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.
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- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Geographic Areas
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Return on Assets (ROA) since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
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Economic Profit
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 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The period between 2017 and 2021 demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuated, it did not generate sufficient returns to cover the cost of capital employed. Invested capital increased significantly over the period, contributing to the sustained negative economic profit.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT increased from US$1,952 million in 2017 to US$2,286 million in 2018, indicating improved operational profitability. However, it subsequently declined to US$2,018 million in 2020 before a slight recovery to US$2,064 million in 2021. The overall trend suggests a relatively stable, but not growing, operational performance.
- Cost of Capital
- The cost of capital experienced moderate fluctuations, ranging from 11.88% to 12.75% over the five-year period. A decrease was observed in 2020, followed by a slight increase in 2021. These changes in the cost of capital, while present, do not appear to be the primary driver of the negative economic profit.
- Invested Capital
- Invested capital exhibited a substantial upward trend, increasing from US$17,686 million in 2017 to US$23,729 million in 2020. While it decreased slightly to US$22,932 million in 2021, it remained significantly higher than the initial value. This growth in invested capital, coupled with the inability of NOPAT to keep pace, contributed significantly to the worsening economic profit.
- Economic Profit
- Economic profit remained negative throughout the analyzed period, starting at -US$233 million in 2017 and declining to -US$813 million in 2021. The magnitude of the negative economic profit increased consistently, indicating a widening gap between the return generated from invested capital and the cost of that capital. The largest declines occurred between 2019 and 2021.
In summary, the consistent negative economic profit suggests that the company’s investments are not generating returns sufficient to cover its cost of capital. The increasing invested capital, without a corresponding increase in NOPAT, exacerbated this issue over the observed timeframe.
Net Operating Profit after Taxes (NOPAT)
Waste Management Inc., NOPAT calculation
US$ in millions
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
= × =
6 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
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
= × 21.00% =
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.
Cash Operating Taxes
Waste Management Inc., cash operating taxes calculation
US$ in millions
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 $689 million, surpassing all previous years in the data set.
Overall, while the income tax expense shows variability with an eventual upward movement to reach its peak in 2021, cash operating taxes reveal a more pronounced downward trend until 2020, followed by a significant increase in the last year. The contrasting movements in these two tax-related financial items in 2021 may indicate changes in tax policy application, operational performance, or other tax-related accounting factors impacting the company’s tax obligations.
Invested Capital
Waste Management Inc., invested capital calculation (financing approach)
US$ in millions
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 $22,932 million in 2021, aligning with the modest declines in both debt and equity components.
Overall, the data depicts growth in the company’s financial size and capital structure through 2020, with a slight retrenchment in debt, equity, and invested capital during 2021. This trend suggests a period of expansion followed by cautious tightening or normalization of the balance sheet in the most recent year.
Cost of Capital
Waste Management Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (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. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (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. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 »
Economic Spread Ratio
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
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 × ÷ =
The period between 2017 and 2021 demonstrates a consistent pattern of negative economic profit, coupled with an increasing negative economic spread ratio. Invested capital fluctuated during this timeframe, but did not offset the declining economic performance.
- Economic Profit
- Economic profit exhibited a negative value throughout the analyzed period. Initial losses of US$233 million in 2017 increased to US$64 million in 2018, before escalating significantly to US$698 million in 2019. Losses continued to deepen in 2020 and 2021, reaching US$801 million and US$813 million respectively. This indicates a consistent failure to generate returns exceeding the cost of capital.
- Invested Capital
- Invested capital generally increased from US$17,686 million in 2017 to US$23,729 million in 2020. However, a slight decrease was observed in 2021, with invested capital falling to US$22,932 million. While capital investment grew overall, it did not translate into improved economic profitability.
- Economic Spread Ratio
- The economic spread ratio, expressed as a percentage, was negative for each year examined. It began at -1.32% in 2017 and progressively worsened to -3.54% in 2021. This downward trend signifies a widening gap between the return on invested capital and the cost of that capital, reinforcing the negative economic profit observed. The increasing negativity suggests a deteriorating ability to create value for investors.
In summary, the organization consistently destroyed economic value between 2017 and 2021. Despite increases in invested capital, the economic spread ratio deteriorated, indicating a growing disparity between returns generated and the cost of capital employed.
Economic Profit Margin
Waste Management Inc., economic profit margin calculation
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 × ÷ =
The period between 2017 and 2021 demonstrates a volatile performance in economic profit, which consequently impacts the economic profit margin. While adjusted operating revenues generally increased over the five-year period, economic profit remained consistently negative, indicating the company’s returns are not exceeding its cost of capital.
- Economic Profit
- Economic profit exhibits significant fluctuations. Starting at negative US$233 million in 2017, it improved to negative US$64 million in 2018, before declining sharply to negative US$698 million in 2019. Further deterioration occurred in 2020, reaching negative US$801 million, followed by a slight decrease to negative US$813 million in 2021. The consistent negative values suggest the company is destroying economic value.
- Adjusted Operating Revenues
- Adjusted operating revenues show an overall upward trend, increasing from US$14,495 million in 2017 to US$17,963 million in 2021. However, the rate of growth was not consistent. A moderate increase was observed between 2017 and 2019, followed by a slight decrease in 2020, and then a substantial increase in 2021. Despite revenue growth, the inability to translate this into positive economic profit is a key concern.
- Economic Profit Margin
- The economic profit margin reflects the economic profit as a percentage of adjusted operating revenues. The margin began at -1.61% in 2017, improved to -0.43% in 2018, and then experienced a substantial decline to -4.51% in 2019. It reached its lowest point at -5.26% in 2020, before marginally improving to -4.52% in 2021. The consistently negative and generally worsening margin indicates that, for each dollar of revenue generated, the company is failing to cover its cost of capital, and the situation deteriorated significantly between 2018 and 2020.
The divergence between increasing revenues and consistently negative economic profit and margin suggests potential issues with cost management, capital allocation, or the cost of capital itself. Further investigation into these areas is warranted.