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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Time Warner Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Net operating profit after taxes (NOPAT)¹	5,040)	4,943)	4,751)	5,167)	5,150)
Cost of capital²	10.39%	10.45%	9.88%	10.39%	10.38%
Invested capital³	57,150)	54,961)	53,163)	52,455)	56,262)

Economic profit⁴	(901)	(799)	(502)	(284)	(691)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2017 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 5,040 – 10.39% × 57,150 = -901

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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.	Time Warner Inc. economic profit decreased from 2015 to 2016 and from 2016 to 2017.

Time Warner Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Net income attributable to Time Warner Inc. shareholders	5,247)	3,926)	3,833)	3,827)	3,691)
Deferred income tax expense (benefit)¹	(1,010)	236)	328)	166)	759)
Increase (decrease) in allowance for doubtful accounts²	(31)	13)	28)	(39)	(23)
Increase (decrease) in deferred revenue³	129)	82)	74)	1)	(57)
Increase (decrease) in accrued restructuring and severance costs⁴	26)	(82)	(281)	348)	78)
Increase (decrease) in equity equivalents⁵	(886)	249)	149)	476)	757)
Interest expense	1,214)	1,388)	1,382)	1,353)	1,283)
Interest expense, operating lease liability⁶	40)	40)	59)	68)	93)
Adjusted interest expense	1,254)	1,428)	1,441)	1,421)	1,376)
Tax benefit of interest expense⁷	(439)	(500)	(504)	(497)	(482)
Adjusted interest expense, after taxes⁸	815)	928)	937)	924)	895)
(Gain) loss on marketable securities	4)	—)	19)	(10)	7)
Interest income	(209)	(227)	(219)	(184)	(93)
Investment income, before taxes	(205)	(227)	(200)	(194)	(86)
Tax expense (benefit) of investment income⁹	72)	79)	70)	68)	30)
Investment income, after taxes¹⁰	(133)	(148)	(130)	(126)	(56)
(Income) loss from discontinued operations, net of tax¹¹	—)	(11)	(37)	67)	(137)
Net income (loss) attributable to noncontrolling interest	(3)	(1)	(1)	—)	—)
Net operating profit after taxes (NOPAT)	5,040)	4,943)	4,751)	5,167)	5,150)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

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.

⁴ Addition of increase (decrease) in accrued restructuring and severance costs.

⁵ Addition of increase (decrease) in equity equivalents to net income attributable to Time Warner Inc. shareholders.

⁶ 2017 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 976 × 4.10% = 40

⁷ 2017 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,254 × 35.00% = 439

⁸ Addition of after taxes interest expense to net income attributable to Time Warner Inc. shareholders.

⁹ 2017 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 205 × 35.00% = 72

¹⁰ Elimination of after taxes investment income.

¹¹ Elimination of discontinued operations.

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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.	Time Warner Inc. NOPAT increased from 2015 to 2016 and from 2016 to 2017.

Time Warner Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Current and deferred income taxes provided on Income from continuing operations	701)	1,281)	1,651)	785)	1,749)
Less: Deferred income tax expense (benefit)	(1,010)	236)	328)	166)	759)
Add: Tax savings from interest expense	439)	500)	504)	497)	482)
Less: Tax imposed on investment income	72)	79)	70)	68)	30)
Cash operating taxes	2,078)	1,465)	1,757)	1,048)	1,442)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

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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.	Time Warner Inc. cash operating taxes decreased from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

Time Warner Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Debt due within one year	5,450)	1,947)	198)	1,118)	66)
Long-term debt, excluding due within one year	18,294)	22,392)	23,594)	21,376)	20,099)
Operating lease liability¹	976)	1,016)	1,083)	1,262)	1,600)
Total reported debt & leases	24,720)	25,355)	24,875)	23,756)	21,765)
Total Time Warner Inc. shareholders’ equity	28,375)	24,335)	23,619)	24,476)	29,904)
Net deferred tax (assets) liabilities²	1,473)	2,553)	2,320)	2,020)	2,195)
Allowance for doubtful accounts³	162)	193)	180)	152)	261)
Deferred revenue⁴	1,179)	1,050)	968)	894)	1,477)
Accrued restructuring and severance costs⁵	197)	171)	253)	534)	244)
Equity equivalents⁶	3,011)	3,967)	3,721)	3,600)	4,177)
Accumulated other comprehensive (income) loss, net of tax⁷	1,437)	1,510)	1,446)	1,164)	852)
Redeemable noncontrolling interest	35)	29)	29)	—)	—)
Noncontrolling interest	1)	2)	—)	—)	—)
Adjusted total Time Warner Inc. shareholders’ equity	32,859)	29,843)	28,815)	29,240)	34,933)
Construction in progress⁸	(380)	(183)	(174)	(223)	(339)
Marketable securities⁹	(49)	(54)	(353)	(318)	(97)
Invested capital	57,150)	54,961)	53,163)	52,455)	56,262)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

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.

⁵ Addition of accrued restructuring and severance costs.

⁶ Addition of equity equivalents to total Time Warner Inc. shareholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction in progress.

⁹ Subtraction of marketable securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Time Warner Inc. invested capital increased from 2015 to 2016 and from 2016 to 2017.

Time Warner Inc., cost of capital calculations

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	73,595)	73,595)	÷	99,897)	=	0.74	0.74	×	13.11%	=	9.66%
Debt³	25,327)	25,327)	÷	99,897)	=	0.25	0.25	×	4.32% × (1 – 35.00%)	=	0.71%
Operating lease liability⁴	976)	976)	÷	99,897)	=	0.01	0.01	×	4.10% × (1 – 35.00%)	=	0.03%
Total:	99,897)					1.00					10.39%

Based on: 10-K (reporting date: 2017-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	75,157)	75,157)	÷	102,750)	=	0.73	0.73	×	13.11%	=	9.59%
Debt³	26,577)	26,577)	÷	102,750)	=	0.26	0.26	×	4.97% × (1 – 35.00%)	=	0.84%
Operating lease liability⁴	1,016)	1,016)	÷	102,750)	=	0.01	0.01	×	3.91% × (1 – 35.00%)	=	0.03%
Total:	102,750)					1.00					10.45%

Based on: 10-K (reporting date: 2016-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	52,672)	52,672)	÷	80,037)	=	0.66	0.66	×	13.11%	=	8.63%
Debt³	26,282)	26,282)	÷	80,037)	=	0.33	0.33	×	5.65% × (1 – 35.00%)	=	1.21%
Operating lease liability⁴	1,083)	1,083)	÷	80,037)	=	0.01	0.01	×	5.45% × (1 – 35.00%)	=	0.05%
Total:	80,037)					1.00					9.88%

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 »

Dec 31, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	68,452)	68,452)	÷	96,458)	=	0.71	0.71	×	13.11%	=	9.30%
Debt³	26,745)	26,745)	÷	96,458)	=	0.28	0.28	×	5.80% × (1 – 35.00%)	=	1.05%
Operating lease liability⁴	1,262)	1,262)	÷	96,458)	=	0.01	0.01	×	5.38% × (1 – 35.00%)	=	0.05%
Total:	96,458)					1.00					10.39%

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 »

Dec 31, 2013

	Capital (fair value)¹	Weights					Cost of capital
Equity²	57,746)	57,746)	÷	82,265)	=	0.70	0.70	×	13.11%	=	9.20%
Debt³	22,919)	22,919)	÷	82,265)	=	0.28	0.28	×	6.11% × (1 – 35.00%)	=	1.11%
Operating lease liability⁴	1,600)	1,600)	÷	82,265)	=	0.02	0.02	×	5.83% × (1 – 35.00%)	=	0.07%
Total:	82,265)					1.00					10.38%

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 »

Time Warner Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Selected Financial Data (US$ in millions)
Economic profit¹	(901)	(799)	(502)	(284)	(691)
Invested capital²	57,150)	54,961)	53,163)	52,455)	56,262)
Performance Ratio
Economic spread ratio³	-1.58%	-1.45%	-0.94%	-0.54%	-1.23%
Benchmarks
Economic Spread Ratio, Competitors⁴
Alphabet Inc.	—	—	—	—	—
Comcast Corp.	—	—	—	—	—
Meta Platforms Inc.	—	—	—	—	—
Netflix Inc.	—	—	—	—	—
Walt Disney Co.	—	—	—	—	—

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2017 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -901 ÷ 57,150 = -1.58%

⁴ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Time Warner Inc. economic spread ratio deteriorated from 2015 to 2016 and from 2016 to 2017.

Time Warner Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Selected Financial Data (US$ in millions)
Economic profit¹	(901)	(799)	(502)	(284)	(691)

Revenues	31,271)	29,318)	28,118)	27,359)	29,795)
Add: Increase (decrease) in deferred revenue	129)	82)	74)	1)	(57)
Adjusted revenues	31,400)	29,400)	28,192)	27,360)	29,738)
Performance Ratio
Economic profit margin²	-2.87%	-2.72%	-1.78%	-1.04%	-2.32%
Benchmarks
Economic Profit Margin, Competitors³
Alphabet Inc.	—	—	—	—	—
Comcast Corp.	—	—	—	—	—
Meta Platforms Inc.	—	—	—	—	—
Netflix Inc.	—	—	—	—	—
Walt Disney Co.	—	—	—	—	—

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

¹ Economic profit. See details »

² 2017 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -901 ÷ 31,400 = -2.87%

³ Click competitor name to see calculations.

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company 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.	Time Warner Inc. economic profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

Time Warner Inc. (NYSE:TWX)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin