Economic Value Added (EVA)
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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.
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Waste Management Inc. pages available for free this week:
- Common-Size Income Statement
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value (EV)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Analysis of Debt
- 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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes showed an overall upward trend from 2017 to 2018, increasing from 1952 million US dollars to 2286 million US dollars. This was followed by a decline in 2019 to 2119 million US dollars and a further reduction in 2020 to 2018 million US dollars. A slight recovery occurred in 2021 with NOPAT increasing to 2064 million US dollars; however, the value did not return to the 2018 peak level.
- Cost of Capital
- The cost of capital fluctuated moderately over the observed period. It began at 10.67% in 2017, rose to a peak of 11.02% in 2018, and then slightly decreased to 10.76% in 2019. The rate continued to decline to 10.26% in 2020 before increasing again to 10.81% in 2021. Overall, the cost of capital remained within a relatively narrow range, indicating stable financing costs.
- Invested Capital
- Invested capital increased steadily from 17,686 million US dollars in 2017 to a peak of 23,729 million US dollars in 2020, reflecting ongoing investments or asset growth. In 2021, a slight decline to 22,932 million US dollars was observed, suggesting either asset disposals or capital efficiency improvements.
- Economic Profit
- Economic profit experienced considerable volatility over the five-year span. Starting at a positive 65 million US dollars in 2017, it significantly increased to 255 million US dollars in 2018. However, this positive trend reversed sharply in 2019 when economic profit became negative, reaching -316 million US dollars. The negative trend intensified in 2020, falling to -417 million US dollars, and remained at a similar level in 2021 with -414 million US dollars. This indicates that despite positive accounting profits, the company failed to generate returns exceeding its cost of capital during the later years.
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 × ÷ =
- Economic Profit
- The economic profit experienced a significant decline over the observed period. Starting at a positive value of 65 million US dollars in 2017, it sharply increased to 255 million US dollars in 2018, indicating strong profitability during that year. However, from 2019 onwards, economic profit turned negative and worsened, with values at -316 million, -417 million, and -414 million US dollars for 2019, 2020, and 2021, respectively. This demonstrates a sustained period of value destruction from 2019 forward.
- Invested Capital
- The invested capital shows a general upward trend until 2020, increasing from approximately 17.7 billion US dollars in 2017 to 23.7 billion US dollars in 2020. In 2021, there was a slight decrease to about 22.9 billion US dollars. This indicates ongoing investments and asset base growth until a minor contraction in the final year observed.
- Economic Spread Ratio
- The economic spread ratio reflects the return above or below the cost of capital. It was positive but modest at 0.37% in 2017 and showed improvement in 2018, rising to 1.38%. However, this metric experienced a pronounced reversal starting in 2019, becoming negative at -1.40%, with further declines to -1.76% in 2020 and -1.81% in 2021. This trend mirrors the economic profit pattern, highlighting consistent underperformance relative to the cost of capital after 2018.
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 × ÷ =
- Adjusted Operating Revenues
- The adjusted operating revenues have demonstrated an overall upward trajectory from 2017 to 2021. Starting at $14,495 million in 2017, revenues increased steadily each year, reaching $17,963 million in 2021. However, there was a slight dip observed in 2020, where revenues decreased from $15,467 million in 2019 to $15,223 million, before rebounding strongly in 2021. This suggests resilience in revenue generation despite any potential challenges faced during 2020.
- Economic Profit
- The economic profit displays a markedly different pattern compared to revenues. In 2017, the company achieved a positive economic profit of $65 million, which significantly increased to $255 million in 2018. However, from 2019 onwards, economic profit turned negative and worsened, declining to -$316 million in 2019, further decreasing to -$417 million in 2020, and stabilizing at -$414 million in 2021. This indicates a sharp deterioration in economic profitability despite rising revenues.
- Economic Profit Margin
- The economic profit margin follows a trend consistent with the economic profit figures. It was positive but modest in 2017 (0.45%), improving substantially to 1.71% in 2018. From 2019, the margin turned negative, registering -2.04%, then further declining to -2.74% in 2020, before improving slightly to -2.31% in 2021. This negative margin indicates that economic profit has become a cost rather than a value addition to the company, despite its increased revenues.
- Overall Analysis
- The data reveals a disconnect between revenue growth and economic profitability over the analyzed period. While adjusted operating revenues grew steadily, particularly in the latter years, economic profit and its margin deteriorated substantially from 2019, indicating rising costs, reduced efficiency, or other adverse factors that have negatively impacted value creation. The stabilization of economic profit around -$414 million and a modest improvement in economic profit margin in 2021 might suggest that the company is addressing these issues, but profitability remains a significant concern.