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 States Steel Corp., 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
= 3,060 – 21.31% × 12,723 = 349
The financial performance from 2018 to 2022 is characterized by extreme volatility in operational profitability and a consistent expansion of the capital base, resulting in a fluctuating capacity to generate economic value.
- Net Operating Profit After Taxes (NOPAT)
- A significant oscillation in NOPAT is observed, transitioning from a positive 893 million US$ in 2018 to deep losses in 2019 and 2020, reaching a low of -1,095 million US$. This downward trend reversed sharply in 2021 with a peak of 4,449 million US$, followed by a moderation to 3,060 million US$ in 2022. This pattern indicates a high sensitivity to market cycles or operational disruptions during the 2019-2020 period, followed by a strong recovery.
- Invested Capital and Cost of Capital
- Invested capital grew monotonically throughout the period, rising from 6,762 million US$ in 2018 to 12,723 million US$ in 2022. The most substantial increase occurred between 2020 and 2021, where capital expanded by approximately 43%. Simultaneously, the cost of capital exhibited a U-shaped trend; after dropping to 12.49% in 2019, it rose steadily to 21.31% by 2022, indicating an increasing hurdle rate that the company must overcome to create value.
- Economic Profit and Value Creation
- Economic profit remained negative from 2018 through 2020, indicating a period of value destruction where NOPAT failed to cover the cost of invested capital. The deficit peaked in 2020 at -2,582 million US$. A pivotal shift occurred in 2021, with economic profit turning positive at 1,989 million US$, signaling the commencement of value creation. However, by 2022, economic profit declined sharply to 349 million US$, driven by the combination of reduced NOPAT and a rising cost of capital acting upon a larger capital base.
Overall, while the company successfully transitioned from value destruction to value creation by 2021, the sharp decline in economic profit in 2022 suggests that the margins of value creation are narrowing as capital costs increase and operational profits normalize.
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Net Operating Profit after Taxes (NOPAT)
United States Steel Corp., NOPAT calculation
US$ 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 doubtful accounts.
3 Addition of increase (decrease) in accrued liabilities for restructuring and other cost reduction programs.
4 Addition of increase (decrease) in equity equivalents to net earnings (loss) attributable to United States Steel Corporation.
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 154 × 6.73% = 10
6 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 169 × 21.00% = 36
7 Addition of after taxes interest expense to net earnings (loss) attributable to United States Steel Corporation.
8 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 44 × 21.00% = 9
9 Elimination of after taxes investment income.
The financial performance from 2018 to 2022 is characterized by significant volatility, exhibiting a sharp contraction followed by a substantial recovery. Both net earnings and net operating profit after taxes (NOPAT) followed a similar trajectory, transitioning from profitability to significant losses before reaching peak levels in 2021.
- Profitability Trajectory and Volatility
- A period of severe decline is observed between 2018 and 2020. Net earnings fell from 1,115 million USD in 2018 to a deficit of 1,165 million USD by 2020. Simultaneously, NOPAT shifted from 893 million USD in 2018 to a loss of 1,095 million USD in 2020. This indicates a substantial erosion of operational profitability during this three-year window.
- Operational Recovery and Peak Performance
- A rapid and aggressive recovery occurred in 2021, where NOPAT reached a five-year peak of 4,449 million USD. This represents a significant reversal of the previous losses. While 2022 saw a moderation in these figures, NOPAT remained strong at 3,060 million USD, maintaining a level considerably higher than the 2018 baseline.
- Comparison Between NOPAT and Net Earnings
- In the latter part of the analyzed period, NOPAT consistently exceeded net earnings. In 2021, NOPAT was 4,449 million USD compared to net earnings of 4,174 million USD, and in 2022, NOPAT stood at 3,060 million USD against net earnings of 2,524 million USD. This divergence suggests that operational profitability was stronger than the final bottom-line results, likely due to the impact of non-operating expenses, interest, or tax considerations.
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Cash Operating Taxes
United States Steel Corp., 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).
The financial period from 2018 to 2022 is characterized by significant volatility in tax-related expenditures, transitioning from periods of tax benefits to substantial tax outflows. A notable escalation in both the income tax provision and cash operating taxes occurs in the final two years of the analyzed period, signaling a shift in the company's taxable income profile.
- Cash Operating Taxes Trend
- Cash tax outflows remained relatively low and unstable between 2018 and 2020, reaching a minimum of 6 million US$ in 2019. However, a sharp increase is evident starting in 2021, where outflows rose to 290 million US$, followed by a slight moderation to 260 million US$ in 2022. This represents a substantial increase in the liquidity required to meet tax obligations compared to the initial three-year period.
- Income Tax Provision Volatility
- The income tax provision exhibits a fluctuating pattern, alternating between tax benefits in 2018 (303 million US$) and 2020 (142 million US$) and provisions in 2019 (178 million US$) and 2021 (170 million US$). This volatility culminates in a significant peak in 2022, with the provision reaching 735 million US$, indicating a sharp increase in reported taxable income for that fiscal year.
- Analysis of Accrual versus Cash Tax Impact
- A divergence is observed in the early years, specifically 2018 and 2020, where negative tax provisions (benefits) occurred alongside positive cash tax payments. This indicates a disconnect between book tax accounting and actual cash disbursements. By 2021 and 2022, both metrics trend upward simultaneously, reflecting a period of increased operational profitability and a corresponding rise in actual tax payments.
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Invested Capital
United States Steel Corp., invested capital calculation (financing approach)
US$ 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 accrued liabilities for restructuring and other cost reduction programs.
5 Addition of equity equivalents to total United States Steel Corporation stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in process.
The total invested capital of United States Steel Corp. exhibited a significant upward trajectory between 2018 and 2022, increasing from 6,762 million USD to 12,723 million USD. This represents a total growth of approximately 88% over the analyzed period, with the most pronounced acceleration occurring between 2020 and 2021.
- Debt and Lease Obligations
- A period of expansion in total reported debt and leases was observed from 2018 to 2020, with obligations rising from 2,624 million USD to a peak of 5,109 million USD. This trend reversed in 2021, when debt levels declined to 4,085 million USD, followed by a period of stabilization ending at 4,131 million USD in 2022.
- Stockholders' Equity
- Equity experienced a marginal decline from 4,202 million USD in 2018 to 3,786 million USD in 2020. A substantial inflection point occurred in 2021, where equity surged to 9,010 million USD, eventually reaching 10,218 million USD by the end of 2022. This indicates a significant strengthening of the equity base during the latter two years of the period.
- Capital Structure Dynamics
- The composition of invested capital shifted fundamentally over the five-year horizon. Initial growth in invested capital from 2018 to 2020 was primarily driven by increased debt. Conversely, the growth observed in 2021 and 2022 was driven almost exclusively by the expansion of stockholders' equity, resulting in a lower reliance on debt relative to the total capital employed by the end of 2022.
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Cost of Capital
United States Steel Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 6,809) | 6,809) | ÷ | 11,054) | = | 0.62 | 0.62 | × | 31.57% | = | 19.44% | ||
| Debt3 | 4,091) | 4,091) | ÷ | 11,054) | = | 0.37 | 0.37 | × | 6.12% × (1 – 21.00%) | = | 1.79% | ||
| Operating lease liability4 | 154) | 154) | ÷ | 11,054) | = | 0.01 | 0.01 | × | 6.73% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 11,054) | 1.00 | 21.31% | ||||||||||
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 | 6,179) | 6,179) | ÷ | 10,941) | = | 0.56 | 0.56 | × | 31.57% | = | 17.83% | ||
| Debt3 | 4,568) | 4,568) | ÷ | 10,941) | = | 0.42 | 0.42 | × | 6.10% × (1 – 21.00%) | = | 2.01% | ||
| Operating lease liability4 | 194) | 194) | ÷ | 10,941) | = | 0.02 | 0.02 | × | 6.56% × (1 – 21.00%) | = | 0.09% | ||
| Total: | 10,941) | 1.00 | 19.93% | ||||||||||
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 | 4,331) | 4,331) | ÷ | 9,957) | = | 0.43 | 0.43 | × | 31.57% | = | 13.73% | ||
| Debt3 | 5,404) | 5,404) | ÷ | 9,957) | = | 0.54 | 0.54 | × | 7.89% × (1 – 21.00%) | = | 3.38% | ||
| Operating lease liability4 | 222) | 222) | ÷ | 9,957) | = | 0.02 | 0.02 | × | 7.45% × (1 – 21.00%) | = | 0.13% | ||
| Total: | 9,957) | 1.00 | 17.24% | ||||||||||
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 | 1,495) | 1,495) | ÷ | 5,374) | = | 0.28 | 0.28 | × | 31.57% | = | 8.78% | ||
| Debt3 | 3,642) | 3,642) | ÷ | 5,374) | = | 0.68 | 0.68 | × | 6.42% × (1 – 21.00%) | = | 3.44% | ||
| Operating lease liability4 | 237) | 237) | ÷ | 5,374) | = | 0.04 | 0.04 | × | 7.76% × (1 – 21.00%) | = | 0.27% | ||
| Total: | 5,374) | 1.00 | 12.49% | ||||||||||
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 | 3,970) | 3,970) | ÷ | 6,423) | = | 0.62 | 0.62 | × | 31.57% | = | 19.51% | ||
| Debt3 | 2,210) | 2,210) | ÷ | 6,423) | = | 0.34 | 0.34 | × | 6.65% × (1 – 21.00%) | = | 1.81% | ||
| Operating lease liability4 | 243) | 243) | ÷ | 6,423) | = | 0.04 | 0.04 | × | 6.65% × (1 – 21.00%) | = | 0.20% | ||
| Total: | 6,423) | 1.00 | 21.52% | ||||||||||
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 States Steel Corp., 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 | 349) | 1,989) | (2,582) | (1,100) | (562) | |
| Invested capital2 | 12,723) | 12,346) | 8,622) | 7,841) | 6,762) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 2.74% | 16.11% | -29.95% | -14.03% | -8.31% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Freeport-McMoRan Inc. | -6.10% | -2.63% | — | — | — | |
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 × 349 ÷ 12,723 = 2.74%
4 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by a period of significant value erosion followed by a sharp recovery and subsequent stabilization. The transition from negative economic profit to positive returns indicates a fundamental shift in the ability to generate returns exceeding the cost of capital.
- Economic Profit Trends
- A deteriorating trend occurred between 2018 and 2020, with losses widening from -562 million US$ to a peak deficit of -2,582 million US$. A substantial reversal occurred in 2021, where economic profit surged to 1,989 million US$, before moderating to 349 million US$ in 2022.
- Invested Capital Growth
- A consistent upward trajectory is observed in invested capital throughout the period. Capital increased from 6,762 million US$ in 2018 to 12,723 million US$ by 2022, representing a steady expansion of the capital base deployed over the five-year span.
- Economic Spread Ratio Performance
- The economic spread ratio exhibits extreme volatility, mirroring the fluctuations in economic profit. The ratio declined from -8.31% in 2018 to a trough of -29.95% in 2020, signaling a period of significant value destruction. A sharp correction followed in 2021, reaching a peak of 16.11%, which subsequently contracted to 2.74% in 2022.
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Economic Profit Margin
United States Steel Corp., 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 | 349) | 1,989) | (2,582) | (1,100) | (562) | |
| Net sales | 21,065) | 20,275) | 9,741) | 12,937) | 14,178) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 1.66% | 9.81% | -26.51% | -8.50% | -3.96% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Freeport-McMoRan Inc. | -9.71% | -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 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 349 ÷ 21,065 = 1.66%
3 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by significant volatility in value creation, shifting from a period of widening economic losses to a sharp recovery and subsequent margin compression.
- Economic Profit Trajectory
- A progressive decline in economic profit was observed from 2018 through 2020, with losses expanding from 562 million USD to a peak deficit of 2,582 million USD. This trend reversed abruptly in 2021, as the company pivoted to a positive economic profit of 1,989 million USD. By 2022, this figure decreased substantially to 349 million USD, although it remained in positive territory.
- Net Sales Volatility
- Revenue exhibited a marked U-shaped pattern. Net sales declined from 14,178 million USD in 2018 to a low of 9,741 million USD in 2020. A rapid recovery followed in 2021, with sales surging to 20,275 million USD and reaching 21,065 million USD by the end of 2022.
- Economic Profit Margin Dynamics
- The economic profit margin reflects extreme fluctuations, mirroring the volatility of net sales and absolute economic profit. The margin deteriorated from -3.96% in 2018 to a critical low of -26.51% in 2020, indicating that the cost of capital significantly exceeded returns. A substantial recovery occurred in 2021, with the margin peaking at 9.81%. However, by 2022, the margin compressed to 1.66%, suggesting a decrease in the efficiency of value creation despite the continued growth in net sales.
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