Economic Value Added (EVA)
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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.
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Trane Technologies plc pages available for free this week:
- Income Statement
- Common-Size Income Statement
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Current Ratio since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Economic Profit
Trane Technologies plc, economic profit calculation
US$ in thousands
| 12 months ended: | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The analysis of the financial data over the five-year period reveals important trends concerning profitability, capital efficiency, and economic value creation.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited fluctuations across the observed years. Starting at approximately 1.45 billion US dollars in 2018, it increased to around 1.64 billion in 2019 before declining to about 1.27 billion in 2020. The figure then rebounded strongly, reaching approximately 1.67 billion in 2021 and further improving to roughly 2.14 billion in 2022. This suggests a recovery and growth in operating profitability particularly after 2020.
- Cost of Capital
- The cost of capital demonstrated a gradual upward trend, increasing from about 13.33% in 2018 to 13.92% in 2022. Though the increments are relatively small year-on-year, the steady rise indicates a slowly increasing required return on invested capital, possibly reflecting changing market conditions or company risk profile.
- Invested Capital
- Invested capital shows variability with a peak in 2019 at approximately 15.64 billion US dollars, before declining to around 13.85 billion in 2020 and further to about 13.35 billion in 2021. In 2022, there was a slight increase to approximately 13.52 billion. The general pattern indicates a reduction in capital investment or divestment following 2019, stabilizing towards the later years.
- Economic Profit
- The economic profit metric was negative from 2018 through 2021, indicating that the returns did not exceed the cost of capital during these years. The deficit worsened from about -373 million US dollars in 2018 to a low of -574 million in 2020, before improving significantly to a minor negative in 2021 (-132 million). Notably, in 2022 economic profit turned positive, reaching approximately 257 million US dollars, reflecting that the company generated returns above its cost of capital for the first time in the observed period.
Overall, the data portray a scenario of fluctuating operational profitability and invested capital with an increasing cost of capital. However, the transition from negative to positive economic profit in 2022 highlights an improvement in value creation capability, suggesting enhanced operational efficiency and/or better capital allocation outcomes in the most recent year.
Net Operating Profit after Taxes (NOPAT)
Trane Technologies plc, NOPAT calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in deferred revenue.
5 Addition of increase (decrease) in standard product warranty liability.
6 Addition of increase (decrease) in equity equivalents to net earnings attributable to Trane Technologies plc.
7 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
9 Addition of after taxes interest expense to net earnings attributable to Trane Technologies plc.
10 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
- Net earnings attributable to Trane Technologies plc
- Net earnings exhibit variability over the five-year period analyzed. The value increased from approximately 1.34 billion US dollars in 2018 to about 1.41 billion in 2019, representing moderate growth. However, a significant decline occurred in 2020, with net earnings dropping to approximately 854.9 million US dollars. This downturn was followed by a strong recovery in 2021, when net earnings rose again to roughly 1.42 billion US dollars. The upward trend continued into 2022, reaching the highest observed value of approximately 1.76 billion US dollars, indicating overall positive growth in the latter years despite the earlier dip.
- Net operating profit after taxes (NOPAT)
- NOPAT demonstrates a generally increasing trend, with fluctuations noticeable in the dataset. Starting at roughly 1.45 billion US dollars in 2018, NOPAT increased to around 1.64 billion in 2019. A decline is observed in 2020, where it decreased to nearly 1.27 billion US dollars. Subsequent years show a recovery trend: in 2021, NOPAT rose significantly to approximately 1.67 billion, followed by a substantial increase in 2022 to nearly 2.14 billion US dollars. This pattern of decrease in 2020 followed by strong growth thereafter mirrors the trend observed in net earnings and suggests resilience and effective operational performance improvements post-2020.
Cash Operating Taxes
Trane Technologies plc, cash operating taxes calculation
US$ in thousands
Based on: 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), 10-K (reporting date: 2018-12-31).
- Tax Expense Trend
- The tax expense exhibits a fluctuating pattern over the five-year period. It increased from 281,300 thousand US dollars in 2018 to a peak of 353,700 thousand US dollars in 2019. Following this, there was a decline to 296,800 thousand US dollars in 2020, before rising again in 2021 to 333,500 thousand US dollars. In 2022, the tax expense continued to grow, reaching 375,900 thousand US dollars, the highest value in the series.
- Cash Operating Taxes Trend
- The cash operating taxes show a general downward trend with some recovery periods. After a high of 475,262 thousand US dollars in 2018, there was a notable decrease to 391,918 thousand US dollars in 2019, followed by a further decline to 328,760 thousand US dollars in 2020. In 2021, cash operating taxes rebounded to 409,078 thousand US dollars but then declined again to 356,060 thousand US dollars in 2022. Overall, the values in 2022 remain below the initial 2018 figure.
- Comparative Insights
- While tax expense shows a general upward trajectory with some volatility, cash operating taxes have generally decreased from the 2018 level, despite some recovery in 2021. This divergence suggests potential timing differences or adjustments in non-cash accounting components affecting reported tax expenses relative to actual cash outflows in taxes.
Invested Capital
Trane Technologies plc, invested capital calculation (financing approach)
US$ in thousands
Based on: 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), 10-K (reporting date: 2018-12-31).
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 LIFO reserve. See details »
5 Addition of deferred revenue.
6 Addition of standard product warranty liability.
7 Addition of equity equivalents to total Trane Technologies plc shareholders’ equity.
8 Removal of accumulated other comprehensive income.
- Total Reported Debt & Leases
-
The total reported debt and leases displayed an overall increasing trend from 2018 through 2022. Starting at approximately 4.64 billion USD in 2018, the figure rose significantly to about 6.14 billion USD in 2019, marking the highest value within the period. Subsequently, the debt decreased to approximately 5.69 billion USD in 2020 and continued to decline to 5.29 billion USD in 2021. In 2022, the total reported debt and leases slightly increased to around 5.31 billion USD. This pattern indicates a peak in 2019, followed by a gradual reduction and stabilization in the recent years.
- Total Shareholders’ Equity
-
The total shareholders’ equity showed a decreasing trend over the five-year period. Beginning at roughly 7.02 billion USD in 2018, equity increased slightly to about 7.27 billion USD in 2019. However, from 2019 onwards, equity declined consistently to approximately 6.41 billion USD in 2020, then to 6.26 billion USD in 2021, and further to 6.09 billion USD in 2022. This steady reduction suggests a shrinking equity base over time.
- Invested Capital
-
Invested capital increased from approximately 13.68 billion USD in 2018 to a peak of about 15.64 billion USD in 2019. Following this peak, invested capital decreased to around 13.83 billion USD in 2020 and continued to decline to 13.35 billion USD in 2021. In 2022, there was a slight increase to roughly 13.52 billion USD. This trend reflects a significant build-up of capital in 2019, followed by a contraction and subsequent stabilization during the last two years.
Cost of Capital
Trane Technologies plc, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Trane Technologies plc, economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial data reveals significant changes in the company's economic profit, invested capital, and economic spread ratio over the five-year period from 2018 to 2022.
- Economic Profit
- The economic profit exhibited a negative trend in the initial four years, starting at approximately -372.6 million US dollars in 2018 and deepening to about -573.5 million US dollars by 2020. However, a marked improvement is observed in 2021, with the loss shrinking substantially to -132.1 million US dollars, followed by a positive turnaround in 2022, where economic profit reaches a positive 256.9 million US dollars. This shift from significant losses to profit suggests enhanced value creation and possibly better operational efficiency or capital utilization in the latter years.
- Invested Capital
- Invested capital shows a generally fluctuating pattern during the period. It increased from approximately 13.7 billion US dollars in 2018 to a peak of about 15.6 billion US dollars in 2019, then declined to around 13.8 billion US dollars in 2020 and further down to 13.4 billion US dollars in 2021. A slight increase is noted in 2022, reaching roughly 13.5 billion US dollars. Despite these fluctuations, invested capital remains relatively stable towards the end of the period, indicating controlled levels of capital deployment.
- Economic Spread Ratio
- The economic spread ratio was negative throughout 2018 to 2021, starting at -2.72% in 2018, worsening to -4.15% in 2020, and then improving to -0.99% by 2021. The ratio turns positive in 2022, reaching 1.9%. This positive shift reflects the company's improved ability to generate returns exceeding its cost of capital, aligning with the positive economic profit reported for 2022. The trend indicates a strengthening financial performance and enhanced shareholder value creation in the most recent year.
In summary, the analyzed period shows an initial phase of declining economic profit and negative economic spread, followed by a recovery phase culminating in positive economic profit and economic spread in the final year. Invested capital remains relatively stable with some fluctuations, indicating a managed capital base during these years. The financial indicators collectively suggest an improvement in operational efficiency, value creation, and financial health towards the end of the period.
Economic Profit Margin
Trane Technologies plc, economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | ||||||
| Net revenues | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted net revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
Based on: 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), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited a downward trend from 2018 through 2020, with values declining from -372,551 thousand US dollars in 2018 to -573,518 thousand US dollars in 2020. This indicates increasing economic losses during this period. A significant improvement occurred in 2021, where the economic loss was substantially reduced to -132,103 thousand US dollars. By 2022, economic profit turned positive, reaching 256,856 thousand US dollars, signaling a recovery and value creation in that year.
- Adjusted Net Revenues
- Adjusted net revenues showed a volatile pattern over the five-year period. Initially, there was an increase from 15,667,400 thousand US dollars in 2018 to 16,610,800 thousand US dollars in 2019. However, revenues sharply declined in 2020 to 12,456,300 thousand US dollars, which may correspond to external economic pressures or operational challenges. Following this decline, revenues rebounded, rising to 14,143,700 thousand US dollars in 2021 and further increasing to 15,997,700 thousand US dollars in 2022, nearly recovering to pre-2019 levels.
- Economic Profit Margin
- The economic profit margin mirrored the trend of economic profit, remaining negative and deteriorating from -2.38% in 2018 to -4.6% in 2020. This worsening margin indicates that the company's profitability relative to revenues was under considerable pressure during the early years. A marked improvement took place in 2021, with the margin recovering to -0.93%, suggesting approaching breakeven profitability. By 2022, the margin became positive, reaching 1.61%, consistent with generating economic profit and reflecting enhanced operational efficiency or cost management.
- Overall Insights
- The financial data reveals a period of economic challenges culminating in 2020, characterized by declining revenues and increasing economic losses. The subsequent years show a recovery trend with improvements in both revenue generation and economic profitability, turning the company’s economic profit from negative to positive by 2022. This suggests successful strategic or operational adjustments that have improved financial performance and value creation potential.