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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.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Verizon Communications Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Net operating profit after taxes (NOPAT)¹	24,311	25,313	20,719	19,605	15,635
Cost of capital²	6.20%	6.12%	5.57%	5.13%	5.27%
Invested capital³	247,730	220,656	215,363	202,485	185,164

Economic profit⁴	8,950	11,805	8,728	9,209	5,870

Based on: 10-K (filing date: 2021-02-25), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2020 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 24,311 – 6.20% × 247,730 = 8,950

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Verizon Communications Inc.’s economic profit increased from 2018 to 2019 but then slightly decreased from 2019 to 2020 not reaching 2018 level.

Verizon Communications Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Net income attributable to Verizon	17,801	19,265	15,528	30,101	13,127
Deferred income tax expense (benefit)¹	1,553	1,232	389	(14,463)	(1,063)
Increase (decrease) in allowance for credit losses²	519	(32)	(174)	94	(37)
Increase (decrease) in equity equivalents³	2,072	1,200	215	(14,369)	(1,100)
Interest expense	4,247	4,730	4,833	4,733	4,376
Interest expense, operating lease liability⁴	752	866	912	641	536
Adjusted interest expense	4,999	5,596	5,745	5,374	4,912
Tax benefit of interest expense⁵	(1,050)	(1,175)	(1,206)	(1,881)	(1,719)
Adjusted interest expense, after taxes⁶	3,949	4,421	4,538	3,493	3,193
(Gain) loss on marketable securities	(9)	(1)	1	(24)	(42)
Interest income	(65)	(121)	(94)	(82)	(59)
Investment income, before taxes	(74)	(122)	(93)	(106)	(101)
Tax expense (benefit) of investment income⁷	16	26	20	37	35
Investment income, after taxes⁸	(58)	(96)	(73)	(69)	(66)
Net income (loss) attributable to noncontrolling interest	547	523	511	449	481
Net operating profit after taxes (NOPAT)	24,311	25,313	20,719	19,605	15,635

Based on: 10-K (filing date: 2021-02-25), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for credit losses.

³ Addition of increase (decrease) in equity equivalents to net income attributable to Verizon.

⁴ 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 21,485 × 3.50% = 752

⁵ 2020 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 4,999 × 21.00% = 1,050

⁶ Addition of after taxes interest expense to net income attributable to Verizon.

⁷ 2020 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 74 × 21.00% = 16

⁸ Elimination of after taxes investment income.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Verizon Communications Inc.’s NOPAT increased from 2018 to 2019 but then slightly decreased from 2019 to 2020.

Verizon Communications Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Income tax provision (benefit)	5,619	2,945	3,584	(9,956)	7,378
Less: Deferred income tax expense (benefit)	1,553	1,232	389	(14,463)	(1,063)
Add: Tax savings from interest expense	1,050	1,175	1,206	1,881	1,719
Less: Tax imposed on investment income	16	26	20	37	35
Cash operating taxes	5,100	2,863	4,382	6,351	10,125

Based on: 10-K (filing date: 2021-02-25), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Verizon Communications Inc.’s cash operating taxes decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.

Verizon Communications Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Debt maturing within one year	5,889	10,777	7,190	3,453	2,645
Long-term debt, excluding maturing within one year	123,173	100,712	105,873	113,642	105,433
Operating lease liability¹	21,485	21,654	22,236	17,801	15,327
Total reported debt & leases	150,547	133,143	135,299	134,896	123,405
Equity attributable to Verizon	67,842	61,395	53,145	43,096	22,524
Net deferred tax (assets) liabilities²	35,623	34,619	33,726	31,201	45,964
Allowance for credit losses³	1,252	733	765	939	845
Equity equivalents⁴	36,875	35,352	34,491	32,140	46,809
Accumulated other comprehensive (income) loss, net of tax⁵	71	(998)	(2,370)	(2,659)	(2,673)
Noncontrolling interests	1,430	1,440	1,565	1,591	1,508
Adjusted equity attributable to Verizon	106,218	97,189	86,831	74,168	68,168
Work in progress⁶	(8,576)	(9,234)	(6,362)	(6,139)	(5,710)
Marketable securities⁷	(459)	(442)	(405)	(440)	(699)
Invested capital	247,730	220,656	215,363	202,485	185,164

Based on: 10-K (filing date: 2021-02-25), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21).

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 equity equivalents to equity attributable to Verizon.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of work in progress.

⁷ Subtraction of marketable securities.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Verizon Communications Inc.’s invested capital increased from 2018 to 2019 and from 2019 to 2020.

Verizon Communications Inc., cost of capital calculations

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	233,805	233,805	÷	413,326	=	0.57	0.57	×	6.60%	=	3.73%
Short- and long-term debt, including finance leases³	158,036	158,036	÷	413,326	=	0.38	0.38	×	7.69% × (1 – 21.00%)	=	2.32%
Operating lease liability⁴	21,485	21,485	÷	413,326	=	0.05	0.05	×	3.50% × (1 – 21.00%)	=	0.14%
Total:	413,326					1.00					6.20%

Based on: 10-K (filing date: 2021-02-25).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt, including finance leases. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	240,707	240,707	÷	392,677	=	0.61	0.61	×	6.60%	=	4.05%
Short- and long-term debt, including finance leases³	130,316	130,316	÷	392,677	=	0.33	0.33	×	7.25% × (1 – 21.00%)	=	1.90%
Operating lease liability⁴	21,654	21,654	÷	392,677	=	0.06	0.06	×	4.00% × (1 – 21.00%)	=	0.17%
Total:	392,677					1.00					6.12%

Based on: 10-K (filing date: 2020-02-21).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt, including finance leases. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	227,924	227,924	÷	369,600	=	0.62	0.62	×	6.60%	=	4.07%
Short- and long-term debt, including finance leases³	119,440	119,440	÷	369,600	=	0.32	0.32	×	5.10% × (1 – 21.00%)	=	1.30%
Operating lease liability⁴	22,236	22,236	÷	369,600	=	0.06	0.06	×	4.10% × (1 – 21.00%)	=	0.19%
Total:	369,600					1.00					5.57%

Based on: 10-K (filing date: 2019-02-15).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt, including finance leases. See details »

⁴ Operating lease liability. See details »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	196,998	196,998	÷	344,478	=	0.57	0.57	×	6.60%	=	3.77%
Short- and long-term debt, including finance leases³	129,678	129,678	÷	344,478	=	0.38	0.38	×	5.06% × (1 – 35.00%)	=	1.24%
Operating lease liability⁴	17,801	17,801	÷	344,478	=	0.05	0.05	×	3.60% × (1 – 35.00%)	=	0.12%
Total:	344,478					1.00					5.13%

Based on: 10-K (filing date: 2018-02-23).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt, including finance leases. See details »

⁴ Operating lease liability. See details »

Dec 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	201,513	201,513	÷	335,374	=	0.60	0.60	×	6.60%	=	3.97%
Short- and long-term debt, including finance leases³	118,534	118,534	÷	335,374	=	0.35	0.35	×	5.24% × (1 – 35.00%)	=	1.20%
Operating lease liability⁴	15,327	15,327	÷	335,374	=	0.05	0.05	×	3.50% × (1 – 35.00%)	=	0.10%
Total:	335,374					1.00					5.27%

Based on: 10-K (filing date: 2017-02-21).

¹ US$ in millions

² Equity. See details »

³ Short- and long-term debt, including finance leases. See details »

⁴ Operating lease liability. See details »

Verizon Communications Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit¹	8,950	11,805	8,728	9,209	5,870
Invested capital²	247,730	220,656	215,363	202,485	185,164
Performance Ratio
Economic spread ratio³	3.61%	5.35%	4.05%	4.55%	3.17%
Benchmarks
Economic Spread Ratio, Competitors⁴
AT&T Inc.	-5.12%	-1.21%	-0.23%	-1.20%	-0.55%
T-Mobile US Inc.	-1.71%	1.76%	1.69%	0.92%	0.59%

Based on: 10-K (filing date: 2021-02-25), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 8,950 ÷ 247,730 = 3.61%

⁴ Click competitor name to see calculations.

Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Verizon Communications Inc.’s economic spread ratio improved from 2018 to 2019 but then deteriorated significantly from 2019 to 2020.

Verizon Communications Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Selected Financial Data (US$ in millions)
Economic profit¹	8,950	11,805	8,728	9,209	5,870
Operating revenues	128,292	131,868	130,863	126,034	125,980
Performance Ratio
Economic profit margin²	6.98%	8.95%	6.67%	7.31%	4.66%
Benchmarks
Economic Profit Margin, Competitors³
AT&T Inc.	-12.28%	-2.93%	-0.59%	-2.68%	-1.08%
T-Mobile US Inc.	-4.41%	2.87%	2.64%	1.45%	0.93%

Based on: 10-K (filing date: 2021-02-25), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-21).

¹ Economic profit. See details »

² 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Operating revenues
= 100 × 8,950 ÷ 128,292 = 6.98%

³ Click competitor name to see calculations.

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Verizon Communications Inc.’s economic profit margin improved from 2018 to 2019 but then slightly deteriorated from 2019 to 2020 not reaching 2018 level.

Verizon Communications Inc. (NYSE:VZ)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin