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 – 20.48% × 22,485 = -1,517
The financial performance between 2018 and 2022 is characterized by a persistent failure to achieve positive economic profit, despite a significant recovery in operational earnings toward the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- Operational profitability exhibited volatility, with a notable decline in 2020 to 1,323 million US$ before accelerating to 3,088 million US$ by 2022. This represents a substantial increase in nominal earnings capability following the 2020 trough.
- Cost of Capital
- A consistent upward trajectory in the cost of capital is observed, rising from 14.20% in 2018 to 20.48% in 2022. This steady increase indicates a rising hurdle rate for investments and increased costs associated with financing the capital base.
- Invested Capital
- Invested capital remained relatively stable between 2018 and 2020, followed by a period of expansion, reaching 22,485 million US$ by 2022. The growth in invested capital suggests a strategic increase in asset acquisition or operational scaling.
- Economic Profit
- Economic profit remained negative throughout the entire five-year period, indicating that the return on invested capital did not exceed the cost of capital. The deficit peaked in 2020 at -1,750 million US$, coinciding with the lowest NOPAT and a sharp rise in the cost of capital. Although economic profit improved to -1,517 million US$ by 2022, the company continues to destroy economic value despite the growth in operational profits.
The divergence between the growth in NOPAT and the continued negative economic profit is primarily driven by the concurrent increase in both the cost of capital and the total invested capital base. The rising cost of capital effectively neutralized the operational gains achieved between 2021 and 2022, preventing the company from reaching a positive economic profit threshold.
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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 | × | 27.60% | = | 19.33% | ||
| 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 | 20.48% | ||||||||||
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 | × | 27.60% | = | 18.58% | ||
| 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 | 19.51% | ||||||||||
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 | × | 27.60% | = | 16.83% | ||
| 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 | 18.04% | ||||||||||
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 | × | 27.60% | = | 13.09% | ||
| 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 | 14.99% | ||||||||||
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 | × | 27.60% | = | 12.04% | ||
| 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 | 14.20% | ||||||||||
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 | (1,517) | (1,662) | (1,750) | (804) | (753) | |
| Invested capital2 | 22,485) | 19,019) | 17,027) | 18,200) | 17,871) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -6.75% | -8.74% | -10.28% | -4.42% | -4.21% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -20.46% | -19.06% | — | — | — | |
| Caterpillar Inc. | -6.38% | -5.79% | — | — | — | |
| Eaton Corp. plc | -9.76% | -9.37% | — | — | — | |
| GE Aerospace | -13.79% | -18.70% | — | — | — | |
| Honeywell International Inc. | -3.09% | -2.00% | — | — | — | |
| Lockheed Martin Corp. | 14.31% | 15.29% | — | — | — | |
| RTX Corp. | -4.69% | -4.16% | — | — | — | |
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 × -1,517 ÷ 22,485 = -6.75%
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a consistent failure to generate economic value, as evidenced by negative economic profit and a negative economic spread ratio throughout the period. While a significant deterioration occurred in 2020, a gradual recovery trend is observable in the subsequent two years, although the company remained unable to exceed its cost of capital.
- Economic Profit Trends
- Economic profit remained negative for the entire five-year duration. A moderate increase in losses was noted between 2018 and 2019, moving from -753 million USD to -804 million USD. A severe decline occurred in 2020, with losses peaking at -1,750 million USD. From 2021 onward, a steady recovery trend emerged, with losses narrowing to -1,662 million USD in 2021 and -1,517 million USD by the end of 2022.
- Invested Capital Evolution
- Invested capital exhibited relative stability between 2018 and 2020, fluctuating between 17,027 million USD and 18,200 million USD. However, a period of significant capital expansion began in 2021, with invested capital rising to 19,019 million USD and reaching a peak of 22,485 million USD in 2022. This indicates a substantial increase in the capital base deployed during the latter part of the period.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative, confirming that the return on invested capital did not cover the cost of that capital. The ratio shifted from -4.21% in 2018 to -4.42% in 2019, followed by a sharp drop to -10.28% in 2020, marking the lowest point of economic efficiency. Since 2020, the ratio has steadily improved, ascending to -8.74% in 2021 and -6.75% in 2022, suggesting an incremental improvement in the relationship between operating returns and the cost of capital despite the ongoing negative spread.
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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 | (1,517) | (1,662) | (1,750) | (804) | (753) | |
| 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 | -12.98% | -17.05% | -20.52% | -8.60% | -9.34% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.62% | -15.14% | — | — | — | |
| Caterpillar Inc. | -6.18% | -6.67% | — | — | — | |
| Eaton Corp. plc | -14.47% | -14.06% | — | — | — | |
| GE Aerospace | -12.51% | -18.88% | — | — | — | |
| Honeywell International Inc. | -4.08% | -2.79% | — | — | — | |
| Lockheed Martin Corp. | 5.77% | 6.53% | — | — | — | |
| RTX Corp. | -7.69% | -7.22% | — | — | — | |
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 × -1,517 ÷ 11,690 = -12.98%
3 Click competitor name to see calculations.
The analysis of economic value added from 2018 through 2022 reveals a persistent state of negative economic profit, indicating that the return on invested capital remained below the cost of capital throughout the observed period. While a significant deterioration occurred in 2020, a gradual recovery trend is evident in the subsequent two years.
- Economic Profit Trends
- Economic profit remained consistently negative, with a sharp decline observed in 2020 when the figure dropped to negative 1,750 million US dollars. Following this trough, the losses narrowed incrementally, reaching negative 1,662 million US dollars in 2021 and negative 1,517 million US dollars in 2022. Despite this improvement, the economic profit in 2022 remained substantially lower than the negative 753 million US dollars recorded in 2018.
- Adjusted Revenue Trajectory
- Revenues demonstrated an overall growth pattern, increasing from 8,057 million US dollars in 2018 to 11,690 million US dollars by the end of 2022. A temporary contraction occurred in 2020, where revenues fell to 8,526 million US dollars, coinciding with the period of maximum economic profit loss. The period between 2021 and 2022 saw the most significant expansion, with revenues growing by nearly 2 billion US dollars in a single year.
- Economic Profit Margin Analysis
- The economic profit margin experienced high volatility, reaching a nadir of negative 20.52% in 2020. This represented a significant deterioration from the negative 8.60% margin observed in 2019. A steady recovery trend followed, with the margin improving to negative 17.05% in 2021 and further to negative 12.98% in 2022. Although the margin is trending upward, it has not yet returned to the levels seen in 2018 and 2019.
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