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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

Waste Management Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net operating profit after taxes (NOPAT)¹	2,064)	2,018)	2,119)	2,286)	1,952)
Cost of capital²	10.02%	9.53%	9.99%	10.24%	9.91%
Invested capital³	22,932)	23,729)	22,640)	18,435)	17,686)

Economic profit⁴	(235)	(243)	(144)	398)	200)

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,064 – 10.02% × 22,932 = -235

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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.	Waste Management Inc. economic profit decreased from 2019 to 2020 but then slightly increased from 2020 to 2021.

Waste Management Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income attributable to Waste Management, Inc.	1,816)	1,496)	1,670)	1,925)	1,949)
Deferred income tax expense (benefit)¹	(77)	165)	100)	25)	(251)
Increase (decrease) in allowance for doubtful accounts²	(8)	5)	(1)	8)	(3)
Increase (decrease) in deferred revenues³	32)	5)	12)	19)	10)
Increase (decrease) in equity equivalents⁴	(53)	175)	111)	52)	(244)
Interest expense	375)	457)	464)	384)	368)
Interest expense, operating lease liability⁵	15)	15)	16)	20)	19)
Adjusted interest expense	390)	472)	480)	404)	387)
Tax benefit of interest expense⁶	(82)	(99)	(101)	(85)	(135)
Adjusted interest expense, after taxes⁷	308)	373)	379)	319)	251)
(Gain) loss on marketable securities	—)	(1)	—)	—)	(2)
Interest income	(10)	(32)	(53)	(10)	(5)
Investment income, before taxes	(10)	(33)	(53)	(10)	(7)
Tax expense (benefit) of investment income⁸	2)	7)	11)	2)	2)
Investment income, after taxes⁹	(8)	(26)	(42)	(8)	(5)
Net income (loss) attributable to noncontrolling interest	1)	—)	1)	(2)	—)
Net operating profit after taxes (NOPAT)	2,064)	2,018)	2,119)	2,286)	1,952)

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in deferred revenues.

⁴ Addition of increase (decrease) in equity equivalents to net income attributable to Waste Management, Inc..

⁵ 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 523 × 2.80% = 15

⁶ 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 390 × 21.00% = 82

⁷ Addition of after taxes interest expense to net income attributable to Waste Management, Inc..

⁸ 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 10 × 21.00% = 2

⁹ Elimination of after taxes investment income.

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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.	Waste Management Inc. NOPAT decreased from 2019 to 2020 but then slightly increased from 2020 to 2021.

Waste Management Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Income tax expense	532)	397)	434)	453)	242)
Less: Deferred income tax expense (benefit)	(77)	165)	100)	25)	(251)
Add: Tax savings from interest expense	82)	99)	101)	85)	135)
Less: Tax imposed on investment income	2)	7)	11)	2)	2)
Cash operating taxes	689)	324)	424)	511)	626)

Based on: 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), 10-K (reporting date: 2017-12-31).

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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.	Waste Management Inc. cash operating taxes decreased from 2019 to 2020 but then increased from 2020 to 2021 exceeding 2019 level.

Waste Management Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Current portion of long-term debt	708)	551)	218)	432)	739)
Long-term debt, less current portion	12,697)	13,259)	13,280)	9,594)	8,752)
Operating lease liability¹	523)	516)	445)	492)	485)
Total reported debt & leases	13,928)	14,326)	13,943)	10,518)	9,976)
Total Waste Management, Inc. stockholders’ equity	7,124)	7,452)	7,068)	6,275)	6,019)
Net deferred tax (assets) liabilities²	1,694)	1,806)	1,407)	1,291)	1,248)
Allowance for doubtful accounts³	25)	33)	28)	29)	21)
Deferred revenues⁴	571)	539)	534)	522)	503)
Equity equivalents⁵	2,290)	2,378)	1,969)	1,842)	1,772)
Accumulated other comprehensive (income) loss, net of tax⁶	(17)	(39)	8)	87)	(8)
Noncontrolling interests	2)	2)	2)	1)	23)
Adjusted total Waste Management, Inc. stockholders’ equity	9,399)	9,793)	9,047)	8,205)	7,806)
Available-for-sale securities⁷	(395)	(390)	(350)	(288)	(96)
Invested capital	22,932)	23,729)	22,640)	18,435)	17,686)

Based on: 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), 10-K (reporting date: 2017-12-31).

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 revenues.

⁵ Addition of equity equivalents to total Waste Management, Inc. stockholders’ equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of available-for-sale securities.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Waste Management Inc. invested capital increased from 2019 to 2020 but then slightly decreased from 2020 to 2021 not reaching 2019 level.

Waste Management Inc., cost of capital calculations

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	59,153)	59,153)	÷	73,776)	=	0.80	0.80	×	12.02%	=	9.64%
Debt³	14,100)	14,100)	÷	73,776)	=	0.19	0.19	×	2.46% × (1 – 21.00%)	=	0.37%
Operating lease liability⁴	523)	523)	÷	73,776)	=	0.01	0.01	×	2.80% × (1 – 21.00%)	=	0.02%
Total:	73,776)					1.00					10.02%

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 »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	46,784)	46,784)	÷	62,500)	=	0.75	0.75	×	12.02%	=	9.00%
Debt³	15,200)	15,200)	÷	62,500)	=	0.24	0.24	×	2.67% × (1 – 21.00%)	=	0.51%
Operating lease liability⁴	516)	516)	÷	62,500)	=	0.01	0.01	×	2.90% × (1 – 21.00%)	=	0.02%
Total:	62,500)					1.00					9.53%

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 »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	52,762)	52,762)	÷	67,707)	=	0.78	0.78	×	12.02%	=	9.37%
Debt³	14,500)	14,500)	÷	67,707)	=	0.21	0.21	×	3.61% × (1 – 21.00%)	=	0.61%
Operating lease liability⁴	445)	445)	÷	67,707)	=	0.01	0.01	×	3.50% × (1 – 21.00%)	=	0.02%
Total:	67,707)					1.00					9.99%

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 »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	41,886)	41,886)	÷	52,479)	=	0.80	0.80	×	12.02%	=	9.59%
Debt³	10,100)	10,100)	÷	52,479)	=	0.19	0.19	×	4.06% × (1 – 21.00%)	=	0.62%
Operating lease liability⁴	492)	492)	÷	52,479)	=	0.01	0.01	×	4.06% × (1 – 21.00%)	=	0.03%
Total:	52,479)					1.00					10.24%

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 »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	36,437)	36,437)	÷	46,822)	=	0.78	0.78	×	12.02%	=	9.35%
Debt³	9,900)	9,900)	÷	46,822)	=	0.21	0.21	×	3.84% × (1 – 35.00%)	=	0.53%
Operating lease liability⁴	485)	485)	÷	46,822)	=	0.01	0.01	×	3.84% × (1 – 35.00%)	=	0.03%
Total:	46,822)					1.00					9.91%

Based on: 10-K (reporting date: 2017-12-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Waste Management Inc., economic spread ratio calculation

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in millions)
Economic profit¹	(235)	(243)	(144)	398)	200)
Invested capital²	22,932)	23,729)	22,640)	18,435)	17,686)
Performance Ratio
Economic spread ratio³	-1.02%	-1.02%	-0.63%	2.16%	1.13%

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -235 ÷ 22,932 = -1.02%

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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.	Waste Management Inc. economic spread ratio deteriorated from 2019 to 2020 but then slightly improved from 2020 to 2021.

Waste Management Inc., economic profit margin calculation

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Selected Financial Data (US$ in millions)
Economic profit¹	(235)	(243)	(144)	398)	200)

Operating revenues	17,931)	15,218)	15,455)	14,914)	14,485)
Add: Increase (decrease) in deferred revenues	32)	5)	12)	19)	10)
Adjusted operating revenues	17,963)	15,223)	15,467)	14,933)	14,495)
Performance Ratio
Economic profit margin²	-1.31%	-1.60%	-0.93%	2.67%	1.38%

Based on: 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), 10-K (reporting date: 2017-12-31).

¹ Economic profit. See details »

² 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted operating revenues
= 100 × -235 ÷ 17,963 = -1.31%

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Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company 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.	Waste Management Inc. economic profit margin deteriorated from 2019 to 2020 but then slightly improved from 2020 to 2021.

Waste Management Inc. (NYSE:WM)

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