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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EMC Corp. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Operating Profit Margin since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
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Economic Profit
EMC Corp., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2015 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
A consistent decline in economic profit is observed between 2011 and 2015, indicating a sustained destruction of shareholder value. Economic profit transitioned from a deficit of 1,113 million US dollars in 2011 to a deficit of 4,082 million US dollars by 2015. This widening gap suggests that the returns generated by the business were insufficient to cover the cost of the capital employed.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a slight upward trajectory initially, peaking at 4,442 million US dollars in 2013. However, a significant downward trend emerged thereafter, with profits falling to 2,862 million US dollars by 2015. This represents a decline of approximately 35.6% from the 2013 peak, reflecting a weakening in operational profitability.
- Invested Capital
- Invested capital increased steadily throughout the five-year period, growing from 24,594 million US dollars in 2011 to 33,788 million US dollars in 2015. This continuous expansion of the capital base occurred despite the eventual decline in operating profits, contributing to the deterioration of economic profit.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating within a narrow range between 20.55% and 22.11%. This high cost of capital established a substantial financial hurdle that the company failed to surpass in any of the analyzed years.
- Economic Profit Analysis
- The negative economic profit is the result of a divergent trend where the capital base expanded while the operational earnings diminished. The compounding effect of increasing invested capital and decreasing NOPAT, maintained against a high cost of capital, led to the acceleration of value destruction, as evidenced by the deficit increasing nearly fourfold over the period.
Net Operating Profit after Taxes (NOPAT)
EMC Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
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 revenue.
4 Addition of increase (decrease) in product warranty obligations.
5 Addition of increase (decrease) in restructuring.
6 Addition of increase (decrease) in equity equivalents to net income attributable to EMC Corporation.
7 2015 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2015 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 35.00% =
9 Addition of after taxes interest expense to net income attributable to EMC Corporation.
10 2015 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35.00% =
11 Elimination of after taxes investment income.
The financial data over the five-year period reveals notable shifts in profitability metrics for the company.
- Net Income Attributable to EMC Corporation
- This indicator demonstrates an initial upward trajectory from 2011 to 2013, increasing from 2,461 million US dollars to a peak of 2,889 million US dollars. Subsequently, net income declined in the following years, dropping to 2,714 million US dollars in 2014 and falling more sharply to 1,990 million US dollars by the end of 2015. This downward trend in the latter years suggests challenges affecting net profitability.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT shows a relatively stable pattern in the first three years, with a slight increase from 4,267 million US dollars in 2011 to 4,442 million US dollars in 2013. However, in 2014, NOPAT decreased significantly to 3,737 million US dollars and continued to decline to 2,862 million US dollars in 2015. The decline in NOPAT aligns with the reduction in net income, indicating reduced operating efficiency or higher operating expenses.
Overall, the financial trends indicate a strengthening in profitability during the initial years, followed by a period of contraction in both net income and operating profit after taxes. The data suggests the company faced operational or market challenges after 2013 that adversely impacted earnings and operating performance.
Cash Operating Taxes
EMC Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
- Provision for Income Taxes
- The provision for income taxes demonstrates a fluctuating pattern over the five-year period. It increased notably from US$640 million in 2011 to a peak of US$918 million in 2012. This was followed by a decline to US$772 million in 2013. Subsequently, the provision rose again in 2014 to US$868 million, before decreasing to US$710 million in 2015. Overall, the provision shows variability without a consistent upward or downward trend, suggesting changes in taxable income or tax rates during the analyzed years.
- Cash Operating Taxes
- Cash operating taxes display a general increasing trend from 2011 to 2014, rising from US$739 million to US$1309 million. This represents a significant growth in actual cash payments for income taxes. However, in 2015, cash operating taxes decrease to US$992 million. Despite this drop, the values for 2015 remain considerably higher than the initial amount in 2011. The rising trend through 2014 followed by a decline in 2015 could indicate changes in the timing of tax payments, tax planning strategies, or variations in taxable income.
- Comparison Between Provision for Income Taxes and Cash Operating Taxes
- Throughout the period, cash operating taxes consistently exceed the provision for income taxes each year. The gap between cash taxes and provisions widens in 2012 and remains substantial through 2014, suggesting that actual tax payments were higher than the accounting estimates reflected in the provisions. By 2015, while both items decreased, cash payments still remained well above provisions. This pattern may indicate timing differences between tax accruals and payments, or adjustments in working capital related to tax obligations.
Invested Capital
EMC Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
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 revenue.
5 Addition of product warranty obligations.
6 Addition of restructuring.
7 Addition of equity equivalents to total EMC Corporation’s shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of building construction in progress.
10 Subtraction of short- and long-term investments.
- Total Reported Debt & Leases
- The total reported debt and leases exhibit significant fluctuations over the analyzed periods. There is a notable decrease from 4,450 million USD at the end of 2011 to 2,942 million USD at the end of 2012, indicating a substantial reduction in debt within that year. However, this trend reverses sharply in 2013, with debt increasing to 8,530 million USD. Subsequently, it declines in 2014 to 7,199 million USD before rising again in 2015 to 8,562 million USD. Overall, the company experienced volatile debt levels with an upward tendency in the latter years.
- Total EMC Corporation’s Shareholders’ Equity
- Shareholders’ equity shows a generally stable trend across the five-year period. It increased from 18,959 million USD in 2011 to 22,357 million USD in 2012, followed by minor fluctuations in subsequent years: a slight decrease to 22,301 million USD in 2013, a further small decline to 21,896 million USD in 2014, and another decrease to 21,140 million USD in 2015. This pattern suggests a modest erosion of equity after a strong initial increase.
- Invested Capital
- Invested capital demonstrates consistent growth throughout the period. Starting at 24,594 million USD in 2011, it rises steadily each year, reaching 27,392 million USD in 2012, then moving up to 31,439 million USD in 2013, 32,268 million USD in 2014, and finally peaking at 33,788 million USD in 2015. This continual increase indicates ongoing investment and resource allocation expansion within the company.
- Summary of Financial Trends
- The contrasting movements between debt levels and shareholders’ equity reflect changing financing strategies. The initial reduction in debt was followed by sharp increases, whereas equity experienced a peak early on and then a gradual decline. Invested capital's steady rise suggests active growth or asset acquisition. The data imply that the company may have shifted toward greater leverage in later years to support its investments. These trends highlight a dynamic approach to capital structure management with a balanced focus on growth and financing costs.
Cost of Capital
EMC Corp., cost of capital calculations
| 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: 2015-12-31).
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: 2014-12-31).
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: 2013-12-31).
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: 2012-12-31).
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: 2011-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
EMC Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Marvell Technology Inc. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2015 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial performance regarding economic value generation demonstrates a consistent downward trajectory between 2011 and 2015. There is a pronounced divergence between the growth of invested capital and the resulting economic profit, indicating a systemic failure to generate returns exceeding the cost of capital throughout the analyzed period.
- Economic Profit Trends
- Economic profit remained negative throughout the five-year period, exhibiting a steady and accelerating decline. The loss expanded from -1,113 million US dollars in 2011 to -4,082 million US dollars by 2015, representing a significant erosion of economic value.
- Invested Capital Growth
- Invested capital showed a continuous upward trend, increasing from 24,594 million US dollars in 2011 to 33,788 million US dollars in 2015. This growth indicates continued capital deployment into the business despite the lack of positive economic profit.
- Economic Spread Ratio Analysis
- The economic spread ratio deteriorated significantly over the period, moving from -4.53% in 2011 to -12.08% by 2015. While a brief period of relative stability was observed between 2012 and 2013, the subsequent decline in 2014 and 2015 highlights a widening gap between the return on invested capital and the cost of that capital.
Economic Profit Margin
EMC Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Advanced Micro Devices Inc. | ||||||
| Analog Devices Inc. | ||||||
| Applied Materials Inc. | ||||||
| Broadcom Inc. | ||||||
| Intel Corp. | ||||||
| KLA Corp. | ||||||
| Lam Research Corp. | ||||||
| Marvell Technology Inc. | ||||||
| Micron Technology Inc. | ||||||
| NVIDIA Corp. | ||||||
| Qualcomm Inc. | ||||||
| Texas Instruments Inc. | ||||||
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Economic profit. See details »
2 2015 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial performance from 2011 to 2015 demonstrates a consistent deterioration in economic value creation. Despite an overall increase in adjusted revenues for the majority of the period, there was a deepening deficit in economic profit, resulting in a significantly negative economic profit margin.
- Economic Profit Trends
- A continuous downward trend in economic profit is observed, with deficits widening every year. The economic profit fell from -1,113 million US dollars in 2011 to -4,082 million US dollars by 2015. This indicates a substantial increase in the amount of economic value destroyed over the five-year period.
- Adjusted Revenue Performance
- Adjusted revenues exhibited steady growth from 2011 through 2014, rising from 21,518 million US dollars to a peak of 25,626 million US dollars. A slight reversal occurred in 2015, with revenues declining to 25,341 million US dollars. The growth in top-line revenue was insufficient to counteract the factors driving the decline in economic profit.
- Economic Profit Margin Analysis
- The economic profit margin deteriorated steadily throughout the analysis period. Starting at -5.17% in 2011, the margin dropped to -16.11% by 2015. The acceleration of this decline, particularly between 2013 and 2015, highlights a growing disparity between the returns generated by the company's assets and the cost of the capital employed to generate those returns.