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.
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Trane Technologies plc pages available for free this week:
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
- Analysis of Revenues
- 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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes demonstrated fluctuations over the observed periods. There was an increase from approximately $1.45 billion in 2018 to around $1.64 billion in 2019, followed by a decline in 2020 to nearly $1.27 billion. After this dip, the figure rebounded, reaching approximately $1.67 billion in 2021 and continuing upward to about $2.14 billion in 2022. Overall, the trend indicates recovery and growth after a temporary setback in 2020.
- Cost of Capital
- The cost of capital exhibited a gradual upward trend throughout the years. It started at 13.32% in 2018 and showed a slight decrease to 13.26% in 2019. However, from 2020 onward, there was a steady increase, reaching 13.28% in 2020, 13.51% in 2021, and culminating at 13.91% in 2022. This gradual rise suggests increasing capital costs, potentially reflecting changes in market conditions or risk assessments.
- Invested Capital
- The invested capital showed variability during the period under review. It increased from approximately $13.7 billion in 2018 to $15.6 billion in 2019, then declined to about $13.8 billion in 2020. Following this, there was a continued slight decrease to roughly $13.4 billion in 2021, before a marginal increase to approximately $13.5 billion in 2022. The fluctuations may indicate shifts in asset management strategies or capital allocation decisions.
- Economic Profit
- The economic profit was negative for the first four years, indicating that the returns did not exceed the cost of capital during that time. The deficit started at approximately -$371 million in 2018 and worsened to around -$432 million in 2019. The negative figure deepened substantially in 2020, reaching nearly -$572 million. However, there was a notable improvement in 2021 with a much smaller negative value of about -$131 million. In 2022, economic profit turned positive to approximately $258 million, suggesting that the company began generating returns exceeding its cost of capital in the most recent year.
Net Operating Profit after Taxes (NOPAT)
Trane Technologies plc, NOPAT calculation
US$ 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.
- Economic Profit
- The economic profit exhibits a negative trend from 2018 through 2021, with values declining from approximately -371 million US dollars in 2018 to a low of around -572 million US dollars in 2020. In 2021, there was a significant recovery as the economic loss narrowed substantially to about -131 million US dollars. By 2022, economic profit turned positive, reaching approximately 258 million US dollars, indicating a marked improvement in value creation.
- Invested Capital
- Invested capital shows fluctuations over the period. It increased from roughly 13.68 billion US dollars in 2018 to reach a peak of around 15.64 billion US dollars in 2019. Subsequently, it declined to approximately 13.83 billion US dollars in 2020 and remained relatively stable through 2021 and 2022, with slight decreases and increases respectively, ending near 13.52 billion US dollars. This suggests a partial contraction or optimization of capital deployment after 2019.
- Economic Spread Ratio
- The economic spread ratio remains negative from 2018 to 2021, indicating returns below the cost of invested capital during these years. The ratio worsened from -2.71% in 2018 to -4.14% in 2020, reflecting decreasing efficiency or profitability relative to capital costs. It improved significantly in 2021 to -0.98% and turned positive in 2022, reaching 1.91%. This positive shift aligns with the change to positive economic profit, demonstrating enhanced operational or financial performance resulting in value accretion.
- Summary
- Overall, the financial trends reveal an initial period of declining economic profit and negative returns on invested capital, signifying underperformance relative to capital costs. A notable turnaround occurred beginning in 2021, culminating in positive economic profit and an economic spread above zero by 2022. Invested capital peaked in 2019 and subsequently stabilized at a lower level, possibly reflecting strategic adjustments in capital allocation. The data indicate improved profitability and value generation in the most recent period after several years of economic losses.
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 experienced a negative trend from 2018 to 2020, declining from -371,313 thousand US dollars in 2018 to -572,270 thousand US dollars in 2020. This indicates increasing economic losses during that period. However, a significant improvement is observed in 2021, with economic profit rising sharply to -130,869 thousand US dollars, narrowing the loss considerably. By 2022, the company turned to a positive economic profit of 258,155 thousand US dollars, demonstrating a strong recovery and value creation in that year.
- Adjusted Net Revenues
- Adjusted net revenues showed an overall fluctuating pattern over the analyzed period. Revenues increased from 15,667,400 thousand US dollars in 2018 to a peak of 16,610,800 thousand US dollars in 2019. In 2020, a significant decline occurred, with revenues dropping to 12,456,300 thousand US dollars, possibly due to challenging market conditions. This was followed by a recovery phase in 2021 and 2022, with revenues climbing to 14,143,700 thousand and then 15,997,700 thousand US dollars respectively, nearing pre-2020 levels.
- Economic Profit Margin
- The economic profit margin mirrored the pattern of economic profit, remaining negative throughout 2018 to 2021 but showing improvement over time. It declined from -2.37% in 2018 to a low of -4.59% in 2020, reflecting increased inefficiency or higher costs relative to revenues. In 2021, the margin improved significantly to -0.93%, and by 2022, it turned positive at 1.61%, indicating an overall healthier profitability position relative to revenue in the most recent year.
- Overall Insights
- The data depicts a period of financial challenges culminating in 2020, characterized by declining revenues and worsening economic profit and margins. However, the subsequent two years demonstrate a strong recovery trajectory, with revenues rebounding and economic profitability turning positive. This suggests improved operational efficiency and possibly strategic or market-driven improvements leading to better financial performance in the latter years analyzed.