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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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Valero Energy Corp. pages available for free this week:
- Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Book Value (P/BV) since 2005
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Economic Profit
12 months ended: | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | |
---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | ||||||
Cost of capital2 | ||||||
Invested capital3 | ||||||
Economic profit4 |
Based on: 10-K (reporting date: 2023-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT shows significant volatility over the periods analyzed. It starts at 4,429 million in 2019, declines sharply to a negative value of -1,650 million in 2020, indicating a notable downturn in profitability. This is followed by a strong recovery in 2021 to 5,561 million and an even more pronounced increase reaching 13,520 million in 2022. However, the value decreases again in 2023 to 7,868 million, suggesting some challenges or reduced operational efficiency in the final year.
- Cost of Capital
- The cost of capital remains relatively stable but shows an upward trend from 15.15% in 2019 decreasing slightly to 13.85% in 2020, then rising again to 14.6% in 2021, with a further increase to 16.68% in 2022. The rate decreases marginally to 16.51% in 2023. This indicates rising capital costs particularly from 2021 to 2022, which may impact investment decisions and valuation.
- Invested Capital
- Invested capital exhibits a steady upward trajectory throughout the period. It increases from 40,757 million in 2019 to 40,966 million in 2020, then continues to grow to 44,526 million in 2021, followed by a rise to 49,772 million in 2022 and further to 51,119 million in 2023. This consistent growth suggests ongoing investment in assets or operations.
- Economic Profit
- Economic profit reflects substantial fluctuations with negative values in most years except 2022. The figure starts at -1,748 million in 2019, worsens significantly to -7,322 million in 2020, then improves to -940 million in 2021. A positive peak of 5,218 million is recorded in 2022, indicating the company generated value above its cost of capital for that year. However, economic profit turns negative again in 2023 at -574 million, signaling a return to value destruction relative to the invested capital and cost of capital.
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2023-12-31), 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).
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 equity equivalents to net income (loss) attributable to Valero Energy Corporation stockholders.
5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2023 Calculation
Tax benefit of interest and debt expense, net of capitalized interest = Adjusted interest and debt expense, net of capitalized interest × Statutory income tax rate
= × 21.00% =
7 Addition of after taxes interest expense to net income (loss) attributable to Valero Energy Corporation stockholders.
- Net Income (Loss) Attributable to Stockholders
- The net income experienced a significant decline in the year ending 2020, moving from a positive 2,422 million US dollars in 2019 to a negative 1,421 million US dollars. This was followed by a recovery period, with net income rising to 930 million US dollars in 2021. The company then showed strong profitability in 2022, reaching 11,528 million US dollars, before seeing a decrease to 8,835 million US dollars in 2023. Overall, this pattern indicates volatility with a substantial rebound post-2020.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT data mirrors the trends seen in net income, starting at 4,429 million US dollars in 2019 and dropping to negative 1,650 million US dollars in 2020. There was a pronounced recovery in 2021, with NOPAT increasing to 5,561 million US dollars. The highest value in the series occurred in 2022, with 13,520 million US dollars, followed by a reduction to 7,868 million US dollars in 2023. This fluctuation highlights a similar pattern of operational profitability impact and recovery as observed in net income.
Cash Operating Taxes
Based on: 10-K (reporting date: 2023-12-31), 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).
The analysis of the annual financial data reveals significant fluctuations in the income tax expense (benefit) and cash operating taxes over the five-year period.
- Income Tax Expense (Benefit)
- The income tax expense exhibited a notable negative value in 2020, reaching a benefit of -$903 million, which contrasts sharply with the positive expense of $702 million in 2019. Following this period, the tax expense rose to $255 million in 2021, before surging substantially to $3,428 million in 2022. In 2023, this figure decreased somewhat but remained elevated at $2,619 million, indicating a return to significant tax liabilities compared to the earlier years.
- Cash Operating Taxes
- Cash operating taxes mirrored the trend seen in the income tax expense, with a negative outflow of -$931 million in 2020 compared to $577 million in 2019. Subsequently, there was a marked increase to $519 million in 2021, which escalated dramatically to $3,508 million in 2022. In the most recent year, 2023, cash operating taxes declined slightly to $2,654 million, but still remained considerably higher than pre-2020 levels.
Overall, the data indicates a period of tax benefit in 2020 followed by a consistent and substantial increase in tax expenses and cash operating taxes in the subsequent years. The sharp rise in both metrics during 2022 and 2023 suggests changes in earnings, tax policies, or other factors impacting the company's tax payable status, resulting in a significantly higher cash outflow related to taxes despite the decrease from the 2022 peak.
Invested Capital
Based on: 10-K (reporting date: 2023-12-31), 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).
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 equity equivalents to total Valero Energy Corporation stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
- Total reported debt & leases
- The total reported debt and leases exhibited a rising trend from 2019 to 2020, increasing from $10,962 million to $15,847 million. Subsequently, there was a consistent decline over the next three years, with figures decreasing to $15,125 million in 2021, then dropping more significantly to $12,722 million in 2022, and further to $12,637 million by the end of 2023. This indicates a period of increased leverage followed by a notable reduction in debt levels.
- Total Valero Energy Corporation stockholders’ equity
- Stockholders' equity showed a downward trajectory between 2019 and 2021, falling from $21,803 million to $18,430 million. However, a reversal occurred in 2022 when equity increased sharply to $23,561 million and continued to grow substantially to $26,346 million in 2023. This pattern suggests an initial period of equity erosion followed by a recovery and strengthening of the equity base.
- Invested capital
- Invested capital demonstrated a mostly steady upward movement over the five-year span. Starting at $40,757 million in 2019, it slightly increased in 2020 to $40,966 million, then advanced more markedly to $44,526 million in 2021. The growth trend continued with an increase to $49,772 million in 2022, reaching $51,119 million in 2023. This represents ongoing investment and capital deployment over the period.
- Summary
- Overall, the financial data reflect a phase of increased debt leverage in 2020, followed by deliberate deleveraging from 2021 onward. Concurrently, stockholders’ equity declined in the early years but rebounded strongly in the latest two years, indicating improved financial health or retained earnings accumulation. The continuous growth in invested capital suggests sustained investment efforts, aligning with the strengthening equity position and reduced reliance on debt financing during the latter years.
Cost of Capital
Valero Energy Corp., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Invested capital2 | ||||||
Performance Ratio | ||||||
Economic spread ratio3 | ||||||
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
Chevron Corp. | ||||||
ConocoPhillips | ||||||
Exxon Mobil Corp. | ||||||
Occidental Petroleum Corp. |
Based on: 10-K (reporting date: 2023-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit demonstrated significant volatility during the period. It started with a negative value of -1748 million US dollars in 2019, sharply declined to -7322 million in 2020, indicating a considerable decrease in profitability. In 2021, the economic profit improved substantially to -940 million, and in 2022, it shifted to a positive figure of 5218 million, reflecting a strong recovery and value creation. However, in 2023, the economic profit reverted to a negative value of -574 million, suggesting a decrease in economic value generated relative to the invested capital.
- Invested Capital
- The invested capital showed a steady and continuous increase across the periods analyzed. Starting at 40,757 million US dollars in 2019, it rose modestly to 40,966 million in 2020. The upward trend continued with more pronounced growth in 2021 at 44,526 million, followed by increases to 49,772 million in 2022 and 51,119 million in 2023. This indicates consistent expansion or accumulation of capital resources invested in the business.
- Economic Spread Ratio
- The economic spread ratio exhibited pronounced fluctuations over the years. It was negative throughout most of the period, indicating returns below the cost of capital, starting at -4.29% in 2019 and deteriorating further to -17.87% in 2020, which aligns with the sharp drop in economic profit. In 2021, the ratio improved to -2.11%, and in 2022, it turned positive at 10.48%, suggesting a period of efficient capital usage and enhanced value creation relative to cost. However, this positive trend was not sustained, as the ratio fell back to a negative -1.12% in 2023, consistent with the decrease in economic profit observed for that year.
Economic Profit Margin
Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Revenues, includes excise taxes on sales by certain of foreign operations | ||||||
Performance Ratio | ||||||
Economic profit margin2 | ||||||
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
Chevron Corp. | ||||||
ConocoPhillips | ||||||
Exxon Mobil Corp. | ||||||
Occidental Petroleum Corp. |
Based on: 10-K (reporting date: 2023-12-31), 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).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues, includes excise taxes on sales by certain of foreign operations
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit has experienced significant fluctuations over the observed periods. Starting at a negative value of -1,748 million US dollars in 2019, it sharply declined to -7,322 million in 2020. In 2021, the economic profit showed improvement, reducing the loss to -940 million. The trend reversed positively in 2022, achieving a substantial economic profit of 5,218 million. However, this improvement did not sustain, and in 2023, the economic profit reverted to a negative value of -574 million.
- Revenues
- Revenues, including excise taxes on sales from certain foreign operations, showed considerable variability. There was a notable drop from 108,324 million US dollars in 2019 to 64,912 million in 2020. This was followed by a strong recovery and growth phase, with revenues increasing to 113,977 million in 2021 and then surging to 176,383 million in 2022. In 2023, revenues declined to 144,766 million, though they remained higher than pre-2021 levels.
- Economic Profit Margin
- The economic profit margin mirrored the trends observed in economic profit. It started at -1.61% in 2019, deteriorated sharply to -11.28% in 2020, indicating substantial losses relative to revenues. By 2021, the margin improved to -0.82%, narrowing the deficit. The year 2022 marked a positive margin of 2.96%, reflecting profitability. In 2023, the margin fell again to -0.4%, signaling a slight loss.
- Overall Insights
- The data reveals a period of volatility with significant impacts on profitability and revenues. The year 2020 was marked by severe economic challenges, resulting in steep declines in both economic profit and revenues. Recovery took hold in subsequent years, peaking in 2022 with positive economic profit and margin. Nevertheless, the slight downturn in 2023 suggests some instability or external factors influencing a return to marginal losses despite relatively strong revenue figures. The correlation between revenues and economic profitability indicates a sensitivity of economic profit to revenue fluctuations, with periods of growth strongly supporting profitability improvement.