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
United Rentals Inc., economic profit calculation
US$ in millions
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
= 3,088 – 20.51% × 22,485 = -1,523
The financial performance from 2018 to 2022 is characterized by a persistent inability to generate positive economic profit, despite a significant recovery and growth in operating earnings toward the end of the period. While operational profitability improved substantially in the final two years, these gains were offset by a rising cost of capital and an expanding capital base, resulting in continued value destruction from an economic perspective.
- Net Operating Profit After Taxes (NOPAT)
- A volatile but generally upward trend is observed in NOPAT. After a period of growth between 2018 and 2019, a sharp decline occurred in 2020, where earnings dropped to 1,323 million US$. This was followed by a robust recovery in 2021 and a surge to 3,088 million US$ by 2022, representing a significant increase in operational efficiency and revenue generation in the latter part of the analysis period.
- Cost of Capital
- The cost of capital exhibited a consistent and uninterrupted increase over the five-year duration. Starting at 14.21% in 2018, the rate climbed steadily to reach 20.51% by 2022. This upward trajectory indicates a more expensive financing environment or an increase in the risk profile associated with the capital employed, which placed higher pressure on the company to generate greater operating returns.
- Invested Capital
- Invested capital remained relatively stable between 2018 and 2020, with a slight contraction in 2020 to 17,027 million US$. However, a period of aggressive capital expansion followed, with invested capital rising to 22,485 million US$ by 2022. This expansion suggests significant investments in assets to drive the observed growth in NOPAT.
- Economic Profit
- Economic profit remained negative throughout the entire period, signaling that the return on invested capital did not exceed the cost of capital. The deficit deepened significantly in 2020, reaching a peak loss of 1,754 million US$, driven by the simultaneous decline in NOPAT and the increase in the cost of capital. Although economic profit began to trend upward from 2021 to 2022, ending at -1,523 million US$, the company failed to reach a break-even point where value creation begins.
In summary, the data reveals a widening gap between operational growth and the cost of funding that growth. The substantial increase in NOPAT by 2022 was insufficient to overcome the combined effect of a 44% increase in the cost of capital and a 26% increase in invested capital since 2018.
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Net Operating Profit after Taxes (NOPAT)
United Rentals Inc., NOPAT calculation
US$ in millions
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 deferred revenue.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 853 × 3.70% = 32
6 2022 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 477 × 21.00% = 100
7 Addition of after taxes interest expense to net income.
- Net Income Trends
- The net income demonstrated a generally positive trajectory over the five-year period. Starting at 1,096 million US dollars in 2018, it exhibited a moderate increase in 2019 to 1,174 million. However, in 2020, there was a noticeable decline to 890 million, which may reflect operational or market challenges during that year. In the following years, the net income recovered robustly, rising to 1,386 million in 2021 and reaching a significant peak of 2,105 million in 2022. This indicates a strong improvement in profitability towards the end of the period under review.
- Net Operating Profit After Taxes (NOPAT) Trends
- The NOPAT figures show a similar pattern to net income but with generally higher absolute values. Beginning at 1,784 million US dollars in 2018, NOPAT increased to 1,925 million in 2019. Like net income, it saw a decline in 2020 down to 1,323 million, suggesting a potential operational impact consistent with that year's challenges. The subsequent years saw substantial recovery and growth, with NOPAT rising sharply to 2,048 million in 2021 and further to 3,088 million in 2022. This indicates enhanced operational efficiency and profitability after tax, reflecting strong business performance in the latter years.
- Comparative Insights
- Both net income and NOPAT experienced a dip in 2020, likely due to external or internal disruptions affecting the company’s financial results. Despite this setback, the company demonstrated robust recovery and growth in 2021 and 2022, with both metrics exceeding prior peak levels. The growth in NOPAT outpaces that of net income, which could imply improved operational profitability and tax efficiency. Overall, the data reflects resilience and improving profitability over the five-year period, culminating in significantly stronger financial outcomes in the most recent year.
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Cash Operating Taxes
United Rentals Inc., cash operating taxes calculation
US$ in millions
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).
- Provision for Income Taxes
- The provision for income taxes showed a general upward trend over the analyzed period. Starting at $380 million in 2018, it decreased to $340 million in 2019 and further declined to $249 million in 2020. However, from 2020 onward, there was a notable increase, reaching $460 million in 2021 and continuing to rise to $697 million in 2022. This suggests fluctuations in taxable income or changes in tax planning strategies, with a significant rise in the last two years under review.
- Cash Operating Taxes
- Cash operating taxes exhibited considerable volatility throughout the years. Beginning at $228 million in 2018, the amount increased to $279 million in 2019, followed by a sharp rise to $517 million in 2020. Subsequently, cash operating taxes decreased to $287 million in 2021 and further dropped slightly to $260 million in 2022. The spike in 2020 may reflect extraordinary tax payments or adjustments, whereas the reduction post-2020 indicates normalization or timing differences in tax payments relative to income.
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Invested Capital
United Rentals Inc., invested capital calculation (financing approach)
US$ in millions
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 deferred revenue.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
- Total Reported Debt & Leases
- The total reported debt and leases showed a decreasing trend from 12,395 million USD at the end of 2018 to 10,409 million USD by the end of 2020. Following that decline, there was a slight increase in 2021 to 10,508 million USD and a more pronounced rise to 12,223 million USD by the end of 2022. Overall, debt levels decreased initially but exhibited an upward reversal in the last two years.
- Stockholders’ Equity
- Stockholders’ equity progressively increased throughout the five-year period, rising from 3,403 million USD in 2018 to 7,062 million USD in 2022. The growth was consistent year-on-year, with the most substantial increments occurring in 2021 and 2022. This indicates a strengthening of the equity base and suggests enhanced retained earnings or equity issuance over time.
- Invested Capital
- Invested capital experienced fluctuations, starting at 17,871 million USD in 2018 and peaking at 18,200 million USD in 2019 before declining to the lowest point of 17,027 million USD in 2020. From 2020 onward, there was a recovery and marked growth to 19,019 million USD in 2021 and further to 22,485 million USD in 2022. The overall trend after 2020 reflects expanding invested capital, which may result from increased asset acquisition or other investments.
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Cost of Capital
United Rentals Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 27,222) | 27,222) | ÷ | 38,876) | = | 0.70 | 0.70 | × | 27.64% | = | 19.35% | ||
| Debt3 | 10,801) | 10,801) | ÷ | 38,876) | = | 0.28 | 0.28 | × | 4.98% × (1 – 21.00%) | = | 1.09% | ||
| Operating lease liability4 | 853) | 853) | ÷ | 38,876) | = | 0.02 | 0.02 | × | 3.70% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 38,876) | 1.00 | 20.51% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
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 | 22,289) | 22,289) | ÷ | 33,104) | = | 0.67 | 0.67 | × | 27.64% | = | 18.61% | ||
| Debt3 | 9,992) | 9,992) | ÷ | 33,104) | = | 0.30 | 0.30 | × | 3.59% × (1 – 21.00%) | = | 0.86% | ||
| Operating lease liability4 | 823) | 823) | ÷ | 33,104) | = | 0.02 | 0.02 | × | 3.50% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 33,104) | 1.00 | 19.53% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
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 | 17,059) | 17,059) | ÷ | 27,973) | = | 0.61 | 0.61 | × | 27.64% | = | 16.85% | ||
| Debt3 | 10,187) | 10,187) | ÷ | 27,973) | = | 0.36 | 0.36 | × | 3.92% × (1 – 21.00%) | = | 1.13% | ||
| Operating lease liability4 | 727) | 727) | ÷ | 27,973) | = | 0.03 | 0.03 | × | 4.20% × (1 – 21.00%) | = | 0.09% | ||
| Total: | 27,973) | 1.00 | 18.07% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
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 | 11,324) | 11,324) | ÷ | 23,884) | = | 0.47 | 0.47 | × | 27.64% | = | 13.10% | ||
| Debt3 | 11,849) | 11,849) | ÷ | 23,884) | = | 0.50 | 0.50 | × | 4.59% × (1 – 21.00%) | = | 1.80% | ||
| Operating lease liability4 | 711) | 711) | ÷ | 23,884) | = | 0.03 | 0.03 | × | 4.70% × (1 – 21.00%) | = | 0.11% | ||
| Total: | 23,884) | 1.00 | 15.01% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
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 | 9,234) | 9,234) | ÷ | 21,160) | = | 0.44 | 0.44 | × | 27.64% | = | 12.06% | ||
| Debt3 | 11,277) | 11,277) | ÷ | 21,160) | = | 0.53 | 0.53 | × | 4.93% × (1 – 21.00%) | = | 2.08% | ||
| Operating lease liability4 | 648) | 648) | ÷ | 21,160) | = | 0.03 | 0.03 | × | 3.18% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 21,160) | 1.00 | 14.21% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
United Rentals Inc., 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 millions) | ||||||
| Economic profit1 | (1,523) | (1,667) | (1,754) | (807) | (756) | |
| Invested capital2 | 22,485) | 19,019) | 17,027) | 18,200) | 17,871) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -6.77% | -8.77% | -10.30% | -4.43% | -4.23% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -20.41% | -19.02% | — | — | — | |
| Caterpillar Inc. | -6.38% | -5.78% | — | — | — | |
| Eaton Corp. plc | -9.70% | -9.31% | — | — | — | |
| GE Aerospace | -13.77% | -18.68% | — | — | — | |
| Honeywell International Inc. | -3.00% | -1.91% | — | — | — | |
| Lockheed Martin Corp. | 14.50% | 15.48% | — | — | — | |
| RTX Corp. | -4.53% | -4.01% | — | — | — | |
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 × -1,523 ÷ 22,485 = -6.77%
4 Click competitor name to see calculations.
The financial trajectory from 2018 to 2022 is characterized by a persistent failure to generate positive economic value, as economic profit remained negative throughout the five-year period. A severe contraction in performance occurred in 2020, followed by a gradual trend toward recovery in the subsequent years.
- Economic Profit Trends
- Economic profit demonstrated a moderate decline between 2018 and 2019, before experiencing a sharp deterioration to a low of negative 1,754 million US dollars in 2020. Since that trough, a consistent recovery trend is observed, with the deficit narrowing to negative 1,667 million US dollars in 2021 and further improving to negative 1,523 million US dollars by the end of 2022.
- Invested Capital Dynamics
- Invested capital remained relatively stable from 2018 to 2020, with a slight contraction observed in 2020 where it reached 17,027 million US dollars. However, a significant expansion of the capital base occurred in the final two years, rising to 19,019 million US dollars in 2021 and reaching 22,485 million US dollars in 2022. This indicates a substantial increase in resource deployment despite the ongoing negative economic profit.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative for the duration of the analyzed period, reflecting a return on invested capital that did not exceed the cost of that capital. The ratio reached its most adverse level in 2020 at negative 10.30%. From 2021 onward, a steady improvement is evident, with the ratio ascending to negative 8.77% in 2021 and negative 6.77% in 2022. This upward movement suggests a gradual reduction in the gap between the return on capital and the cost of capital.
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Economic Profit Margin
United Rentals Inc., 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 millions) | ||||||
| Economic profit1 | (1,523) | (1,667) | (1,754) | (807) | (756) | |
| Revenues | 11,642) | 9,716) | 8,530) | 9,351) | 8,047) | |
| Add: Increase (decrease) in deferred revenue | 48) | 32) | (4) | (1) | 10) | |
| Adjusted revenues | 11,690) | 9,748) | 8,526) | 9,350) | 8,057) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -13.03% | -17.10% | -20.57% | -8.63% | -9.38% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.59% | -15.10% | — | — | — | |
| Caterpillar Inc. | -6.18% | -6.67% | — | — | — | |
| Eaton Corp. plc | -14.39% | -13.98% | — | — | — | |
| GE Aerospace | -12.49% | -18.86% | — | — | — | |
| Honeywell International Inc. | -3.95% | -2.67% | — | — | — | |
| Lockheed Martin Corp. | 5.85% | 6.61% | — | — | — | |
| RTX Corp. | -7.43% | -6.96% | — | — | — | |
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 revenues
= 100 × -1,523 ÷ 11,690 = -13.03%
3 Click competitor name to see calculations.
An analysis of economic profitability between 2018 and 2022 reveals a consistent trend of negative economic profit, indicating that the company did not generate returns exceeding its cost of capital during this five-year period. While adjusted revenues demonstrated an overall upward trajectory, peaking at 11,690 million US dollars in 2022, this growth in scale was not sufficient to transition the company to a positive economic value added position.
- Economic Profit Volatility
- Economic profit experienced a severe deterioration in 2020, falling to -1,754 million US dollars from -807 million US dollars in 2019. Following this trough, a moderate recovery trend was observed, with economic losses narrowing to -1,667 million US dollars in 2021 and further improving to -1,523 million US dollars by the end of 2022.
- Economic Profit Margin Trends
- The economic profit margin exhibited significant fluctuations, reaching a period low of -20.57% in 2020. A steady recovery followed this decline, with the margin improving to -17.10% in 2021 and -13.03% in 2022, although it remained lower than the 2018-2019 range of -9.38% to -8.63%.
- Revenue Correlation and Capital Efficiency
- Adjusted revenues grew from 8,057 million US dollars in 2018 to 11,690 million US dollars in 2022. Despite this substantial revenue expansion, the persistence of negative economic profit suggests that the increase in operational scale did not immediately offset the capital charges associated with the business. However, the narrowing of the economic profit margin from 2020 to 2022 indicates an improving trend in capital efficiency relative to revenue generation.
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