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
Visa Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
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
= 15,234 – 15.76% × 60,981 = 5,624
The financial performance between September 30, 2017, and September 30, 2022, indicates a consistent capacity to generate value in excess of the cost of capital. While there were fluctuations in operational efficiency and capital allocation, the overall trajectory shows a substantial increase in economic profit.
- Net Operating Profit After Taxes (NOPAT)
- A general upward trend is observed in NOPAT, which grew from 8,706 million US$ in 2017 to 15,234 million US$ in 2022. A temporary contraction occurred in 2020, where profit declined to 11,433 million US$ from the previous year's 12,431 million US$, before recovering and reaching its peak in 2022.
- Cost of Capital
- The cost of capital remained remarkably stable throughout the analyzed period, fluctuating within a narrow range between 15.34% and 15.76%. This stability suggests a consistent risk profile and a steady weighted average cost of funding over the six-year duration.
- Invested Capital
- Invested capital exhibited a non-linear progression. After a slight decrease in 2018, there was a significant increase in 2020, rising to 61,524 million US$. Following this expansion, the invested capital stabilized, ending the period at 60,981 million US$ in 2022.
- Economic Profit
- Economic profit demonstrated significant volatility but an overall positive growth trend, increasing from 870 million US$ in 2017 to 5,624 million US$ in 2022. A notable decline is observed in 2020, where profit dropped to 1,848 million US$. This compression was the result of the simultaneous decrease in NOPAT and the increase in invested capital during that fiscal year.
The synthesis of these metrics reveals that the expansion of economic profit was primarily driven by the growth in NOPAT rather than a reduction in the cost of capital. The period concluded with the highest economic profit recorded in 2022, indicating an optimized relationship between operational earnings and the capital employed to generate them.
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Net Operating Profit after Taxes (NOPAT)
Visa Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in equity equivalents to net income.
3 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 520 × 2.15% = 11
4 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 549 × 21.00% = 115
5 Addition of after taxes interest expense to net income.
6 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= -227 × 21.00% = -48
7 Elimination of after taxes investment income.
A consistent upward trajectory is observed in both net income and net operating profit after taxes (NOPAT) between 2017 and 2022, despite a temporary contraction during the 2020 fiscal year. The overall growth pattern indicates strong operational scalability and a recovery of earnings following a period of volatility.
- Net Income Growth Trends
- Net income increased from 6,699 million US$ in 2017 to 14,957 million US$ in 2022. A significant surge is noted between 2017 and 2019, followed by a decline to 10,866 million US$ in 2020. A strong recovery phase began in 2021, culminating in the highest reported net income at the end of the period.
- NOPAT Performance and Stability
- Net operating profit after taxes exhibited a similar growth pattern, rising from 8,706 million US$ in 2017 to 15,234 million US$ in 2022. The NOPAT figure experienced a dip to 11,433 million US$ in 2020, mirroring the trend seen in net income, before expanding significantly in the subsequent two years.
- Correlation Between NOPAT and Net Income
- NOPAT remained consistently higher than net income throughout the six-year period, which indicates that the company's core operating performance provided a higher value than the final bottom-line profit. Notably, the margin between NOPAT and net income narrowed over time; the difference was approximately 2,007 million US$ in 2017 and decreased to 277 million US$ by 2022, suggesting a reduction in the impact of non-operating expenses or interest burdens on the final earnings.
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Cash Operating Taxes
Visa Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
The tax expenditure profile exhibits significant volatility between 2017 and 2022, characterized by a distinct divergence between accounting provisions and actual cash outflows. While the income tax provision experienced a sharp decline in 2018, cash operating taxes followed a different trajectory, suggesting the influence of deferred tax mechanisms or non-recurring tax events during the analyzed period.
- Income Tax Provision Trends
- A substantial reduction in the income tax provision occurred between 2017 and 2018, falling from US$ 4,995 million to US$ 2,505 million. Following this sharp decline, a gradual upward trajectory was observed, with the provision peaking at US$ 3,752 million in 2021 before moderating to US$ 3,179 million in 2022. This pattern indicates a period of instability in the non-cash tax expense reported on the income statement.
- Cash Operating Taxes Trends
- Cash operating taxes demonstrated an inverse movement relative to the provision in 2018, increasing to US$ 3,833 million. A subsequent contraction occurred in 2019, with cash payments dropping to US$ 2,626 million and remaining relatively stagnant through 2021. A significant rebound was recorded in 2022, where cash taxes rose to US$ 3,678 million, representing a 29% increase over the previous year.
- Comparative Analysis and EVA Implications
- The relationship between the tax provision and cash taxes reveals notable variances. In 2017 and 2021, the tax provision significantly exceeded cash payments, which typically suggests the recognition of deferred tax liabilities. Conversely, in 2018 and 2022, cash operating taxes surpassed the tax provision, indicating a higher immediate cash outflow than the accounting expense suggested. Because Economic Value Added (EVA) focuses on cash-based metrics, the use of cash operating taxes rather than the income tax provision provides a more precise measurement of the actual economic cash leakage and its subsequent impact on the company's net operating profit after taxes (NOPAT).
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Invested Capital
Visa Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of equity equivalents to equity.
4 Removal of accumulated other comprehensive income.
5 Subtraction of construction-in-progress.
6 Subtraction of investment securities.
Invested capital exhibited an overall upward trajectory between 2017 and 2022, increasing from 51,080 million USD to 60,981 million USD. The growth pattern is characterized by a period of relative stability from 2017 to 2019, followed by a significant expansion in 2020, after which the capital base remained plateaued at a higher level.
- Invested Capital Dynamics
- The total invested capital experienced a notable surge of approximately 20.7% between September 30, 2019, and September 30, 2020, rising from 50,974 million USD to 61,524 million USD. Following this peak, the figure remained relatively constant, closing at 60,981 million USD in 2022, indicating a stabilization of the capital base after the 2020 expansion.
- Debt and Lease Obligations
- Total reported debt and leases showed a volatile trend, initially decreasing from 18,928 million USD in 2017 to 17,297 million USD in 2018. A sharp increase was recorded in 2020, where debt levels reached 24,640 million USD. While this figure moderated to 21,551 million USD in 2021, it ended the period at 22,970 million USD, representing a net increase over the six-year duration.
- Equity Growth and Contraction
- Equity demonstrated a consistent growth trend from 2017 through 2021, rising from 32,760 million USD to a peak of 37,589 million USD. However, a reversal occurred in 2022, with equity declining to 35,581 million USD. This late-period contraction suggests a shift in equity retention or capital distribution strategies toward the end of the analyzed timeframe.
- Capital Composition Analysis
- The expansion of invested capital in 2020 was primarily driven by the substantial increase in reported debt and leases rather than equity growth. While equity grew steadily, the volatility in the total invested capital closely mirrored the fluctuations observed in the debt component, particularly during the 2020 spike and the subsequent stabilization period.
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Cost of Capital
Visa Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 433,243) | 433,243) | ÷ | 453,663) | = | 0.95 | 0.95 | × | 16.40% | = | 15.66% | ||
| Debt3 | 19,900) | 19,900) | ÷ | 453,663) | = | 0.04 | 0.04 | × | 2.90% × (1 – 21.00%) | = | 0.10% | ||
| Operating lease liability4 | 520) | 520) | ÷ | 453,663) | = | 0.00 | 0.00 | × | 2.15% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 453,663) | 1.00 | 15.76% | ||||||||||
Based on: 10-K (reporting date: 2022-09-30).
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 | 428,731) | 428,731) | ÷ | 451,805) | = | 0.95 | 0.95 | × | 16.40% | = | 15.56% | ||
| Debt3 | 22,500) | 22,500) | ÷ | 451,805) | = | 0.05 | 0.05 | × | 2.99% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 574) | 574) | ÷ | 451,805) | = | 0.00 | 0.00 | × | 2.23% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 451,805) | 1.00 | 15.68% | ||||||||||
Based on: 10-K (reporting date: 2021-09-30).
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 | 442,859) | 442,859) | ÷ | 470,029) | = | 0.94 | 0.94 | × | 16.40% | = | 15.45% | ||
| Debt3 | 26,600) | 26,600) | ÷ | 470,029) | = | 0.06 | 0.06 | × | 2.90% × (1 – 21.00%) | = | 0.13% | ||
| Operating lease liability4 | 570) | 570) | ÷ | 470,029) | = | 0.00 | 0.00 | × | 2.29% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 470,029) | 1.00 | 15.58% | ||||||||||
Based on: 10-K (reporting date: 2020-09-30).
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 | 387,474) | 387,474) | ÷ | 406,575) | = | 0.95 | 0.95 | × | 16.40% | = | 15.62% | ||
| Debt3 | 18,400) | 18,400) | ÷ | 406,575) | = | 0.05 | 0.05 | × | 3.31% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 701) | 701) | ÷ | 406,575) | = | 0.00 | 0.00 | × | 3.31% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 406,575) | 1.00 | 15.75% | ||||||||||
Based on: 10-K (reporting date: 2019-09-30).
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 | 309,344) | 309,344) | ÷ | 326,611) | = | 0.95 | 0.95 | × | 16.40% | = | 15.53% | ||
| Debt3 | 16,600) | 16,600) | ÷ | 326,611) | = | 0.05 | 0.05 | × | 3.31% × (1 – 25.00%) | = | 0.13% | ||
| Operating lease liability4 | 667) | 667) | ÷ | 326,611) | = | 0.00 | 0.00 | × | 3.31% × (1 – 25.00%) | = | 0.01% | ||
| Total: | 326,611) | 1.00 | 15.66% | ||||||||||
Based on: 10-K (reporting date: 2018-09-30).
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 | 249,160) | 249,160) | ÷ | 268,893) | = | 0.93 | 0.93 | × | 16.40% | = | 15.19% | ||
| Debt3 | 19,171) | 19,171) | ÷ | 268,893) | = | 0.07 | 0.07 | × | 3.12% × (1 – 35.00%) | = | 0.14% | ||
| Operating lease liability4 | 561) | 561) | ÷ | 268,893) | = | 0.00 | 0.00 | × | 3.12% × (1 – 35.00%) | = | 0.00% | ||
| Total: | 268,893) | 1.00 | 15.34% | ||||||||||
Based on: 10-K (reporting date: 2017-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Visa Inc., economic spread ratio calculation, comparison to benchmarks
| Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 5,624) | 3,487) | 1,848) | 4,404) | 1,687) | 870) | |
| Invested capital2 | 60,981) | 60,806) | 61,524) | 50,974) | 47,578) | 51,080) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 9.22% | 5.73% | 3.00% | 8.64% | 3.54% | 1.70% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Accenture PLC | 4.84% | 6.66% | — | — | — | — | |
| Adobe Inc. | 6.58% | 8.97% | 1.25% | — | — | — | |
| AppLovin Corp. | -26.37% | -29.58% | — | — | — | — | |
| Cadence Design Systems Inc. | 6.59% | 6.80% | — | — | — | — | |
| Datadog Inc. | -11.70% | -3.88% | — | — | — | — | |
| International Business Machines Corp. | -11.36% | -6.21% | — | — | — | — | |
| Intuit Inc. | -7.52% | 0.11% | — | — | — | — | |
| Microsoft Corp. | 18.54% | 27.58% | — | — | — | — | |
| Oracle Corp. | -7.56% | 0.65% | — | — | — | — | |
| Palantir Technologies Inc. | -32.50% | -39.96% | — | — | — | — | |
| Palo Alto Networks Inc. | 3.53% | -5.17% | — | — | — | — | |
| Salesforce Inc. | -14.50% | -12.36% | — | — | — | — | |
| ServiceNow Inc. | 0.73% | 1.94% | — | — | — | — | |
| Synopsys Inc. | -0.84% | -6.86% | -6.67% | — | — | — | |
| Workday Inc. | -13.98% | -19.23% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 5,624 ÷ 60,981 = 9.22%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2022 is characterized by an overall expansion in value creation, though the trajectory was interrupted by a notable contraction in 2020. The period concludes with the highest recorded levels of both economic profit and the economic spread ratio, suggesting an improvement in capital efficiency over the long term.
- Economic Profit
- A general upward trend is observed, with economic profit increasing from 870 million USD in 2017 to 5,624 million USD in 2022. A significant surge occurred between 2018 and 2019, reaching 4,404 million USD, before a sharp decline to 1,848 million USD in 2020. A consistent recovery followed in the subsequent two years, culminating in the period's peak in 2022.
- Invested Capital
- Invested capital remained relatively stable between 2017 and 2019, fluctuating around the 50 billion USD mark. A substantial increase was recorded in 2020, with capital rising to 61,524 million USD. Following this adjustment, the invested capital base remained steady, closing at 60,981 million USD in 2022.
- Economic Spread Ratio
- The economic spread ratio exhibits a pattern of volatility with a strong positive long-term slope. Starting at 1.70% in 2017, the ratio climbed to 8.64% by 2019. A contraction to 3.00% occurred in 2020, corresponding with the simultaneous increase in invested capital and decrease in economic profit. The ratio subsequently rebounded, reaching a maximum of 9.22% by 2022, which indicates a widening gap between the return on invested capital and the cost of capital.
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Economic Profit Margin
Visa Inc., economic profit margin calculation, comparison to benchmarks
| Sep 30, 2022 | Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 5,624) | 3,487) | 1,848) | 4,404) | 1,687) | 870) | |
| Net revenues | 29,310) | 24,105) | 21,846) | 22,977) | 20,609) | 18,358) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 19.19% | 14.47% | 8.46% | 19.17% | 8.18% | 4.74% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Accenture PLC | 2.33% | 3.42% | — | — | — | — | |
| Adobe Inc. | 7.67% | 11.17% | 1.79% | — | — | — | |
| AppLovin Corp. | -49.38% | -59.23% | — | — | — | — | |
| Cadence Design Systems Inc. | 6.57% | 6.91% | — | — | — | — | |
| Datadog Inc. | -8.10% | -3.08% | — | — | — | — | |
| International Business Machines Corp. | -19.67% | -11.82% | — | — | — | — | |
| Intuit Inc. | -14.48% | 0.14% | — | — | — | — | |
| Microsoft Corp. | 17.77% | 22.89% | — | — | — | — | |
| Oracle Corp. | -13.87% | 1.29% | — | — | — | — | |
| Palantir Technologies Inc. | -54.53% | -65.82% | — | — | — | — | |
| Palo Alto Networks Inc. | 4.11% | -6.95% | — | — | — | — | |
| Salesforce Inc. | -40.27% | -28.34% | — | — | — | — | |
| ServiceNow Inc. | 0.58% | 1.68% | — | — | — | — | |
| Synopsys Inc. | -1.18% | -10.92% | -11.45% | — | — | — | |
| Workday Inc. | -18.95% | -25.09% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net revenues
= 100 × 5,624 ÷ 29,310 = 19.19%
3 Click competitor name to see calculations.
The analysis of economic value creation between September 30, 2017, and September 30, 2022, reveals a general upward trajectory in both absolute economic profit and the efficiency of value generation, despite a notable period of volatility during the 2020 fiscal year.
- Economic Profit Trends
- Economic profit experienced significant growth over the six-year period, rising from 870 million US dollars in 2017 to 5,624 million US dollars in 2022. A sharp increase was observed between 2018 and 2019, where profit grew from 1,687 million to 4,404 million US dollars. This was followed by a substantial contraction in 2020, with figures falling to 1,848 million US dollars. However, a strong recovery ensued, with economic profit climbing steadily in 2021 and reaching a period high in 2022.
- Net Revenue Performance
- Net revenues demonstrated a consistent growth pattern, increasing from 18,358 million US dollars in 2017 to 29,310 million US dollars in 2022. A minor deviation from this growth trend occurred in 2020, when revenues decreased slightly to 21,846 million US dollars from the previous year's 22,977 million US dollars. Following this dip, revenues accelerated, showing a particularly strong increase between 2021 and 2022.
- Economic Profit Margin Analysis
- The economic profit margin reflects a volatile but overall expanding capacity to generate value above the cost of capital. The margin increased from 4.74% in 2017 to a peak of 19.17% in 2019. In 2020, the margin compressed significantly to 8.46%, mirroring the decline in absolute economic profit. A recovery phase followed, with the margin expanding to 14.47% in 2021 and returning to its peak level of 19.19% by September 30, 2022. This indicates that the company successfully restored its economic efficiency to pre-2020 levels while operating at a higher revenue scale.
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