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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	12.66%	11.99%	12.55%	12.86%	12.46%
Invested capital³	22,932)	23,729)	22,640)	18,435)	17,686)

Economic profit⁴	(838)	(826)	(723)	(85)	(252)

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 – 12.66% × 22,932 = -838

An analysis of the economic profit from 2017 to 2021 reveals a persistent inability to generate value above the cost of capital. The economic profit remained negative throughout the entire five-year period, with a marked deterioration in performance accelerating after 2018.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited moderate volatility, peaking at 2,286 million US$ in 2018 before stabilizing between 2,018 million US$ and 2,119 million US$ from 2019 through 2021. The relative stagnation of operating profits during the latter part of the period indicates a lack of operational growth sufficient to support a growing capital base.
Invested Capital: A significant expansion in invested capital is observed, particularly between 2018 and 2020, during which the figure increased from 18,435 million US$ to 23,729 million US$. Although a slight reduction to 22,932 million US$ occurred in 2021, the overall capital employed remained substantially higher than 2017 levels.
Cost of Capital: The cost of capital remained relatively stable, fluctuating within a narrow range between 11.99% and 12.86%. The consistency of this metric suggests that the decline in economic profit was driven by operational efficiency and investment scale rather than changes in the market's required rate of return.
Economic Profit Performance: Economic profit experienced a severe downward trend, moving from -252 million US$ in 2017 to -838 million US$ by 2021. The most substantial decline occurred between 2018 and 2019, coinciding with the sharp increase in invested capital. This pattern indicates that the incremental investments made during this period failed to generate returns exceeding the cost of capital, thereby eroding overall economic value.

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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.

The financial data indicates fluctuations and trends in the profitability measures of the entity over the five-year period ending December 31, 2021.

Net Income Attributable to the Company: The net income shows a declining trend from 2017 through 2020, starting at 1,949 million US dollars in 2017, slightly decreasing to 1,925 million in 2018, followed by a more pronounced decrease to 1,670 million in 2019 and further down to 1,496 million in 2020. However, there is a rebound in 2021, with net income rising to 1,816 million, indicating a recovery after the decline in prior years.
Net Operating Profit After Taxes (NOPAT): The NOPAT figures reveal a different pattern. Starting at 1,952 million US dollars in 2017, NOPAT increased substantially in 2018 to 2,286 million, peaking in that year. Afterward, it declined over the next two years to 2,119 million in 2019 and 2,018 million in 2020. By 2021, NOPAT experienced a slight increase to 2,064 million, indicating some stabilization or modest recovery in operating profitability after taxes.

In summary, while both net income and NOPAT exhibit declines starting around 2018 or 2019, net income shows a more significant decrease and a notable rebound by 2021, whereas NOPAT peaked earlier in 2018, followed by declines with a slight recovery by 2021. These patterns may reflect variations in non-operating income, expenses, taxes, or other adjustments impacting net income differently compared to operating profit.

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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).

The financial data over the five-year period ending December 31, 2021, shows distinct trends in both income tax expense and cash operating taxes.

Income Tax Expense: Income tax expense experienced a general increase from 2017 to 2021, with fluctuations during the intermediate years. The value rose significantly from $242 million in 2017 to $453 million in 2018. It then slightly decreased to $434 million in 2019 and further declined to $397 million in 2020. However, in 2021, there was a notable increase to $532 million, marking the highest expense in the period analyzed.
Cash Operating Taxes: Cash operating taxes demonstrated a downward trend from 2017 through 2020, followed by a sharp rise in 2021. Specifically, cash operating taxes decreased from $626 million in 2017 to $511 million in 2018 and further to $424 million in 2019. This downward trajectory continued with a reduction to $324 million in 2020. In 2021, this trend reversed dramatically as cash operating taxes surged to $689 million, surpassing all previous years in the data set.

Overall, while the income tax expense shows variability with an eventual upward movement to reach its peak in 2021, cash operating taxes reveal a more pronounced downward trend until 2020, followed by a significant increase in the last year. The contrasting movements in these two tax-related financial items in 2021 may indicate changes in tax policy application, operational performance, or other tax-related accounting factors impacting the company’s tax obligations.

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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.

The financial data reveals distinct trends in key balance sheet components over the five-year period ending December 31, 2021.

Total Reported Debt & Leases: The total reported debt and leases exhibit an overall upward trend from 2017 through 2020, increasing from approximately $9,976 million in 2017 to a peak near $14,326 million in 2020. This represents a significant increase of roughly 43% over three years. In 2021, a slight decline to $13,928 million is noted, indicating a minor reduction in indebtedness or lease obligations after reaching the high point the prior year.
Total Stockholders’ Equity: Stockholders' equity also shows a general increase over the reviewed period, rising from about $6,019 million in 2017 to a maximum of $7,452 million in 2020. This growth suggests accumulated retained earnings and possible capital contributions enhancing the company’s net asset base. However, equity decreases slightly in 2021 to $7,124 million, indicating some erosion following the peak, which could be due to net losses, dividends, or other equity-reducing activities.
Invested Capital: Invested capital follows a similar pattern to total debt and equity, with steady growth from $17,686 million in 2017 to $23,729 million in 2020. This growth, amounting to approximately 34%, reflects increased deployment of financial resources into the company's operations, likely contributing to expansion or asset acquisition. The figure slightly contracts to $22,932 million in 2021, aligning with the modest declines in both debt and equity components.

Overall, the data depicts growth in the company’s financial size and capital structure through 2020, with a slight retrenchment in debt, equity, and invested capital during 2021. This trend suggests a period of expansion followed by cautious tightening or normalization of the balance sheet in the most recent year.

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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	×	15.30%	=	12.27%
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					12.66%

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	×	15.30%	=	11.45%
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					11.99%

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	×	15.30%	=	11.92%
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					12.55%

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	×	15.30%	=	12.21%
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					12.86%

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	×	15.30%	=	11.91%
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					12.46%

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	(838)	(826)	(723)	(85)	(252)
Invested capital²	22,932)	23,729)	22,640)	18,435)	17,686)
Performance Ratio
Economic spread ratio³	-3.65%	-3.48%	-3.19%	-0.46%	-1.43%

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 × -838 ÷ 22,932 = -3.65%

The analysis of economic value metrics reveals a consistent failure to generate positive economic profit over the five-year period from 2017 to 2021. The financial performance is characterized by a widening gap between the returns generated and the cost of the capital employed, resulting in a persistent erosion of economic value.

Economic Profit Trends: Economic profit remained negative throughout the analyzed period. Although a marginal improvement was observed in 2018, where losses narrowed from -252 million USD to -85 million USD, a sharp deterioration occurred in 2019, with economic profit falling to -723 million USD. This negative trend persisted through 2021, reaching its lowest point at -838 million USD.
Invested Capital Dynamics: Invested capital showed a general increase from 2017 to 2020, rising from 17,686 million USD to a peak of 23,729 million USD. A slight contraction was noted in 2021, with the figure adjusting to 22,932 million USD. The expansion of the capital base from 2017 to 2020 coincided with a deepening of economic losses, suggesting that the deployed capital did not generate sufficient returns to offset the cost of funding.
Economic Spread Ratio Performance: The economic spread ratio remained negative for the entire duration, indicating that the return on invested capital was consistently lower than the cost of capital. After an initial improvement to -0.46% in 2018, the ratio declined sharply to -3.19% in 2019. The downward trajectory continued through 2020 and 2021, ending at -3.65%, which signifies an increasing inefficiency in value creation relative to the cost of capital.

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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	(838)	(826)	(723)	(85)	(252)

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	-4.67%	-5.43%	-4.67%	-0.57%	-1.74%

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 × -838 ÷ 17,963 = -4.67%

The analysis of economic value added reveals a consistent failure to generate positive economic profit between 2017 and 2021. Despite an overall growth in adjusted operating revenues, the economic profit margin remained negative throughout the period, indicating that the company's operating returns were insufficient to cover the weighted average cost of capital.

Economic Profit Trends: Economic profit exhibited a general downward trajectory over the five-year period. Following a brief improvement in 2018, where the deficit narrowed to -85 million USD, a significant deterioration occurred in 2019, with losses expanding to -723 million USD. This negative trend persisted through 2021, reaching a period low of -838 million USD.
Revenue Performance: Adjusted operating revenues demonstrated a general upward trend, rising from 14,495 million USD in 2017 to 17,963 million USD in 2021. While a slight contraction was observed in 2020, the subsequent year saw a substantial increase in revenue, although this growth did not translate into positive economic profit.
Economic Profit Margin Analysis: The economic profit margin remained negative, reflecting a disconnect between revenue growth and capital efficiency. The margin improved to -0.57% in 2018 before sharply declining to -4.67% in 2019 and reaching a peak deficit of -5.43% in 2020. By 2021, the margin stabilized at -4.67%, indicating a continued inability to create economic value despite the increase in the revenue base.

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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