cable Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
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 deferred revenue and subscriber-related liabilities.
5 Addition of restructuring reserves.
6 Addition of equity equivalents to total TWC shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
The financial data reveals a strategic shift in the capital structure between 2011 and 2015, characterized by a systematic reduction in debt obligations and a corresponding strengthening of the equity base, all while maintaining a stable level of total invested capital.
- Total Reported Debt and Leases
- A consistent downward trend is observed in total debt and leases starting after 2012. From a peak of 27,378 million US$ in 2012, the balance decreased annually, reaching 23,183 million US$ by December 31, 2015. This represents a total contraction of approximately 15.3% from the 2012 high, indicating a concerted effort toward deleveraging.
- Total Shareholders’ Equity
- Shareholders' equity experienced a period of decline between 2011 and 2013, falling from 7,530 million US$ to a low of 6,943 million US$. However, a significant reversal occurred thereafter, with equity growing to 8,013 million US$ in 2014 and further increasing to 8,995 million US$ by 2015. This upward trajectory suggests an improvement in the company's solvency and a shift toward equity-based funding.
- Invested Capital
- Despite the fluctuations in debt and equity, the total invested capital remained remarkably stable over the five-year period. The value fluctuated within a narrow corridor, peaking at 46,124 million US$ in 2012 and reaching a minimum of 44,327 million US$ in 2013, before closing at 45,332 million US$ in 2015. This stability indicates that the total asset base utilized to generate economic value remained constant, while the internal financing mix transitioned from debt toward equity.
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Cost of Capital
Time Warner Cable Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 52,402) | 52,402) | ÷ | 76,796) | = | 0.68 | 0.68 | × | 16.80% | = | 11.47% | ||
| Debt3 | 23,713) | 23,713) | ÷ | 76,796) | = | 0.31 | 0.31 | × | 6.22% × (1 – 35.00%) | = | 1.25% | ||
| Operating lease liability4 | 681) | 681) | ÷ | 76,796) | = | 0.01 | 0.01 | × | 6.22% × (1 – 35.00%) | = | 0.04% | ||
| Total: | 76,796) | 1.00 | 12.75% | ||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 42,062) | 42,062) | ÷ | 71,236) | = | 0.59 | 0.59 | × | 16.80% | = | 9.92% | ||
| Debt3 | 28,434) | 28,434) | ÷ | 71,236) | = | 0.40 | 0.40 | × | 5.95% × (1 – 35.00%) | = | 1.54% | ||
| Operating lease liability4 | 740) | 740) | ÷ | 71,236) | = | 0.01 | 0.01 | × | 5.95% × (1 – 35.00%) | = | 0.04% | ||
| Total: | 71,236) | 1.00 | 11.51% | ||||||||||
Based on: 10-K (reporting date: 2014-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 40,225) | 40,225) | ÷ | 66,185) | = | 0.61 | 0.61 | × | 16.80% | = | 10.21% | ||
| Debt3 | 25,236) | 25,236) | ÷ | 66,185) | = | 0.38 | 0.38 | × | 5.88% × (1 – 35.00%) | = | 1.46% | ||
| Operating lease liability4 | 724) | 724) | ÷ | 66,185) | = | 0.01 | 0.01 | × | 5.88% × (1 – 35.00%) | = | 0.04% | ||
| Total: | 66,185) | 1.00 | 11.71% | ||||||||||
Based on: 10-K (reporting date: 2013-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 25,692) | 25,692) | ÷ | 58,165) | = | 0.44 | 0.44 | × | 16.80% | = | 7.42% | ||
| Debt3 | 31,784) | 31,784) | ÷ | 58,165) | = | 0.55 | 0.55 | × | 5.89% × (1 – 35.00%) | = | 2.09% | ||
| Operating lease liability4 | 689) | 689) | ÷ | 58,165) | = | 0.01 | 0.01 | × | 5.89% × (1 – 35.00%) | = | 0.05% | ||
| Total: | 58,165) | 1.00 | 9.56% | ||||||||||
Based on: 10-K (reporting date: 2012-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 24,392) | 24,392) | ÷ | 51,530) | = | 0.47 | 0.47 | × | 16.80% | = | 7.95% | ||
| Debt3 | 26,442) | 26,442) | ÷ | 51,530) | = | 0.51 | 0.51 | × | 6.04% × (1 – 35.00%) | = | 2.01% | ||
| Operating lease liability4 | 696) | 696) | ÷ | 51,530) | = | 0.01 | 0.01 | × | 6.04% × (1 – 35.00%) | = | 0.05% | ||
| Total: | 51,530) | 1.00 | 10.02% | ||||||||||
Based on: 10-K (reporting date: 2011-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Time Warner Cable Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,389) | (1,424) | (1,803) | (602) | (1,178) | |
| Invested capital2 | 45,332) | 44,929) | 44,327) | 46,124) | 44,961) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -5.27% | -3.17% | -4.07% | -1.30% | -2.62% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | — | — | — | — | — | |
| Comcast Corp. | — | — | — | — | — | |
| Meta Platforms Inc. | — | — | — | — | — | |
| Netflix Inc. | — | — | — | — | — | |
| Walt Disney Co. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2015 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,389 ÷ 45,332 = -5.27%
4 Click competitor name to see calculations.
The financial performance from 2011 to 2015 indicates a persistent inability to generate positive economic value, as evidenced by consistently negative economic profit and negative economic spread ratios. Despite a relatively stable base of invested capital, the company experienced significant value erosion, culminating in the largest economic loss during the final year of the period.
- Economic Profit Trends
- Economic profit remained negative throughout the five-year period, signifying that the company did not generate returns sufficient to cover its cost of capital. While there was a temporary reduction in losses in 2012 to -602 million USD, the deficit widened significantly in subsequent years, reaching -2,389 million USD by December 31, 2015. This trajectory indicates a substantial increase in the destruction of shareholder value.
- Invested Capital Stability
- The invested capital remained remarkably consistent, fluctuating within a narrow range between 44,327 million USD and 46,124 million USD. The absence of significant growth or contraction in the capital base suggests that the declining economic performance was not a result of changes in the scale of investment, but rather a decrease in the efficiency of the utilized capital.
- Economic Spread Ratio Analysis
- The economic spread ratio was consistently negative, confirming that the return on invested capital remained below the weighted average cost of capital. The ratio exhibited volatility, improving to -1.30% in 2012 before entering a downward trend that reached -5.27% in 2015. This widening negative spread highlights an increasing gap between the actual returns generated by the company's assets and the minimum required return for investors.
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Economic Profit Margin
Time Warner Cable Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,389) | (1,424) | (1,803) | (602) | (1,178) | |
| Revenue | 23,697) | 22,812) | 22,120) | 21,386) | 19,675) | |
| Add: Increase (decrease) in deferred revenue and subscriber-related liabilities | 26) | 10) | 5) | 14) | 6) | |
| Adjusted revenue | 23,723) | 22,822) | 22,125) | 21,400) | 19,681) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -10.07% | -6.24% | -8.15% | -2.81% | -5.98% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | — | — | — | — | — | |
| Comcast Corp. | — | — | — | — | — | |
| Meta Platforms Inc. | — | — | — | — | — | |
| Netflix Inc. | — | — | — | — | — | |
| Walt Disney Co. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Economic profit. See details »
2 2015 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × -2,389 ÷ 23,723 = -10.07%
3 Click competitor name to see calculations.
The financial performance from 2011 to 2015 is characterized by a persistent inability to generate positive economic value, despite consistent growth in adjusted revenue. Throughout the analyzed period, the entity failed to cover its cost of capital, resulting in continuous economic value destruction.
- Adjusted Revenue Trends
- A steady upward trajectory is observed in adjusted revenue, which increased annually from 19,681 million USD in 2011 to 23,723 million USD by 2015. This indicates a consistent expansion of the top-line figures over the five-year duration.
- Economic Profit Analysis
- Economic profit remained negative for the entire period, exhibiting significant volatility. A relative improvement occurred in 2012, with losses narrowing to 602 million USD. However, this was followed by a sharp decline in 2013 to 1,803 million USD. Despite a moderate recovery in 2014, the trend concluded with the most substantial loss of 2,389 million USD in 2015.
- Economic Profit Margin Performance
- The economic profit margin reflects the failure of revenue growth to translate into economic value. The margin peaked at -2.81% in 2012 but deteriorated over subsequent years. By 2015, the margin reached its lowest point at -10.07%, suggesting that the cost of capital increased or operational efficiency declined more rapidly than the rate of revenue growth.
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