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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
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 3,310 – 13.20% × 31,576 = -858
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. | Eaton Corp. plc economic profit decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level. |
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in deferred revenue liabilities.
4 Addition of increase (decrease) in product warranty accruals.
5 Addition of increase (decrease) in liabilities related to workforce reductions, plant closing and other associated costs.
6 Addition of increase (decrease) in equity equivalents to net income attributable to Eaton ordinary shareholders.
7 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 668 × 4.00% = 27
8 2023 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 178 × 25.00% = 44
9 Addition of after taxes interest expense to net income attributable to Eaton ordinary shareholders.
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. | Eaton Corp. plc NOPAT increased from 2021 to 2022 and from 2022 to 2023. |
Cash Operating Taxes
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
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. | Eaton Corp. plc cash operating taxes decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level. |
Invested Capital
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
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 liabilities.
5 Addition of product warranty accruals.
6 Addition of liabilities related to workforce reductions, plant closing and other associated costs.
7 Addition of equity equivalents to total Eaton shareholders’ equity.
8 Removal of accumulated other comprehensive income.
9 Subtraction of short-term investments.
Item | Description | The company |
---|---|---|
Invested capital | Capital is an approximation of the economic book value of all cash invested in going-concern business activities. | Eaton Corp. plc invested capital increased from 2021 to 2022 and from 2022 to 2023. |
Cost of Capital
Eaton Corp. plc, cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | 115,456) | 115,456) | ÷ | 125,056) | = | 0.92 | 0.92 | × | 14.10% | = | 13.01% | ||
Debt3 | 8,932) | 8,932) | ÷ | 125,056) | = | 0.07 | 0.07 | × | 3.19% × (1 – 25.00%) | = | 0.17% | ||
Operating lease liability4 | 668) | 668) | ÷ | 125,056) | = | 0.01 | 0.01 | × | 4.00% × (1 – 25.00%) | = | 0.02% | ||
Total: | 125,056) | 1.00 | 13.20% |
Based on: 10-K (reporting date: 2023-12-31).
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 | 68,766) | 68,766) | ÷ | 77,301) | = | 0.89 | 0.89 | × | 14.10% | = | 12.54% | ||
Debt3 | 7,949) | 7,949) | ÷ | 77,301) | = | 0.10 | 0.10 | × | 3.21% × (1 – 25.00%) | = | 0.25% | ||
Operating lease liability4 | 586) | 586) | ÷ | 77,301) | = | 0.01 | 0.01 | × | 3.30% × (1 – 25.00%) | = | 0.02% | ||
Total: | 77,301) | 1.00 | 12.81% |
Based on: 10-K (reporting date: 2022-12-31).
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 | 59,545) | 59,545) | ÷ | 69,247) | = | 0.86 | 0.86 | × | 14.10% | = | 12.12% | ||
Debt3 | 9,245) | 9,245) | ÷ | 69,247) | = | 0.13 | 0.13 | × | 2.82% × (1 – 25.00%) | = | 0.28% | ||
Operating lease liability4 | 457) | 457) | ÷ | 69,247) | = | 0.01 | 0.01 | × | 2.60% × (1 – 25.00%) | = | 0.01% | ||
Total: | 69,247) | 1.00 | 12.42% |
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 | 52,820) | 52,820) | ÷ | 62,338) | = | 0.85 | 0.85 | × | 14.10% | = | 11.94% | ||
Debt3 | 9,076) | 9,076) | ÷ | 62,338) | = | 0.15 | 0.15 | × | 3.10% × (1 – 25.00%) | = | 0.34% | ||
Operating lease liability4 | 442) | 442) | ÷ | 62,338) | = | 0.01 | 0.01 | × | 3.30% × (1 – 25.00%) | = | 0.02% | ||
Total: | 62,338) | 1.00 | 12.30% |
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 | 39,926) | 39,926) | ÷ | 49,271) | = | 0.81 | 0.81 | × | 14.10% | = | 11.42% | ||
Debt3 | 8,893) | 8,893) | ÷ | 49,271) | = | 0.18 | 0.18 | × | 3.15% × (1 – 25.00%) | = | 0.43% | ||
Operating lease liability4 | 452) | 452) | ÷ | 49,271) | = | 0.01 | 0.01 | × | 3.70% × (1 – 25.00%) | = | 0.03% | ||
Total: | 49,271) | 1.00 | 11.88% |
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 »
Economic Spread Ratio
Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | (858) | (1,486) | (1,361) | (1,836) | (1,179) | |
Invested capital2 | 31,576) | 30,906) | 29,709) | 27,450) | 29,469) | |
Performance Ratio | ||||||
Economic spread ratio3 | -2.72% | -4.81% | -4.58% | -6.69% | -4.00% | |
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
Boeing Co. | -14.72% | -20.11% | -18.75% | -30.30% | -20.28% | |
Caterpillar Inc. | 4.45% | 0.81% | 0.76% | -5.36% | 0.99% | |
GE Aerospace | 7.11% | -9.04% | -14.03% | -4.12% | -6.66% | |
Honeywell International Inc. | -0.10% | -1.05% | 0.00% | -1.43% | 2.83% | |
Lockheed Martin Corp. | 17.22% | 13.21% | 14.20% | 17.51% | 18.13% | |
RTX Corp. | -3.30% | -3.17% | -2.70% | -8.22% | 0.27% |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -858 ÷ 31,576 = -2.72%
4 Click competitor name to see calculations.
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. | Eaton Corp. plc economic spread ratio deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level. |
Economic Profit Margin
Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | (858) | (1,486) | (1,361) | (1,836) | (1,179) | |
Net sales | 23,196) | 20,752) | 19,628) | 17,858) | 21,390) | |
Add: Increase (decrease) in deferred revenue liabilities | 118) | 86) | 165) | 23) | (14) | |
Adjusted net sales | 23,314) | 20,838) | 19,793) | 17,881) | 21,376) | |
Performance Ratio | ||||||
Economic profit margin2 | -3.68% | -7.13% | -6.88% | -10.27% | -5.52% | |
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
Boeing Co. | -8.49% | -15.35% | -14.88% | -24.81% | -9.41% | |
Caterpillar Inc. | 4.00% | 0.79% | 0.88% | -7.44% | 1.07% | |
GE Aerospace | 5.53% | -8.20% | -14.16% | -6.58% | -9.90% | |
Honeywell International Inc. | -0.13% | -1.39% | 0.00% | -2.12% | 3.30% | |
Lockheed Martin Corp. | 6.99% | 5.33% | 6.06% | 7.51% | 7.78% | |
RTX Corp. | -5.36% | -5.36% | -4.81% | -16.80% | 0.36% |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -858 ÷ 23,314 = -3.68%
3 Click competitor name to see calculations.
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. | Eaton Corp. plc economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level. |