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 – 20.42% × 22,485 = -1,504
An analysis of the financial performance from 2018 to 2022 reveals a consistent failure to generate positive economic profit, indicating that the net operating profit after taxes (NOPAT) remained insufficient to cover the cost of the capital employed over the period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a volatile but generally upward trajectory. After an initial increase in 2019, a significant contraction occurred in 2020, where profit fell to 1,323 million US$. However, a strong recovery followed, with NOPAT rising to 3,088 million US$ by 2022, representing a substantial increase in operational profitability in the final two years of the period.
- Cost of Capital
- The cost of capital showed a continuous and steady increase throughout the five-year window. Starting at 14.16% in 2018, the rate climbed every year, reaching 20.42% by 2022. This rising trend indicates an increasing hurdle rate, making it progressively more difficult for the organization to achieve a positive economic value added.
- Invested Capital
- Invested capital remained relatively stable between 2018 and 2020, with a slight dip in 2020 to 17,027 million US$. Following this period, there was a marked expansion in the capital base, growing to 22,485 million US$ by 2022. This suggests an increase in investment in the asset base to support the growing NOPAT.
- Economic Profit Trends
- Economic profit remained negative for all five years, signifying that the company did not create economic value above its cost of capital. The deficit widened sharply in 2020, reaching a peak loss of 1,741 million US$, driven by the simultaneous decline in NOPAT and a spike in the cost of capital. While economic profit began to improve slightly in 2021 and 2022, ending at -1,504 million US$, the gap remains substantial due to the escalating cost of capital offsetting the gains in operational profit.
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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.
Financial performance between 2018 and 2022 is characterized by a period of steady growth, a significant contraction in 2020, and a subsequent rapid acceleration in profitability. Both Net operating profit after taxes (NOPAT) and Net income exhibit synchronized movements, indicating that operating performance is the primary driver of overall bottom-line results.
- NOPAT Performance Trends
- Net operating profit after taxes showed an initial increase from 1,784 million US$ in 2018 to 1,925 million US$ in 2019. A sharp decline occurred in 2020, with NOPAT falling to 1,323 million US$, representing a contraction of approximately 31%. However, a robust recovery followed, with NOPAT climbing to 2,048 million US$ in 2021 and reaching a peak of 3,088 million US$ by the end of 2022.
- Net Income Correlation
- Net income mirrored the trajectory of NOPAT, moving from 1,096 million US$ in 2018 to 1,174 million US$ in 2019, before dropping to 890 million US$ in 2020. The subsequent recovery was aggressive, with net income increasing to 1,386 million US$ in 2021 and doubling from 2020 levels to reach 2,105 million US$ in 2022.
- Operating Profitability Gap
- A consistent positive variance is observed between NOPAT and Net income throughout the five-year period. This gap suggests that non-operating expenses, such as interest payments on debt, consistently reduce the net profit available to shareholders relative to the core operating earnings. The spread widened significantly in 2022, where NOPAT exceeded Net income by 983 million US$, compared to a gap of 688 million US$ in 2018.
- Growth Acceleration
- The most significant period of growth occurred between 2020 and 2022. NOPAT grew by approximately 133% during this window, while Net income grew by approximately 136%. This accelerated trajectory indicates a strong post-2020 rebound in operational efficiency and revenue generation.
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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).
An analysis of the tax expenditures from 2018 to 2022 reveals a divergent relationship between the accounting provision for income taxes and the actual cash operating taxes paid. While the provision for income taxes follows a U-shaped trajectory with a steep upward climb in the latter years, cash operating taxes experienced a significant isolated spike in 2020 before stabilizing.
- Provision for Income Taxes Trend
- The provision for income taxes exhibited a gradual decline from 380 million USD in 2018 to a period low of 249 million USD in 2020. This trend reversed sharply starting in 2021, with the provision increasing to 460 million USD and further escalating to 697 million USD by 2022. This represents a substantial increase in the recognized tax expense on the income statement toward the end of the analyzed period.
- Cash Operating Taxes Volatility
- Cash operating taxes demonstrated a different pattern, characterized by a sharp increase peaking in 2020 at 517 million USD, which is more than double the 2018 level of 228 million USD. Following this peak, cash payments decreased significantly to 287 million USD in 2021 and further to 260 million USD in 2022, returning to a range similar to the 2018-2019 period.
- Comparative Variance and EVA Implications
- A notable inversion occurred in 2020, where cash operating taxes exceeded the provision for income taxes by 268 million USD. Conversely, by 2022, a wide gap emerged in the opposite direction, with the provision exceeding cash payments by 437 million USD. For the purposes of Economic Value Added (EVA) calculations, this variance indicates a significant difference between accounting tax expenses and actual cash outflows, suggesting the presence of substantial deferred tax movements or timing differences in tax settlements.
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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.
The capital base exhibits a general upward trajectory over the five-year period, characterized by a period of contraction in 2020 followed by rapid expansion through 2022. Total invested capital rose from 17,871 million USD in 2018 to 22,485 million USD by the end of 2022, representing a significant increase in the resources deployed to generate economic value.
- Invested Capital Volatility
- Invested capital remained relatively stable between 2018 and 2019 before experiencing a decline to 17,027 million USD in 2020. This contraction was followed by a sharp acceleration, with a 11.7% increase in 2021 and a further 18.2% increase in 2022, indicating an aggressive expansion of the asset base in the latter part of the period.
- Debt and Lease Dynamics
- Total reported debt and leases demonstrated a fluctuating trend, decreasing from 12,395 million USD in 2018 to a low of 10,409 million USD in 2020. While obligations remained stable in 2021, there was a significant increase to 12,223 million USD in 2022, suggesting a return to higher leverage to support the expanding capital base.
- Stockholders' Equity Expansion
- A consistent and linear growth pattern is observed in stockholders' equity, which more than doubled from 3,403 million USD in 2018 to 7,062 million USD in 2022. This steady accumulation of equity suggests strong retained earnings or capital injections, enhancing the company's solvency position over the analysis period.
- Capital Structure Composition
- The composition of invested capital shifted markedly toward equity funding. In 2018, equity represented approximately 19% of total invested capital; by 2022, this proportion increased to approximately 31%. This shift indicates a strategic transition toward a more equity-funded capital structure, which persists despite the recent increase in debt levels in the final year.
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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 | × | 27.52% | = | 19.27% | ||
| 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 | 20.42% | ||||||||||
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 | × | 27.52% | = | 18.53% | ||
| 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 | 19.45% | ||||||||||
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 | × | 27.52% | = | 16.78% | ||
| 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 | 17.99% | ||||||||||
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 | × | 27.52% | = | 13.05% | ||
| 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 | 14.96% | ||||||||||
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 | × | 27.52% | = | 12.01% | ||
| 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 | 14.16% | ||||||||||
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 | (1,504) | (1,652) | (1,741) | (797) | (746) | |
| Invested capital2 | 22,485) | 19,019) | 17,027) | 18,200) | 17,871) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -6.69% | -8.68% | -10.23% | -4.38% | -4.18% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Boeing Co. | -20.44% | -19.05% | — | — | — | |
| Caterpillar Inc. | -6.34% | -5.74% | — | — | — | |
| Eaton Corp. plc | -9.74% | -9.35% | — | — | — | |
| GE Aerospace | -13.77% | -18.68% | — | — | — | |
| Honeywell International Inc. | -3.10% | -2.01% | — | — | — | |
| Lockheed Martin Corp. | 14.24% | 15.22% | — | — | — | |
| RTX Corp. | -4.74% | -4.20% | — | — | — | |
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 × -1,504 ÷ 22,485 = -6.69%
4 Click competitor name to see calculations.
Between 2018 and 2022, a persistent trend of negative economic profit is observed, indicating that the cost of capital consistently exceeded the net operating profit after taxes. While a gradual recovery in the economic spread ratio is evident in the latter part of the period, the absolute economic profit remained significantly lower than the 2018 baseline.
- Economic Profit Trends
- Economic profit experienced a marked decline, falling from negative 746 million dollars in 2018 to a peak deficit of 1,741 million dollars in 2020. Following this low point, a steady but incomplete recovery occurred, with the deficit narrowing to 1,504 million dollars by the end of 2022.
- Invested Capital Growth
- Invested capital showed a general upward trajectory over the five-year period. After a slight contraction in 2020 to 17,027 million dollars, there was a substantial increase in capital deployment, reaching 22,485 million dollars by December 31, 2022. This indicates an expansion of the asset base during a period of negative economic value added.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative throughout the analysis period, confirming that the return on invested capital did not cover the weighted average cost of capital. The ratio deteriorated sharply from negative 4.18% in 2018 to negative 10.23% in 2020. However, a recovery trend followed, with the ratio improving to negative 6.69% by 2022, suggesting a narrowing gap between the company's returns and its 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 | (1,504) | (1,652) | (1,741) | (797) | (746) | |
| 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 | -12.87% | -16.94% | -20.42% | -8.52% | -9.26% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Boeing Co. | -15.61% | -15.13% | — | — | — | |
| Caterpillar Inc. | -6.14% | -6.62% | — | — | — | |
| Eaton Corp. plc | -14.45% | -14.04% | — | — | — | |
| GE Aerospace | -12.48% | -18.85% | — | — | — | |
| Honeywell International Inc. | -4.09% | -2.80% | — | — | — | |
| Lockheed Martin Corp. | 5.74% | 6.50% | — | — | — | |
| RTX Corp. | -7.77% | -7.30% | — | — | — | |
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 × -1,504 ÷ 11,690 = -12.87%
3 Click competitor name to see calculations.
Between 2018 and 2022, a consistent pattern of negative economic profit was observed, indicating that the returns generated did not exceed the cost of capital. Although adjusted revenues expanded over the period, the economic profit margin remained negative, exhibiting a significant downturn in 2020 before beginning a gradual recovery.
- Economic Profit Trends
- Economic profit remained negative throughout the five-year period. After relative stability between 2018 and 2019, a substantial increase in economic loss occurred in 2020, reaching -1,741 million USD. A gradual reduction in these losses followed, with the figure improving to -1,504 million USD by the end of 2022.
- Adjusted Revenue Performance
- Revenues demonstrated a general upward trend, growing from 8,057 million USD in 2018 to 11,690 million USD in 2022. A temporary contraction was noted in 2020, when revenues fell to 8,526 million USD, prior to a strong recovery in the subsequent two years.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit. The margin worsened significantly in 2020, dropping to -20.42%. Following this trough, the margin showed steady improvement, rising to -16.94% in 2021 and -12.87% in 2022, although it remained well below the break-even point.
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