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.
Economic Profit
Emerson Electric Co., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,461 – 18.87% × 16,266 = -609
The analysis of economic profit from 2014 to 2019 reveals that the organization consistently operated below its cost of capital, as evidenced by the negative economic profit recorded throughout the entire period. While value destruction persisted, a general trend of recovery in economic performance is observable following a significant decline in 2016.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated substantial volatility over the period. A peak of 2,871 million US$ was reached in 2015, followed by a sharp contraction to 1,731 million US$ in 2016. From 2017 onward, a consistent growth pattern is observed, with NOPAT rising steadily to reach 2,461 million US$ by September 30, 2019.
- Invested Capital and Cost of Capital
- Invested capital underwent a period of reduction, declining from 17,628 million US$ in 2014 to a minimum of 15,181 million US$ in 2017, before moderately increasing to 16,266 million US$ in 2019. During this same timeframe, the cost of capital remained relatively stable, oscillating between a low of 17.53% in 2015 and a high of 19.24% in 2018.
- Economic Profit Performance
- Economic profit remained negative for all reported years, indicating that the returns generated were insufficient to cover the cost of the capital employed. The most significant value destruction occurred in 2016, with an economic profit of -1,222 million US$. However, from 2016 to 2019, there is a clear trend of improvement, as the economic profit deficit narrowed from -1,222 million US$ to -609 million US$. This upward trajectory is primarily attributed to the recovery in NOPAT relative to the stability of the cost of capital and the fluctuations in invested capital.
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Net Operating Profit after Taxes (NOPAT)
Emerson Electric Co., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances.
3 Addition of increase (decrease) in product warranty.
4 Addition of increase (decrease) in liability for restructuring costs.
5 Addition of increase (decrease) in equity equivalents to net earnings common stockholders.
6 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 470 × 3.06% = 14
7 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 215 × 21.00% = 45
8 Addition of after taxes interest expense to net earnings common stockholders.
9 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 27 × 21.00% = 6
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
The financial performance between 2014 and 2019 is characterized by a period of volatility followed by a sustained recovery in both operating profitability and net earnings. A peak in performance occurred in 2015, followed by a notable contraction in 2016 and 2017, before returning to growth levels in 2018 and 2019.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT exhibited significant variance, increasing from US$ 2,212 million in 2014 to a peak of US$ 2,871 million in 2015. A sharp decline followed in 2016, with NOPAT falling to US$ 1,731 million. Following a period of relative stability in 2017 at US$ 1,776 million, a consistent upward trajectory was established, reaching US$ 2,461 million by September 30, 2019.
- Net Earnings for Common Stockholders Trend
- Net earnings followed a trajectory closely aligned with NOPAT. After rising to US$ 2,710 million in 2015, net earnings dropped substantially to US$ 1,635 million in 2016 and reached a period low of US$ 1,518 million in 2017. A recovery was observed in 2018 and 2019, with earnings climbing to US$ 2,203 million and US$ 2,306 million, respectively.
- Comparative Analysis of NOPAT and Net Earnings
- Throughout the majority of the observed period, NOPAT remained higher than net earnings, suggesting that operational profitability generally exceeded the final earnings available to stockholders after accounting for financing costs and other non-operating items. A notable divergence occurred in 2018, where net earnings (US$ 2,203 million) exceeded NOPAT (US$ 2,124 million), indicating a period where non-operating income or tax adjustments positively influenced the bottom line relative to core operational performance. By 2019, the relationship reverted, with NOPAT returning to a value higher than net earnings.
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Cash Operating Taxes
Emerson Electric Co., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
An analysis of tax-related expenditures between 2014 and 2019 reveals a significant volatility in both accounting tax expenses and actual cash tax outflows, with a pronounced downward shift occurring after 2015.
- Cash Operating Taxes Trend
- Cash operating taxes peaked in September 2015 at 1,525 million US dollars. This was followed by a substantial reduction in 2016, where outflows dropped to 782 million US dollars, a decrease of approximately 48.7%. From 2016 through 2019, a general downward trajectory continued, concluding at 619 million US dollars in 2019.
- Income Tax Expense Trend
- Income tax expense mirrored the movement of cash operating taxes, peaking in 2015 at 1,428 million US dollars before falling sharply to 697 million US dollars in 2016. The lowest point was reached in 2018 at 443 million US dollars, followed by a moderate recovery to 531 million US dollars in 2019.
- Variance Between Cash and Accounting Taxes
- Throughout the entire period, cash operating taxes consistently exceeded income tax expense. The gap between these two metrics fluctuated over time; it was most pronounced in 2018, where cash operating taxes were 294 million US dollars higher than the reported tax expense. In contrast, the variance was narrowest in 2016 and 2019, suggesting periods of closer alignment between statutory tax accounting and actual cash disbursements.
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Invested Capital
Emerson Electric Co., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
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 product warranty.
5 Addition of liability for restructuring costs.
6 Addition of equity equivalents to common stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
The analysis of the capital structure from 2014 to 2019 reveals a period of capital contraction followed by a moderate expansion. Total invested capital peaked in 2014 and reached its lowest point in 2017 before trending upward through 2019.
- Invested Capital Trends
- A consistent decline in invested capital is observed from 2014, when it stood at US$ 17,628 million, to a low of US$ 15,181 million in 2017. This contraction represents a reduction of approximately 13.9% over three years. A reversal occurred in 2018 and 2019, with the figure climbing to US$ 16,266 million by the end of the period.
- Debt and Lease Obligations
- Debt levels exhibited significant volatility during the analyzed timeframe. An initial increase occurred in 2015, reaching US$ 7,624 million, followed by a sharp decline to a period low of US$ 5,137 million in 2017. From 2017 onward, a steady upward trend in reported debt and leases is evident, ending at US$ 6,191 million in 2019.
- Equity Fluctuations
- Common stockholders' equity experienced a notable contraction between 2014 and 2016, dropping from US$ 10,119 million to US$ 7,568 million. A partial recovery was recorded in 2017 and 2018, peaking at US$ 8,947 million, before declining again to US$ 8,233 million in 2019.
- Capital Composition Insights
- The reduction in invested capital between 2014 and 2017 was driven by simultaneous declines in both equity and debt. However, the subsequent increase in invested capital from 2017 to 2019 was primarily fueled by rising debt levels, as equity levels remained below 2014 peaks and showed a decrease in the final year of the period.
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Cost of Capital
Emerson Electric Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 44,511) | 44,511) | ÷ | 51,171) | = | 0.87 | 0.87 | × | 21.34% | = | 18.56% | ||
| Debt3 | 6,190) | 6,190) | ÷ | 51,171) | = | 0.12 | 0.12 | × | 3.06% × (1 – 21.00%) | = | 0.29% | ||
| Operating lease liability4 | 470) | 470) | ÷ | 51,171) | = | 0.01 | 0.01 | × | 3.06% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 51,171) | 1.00 | 18.87% | ||||||||||
Based on: 10-K (reporting date: 2019-09-30).
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 | 42,867) | 42,867) | ÷ | 48,354) | = | 0.89 | 0.89 | × | 21.34% | = | 18.92% | ||
| Debt3 | 4,895) | 4,895) | ÷ | 48,354) | = | 0.10 | 0.10 | × | 3.81% × (1 – 24.50%) | = | 0.29% | ||
| Operating lease liability4 | 592) | 592) | ÷ | 48,354) | = | 0.01 | 0.01 | × | 3.81% × (1 – 24.50%) | = | 0.04% | ||
| Total: | 48,354) | 1.00 | 19.24% | ||||||||||
Based on: 10-K (reporting date: 2018-09-30).
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 | 38,676) | 38,676) | ÷ | 44,134) | = | 0.88 | 0.88 | × | 21.34% | = | 18.70% | ||
| Debt3 | 4,977) | 4,977) | ÷ | 44,134) | = | 0.11 | 0.11 | × | 3.89% × (1 – 35.00%) | = | 0.29% | ||
| Operating lease liability4 | 481) | 481) | ÷ | 44,134) | = | 0.01 | 0.01 | × | 3.89% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 44,134) | 1.00 | 19.01% | ||||||||||
Based on: 10-K (reporting date: 2017-09-30).
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 | 35,333) | 35,333) | ÷ | 43,006) | = | 0.82 | 0.82 | × | 21.34% | = | 17.53% | ||
| Debt3 | 7,123) | 7,123) | ÷ | 43,006) | = | 0.17 | 0.17 | × | 2.99% × (1 – 35.00%) | = | 0.32% | ||
| Operating lease liability4 | 550) | 550) | ÷ | 43,006) | = | 0.01 | 0.01 | × | 2.99% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 43,006) | 1.00 | 17.88% | ||||||||||
Based on: 10-K (reporting date: 2016-09-30).
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 | 32,734) | 32,734) | ÷ | 40,714) | = | 0.80 | 0.80 | × | 21.34% | = | 17.15% | ||
| Debt3 | 7,198) | 7,198) | ÷ | 40,714) | = | 0.18 | 0.18 | × | 2.98% × (1 – 35.00%) | = | 0.34% | ||
| Operating lease liability4 | 782) | 782) | ÷ | 40,714) | = | 0.02 | 0.02 | × | 2.98% × (1 – 35.00%) | = | 0.04% | ||
| Total: | 40,714) | 1.00 | 17.53% | ||||||||||
Based on: 10-K (reporting date: 2015-09-30).
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 | 44,497) | 44,497) | ÷ | 51,742) | = | 0.86 | 0.86 | × | 21.34% | = | 18.35% | ||
| Debt3 | 6,435) | 6,435) | ÷ | 51,742) | = | 0.12 | 0.12 | × | 3.28% × (1 – 35.00%) | = | 0.27% | ||
| Operating lease liability4 | 810) | 810) | ÷ | 51,742) | = | 0.02 | 0.02 | × | 3.28% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 51,742) | 1.00 | 18.65% | ||||||||||
Based on: 10-K (reporting date: 2014-09-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Emerson Electric Co., economic spread ratio calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (609) | (881) | (1,110) | (1,222) | (167) | (1,075) | |
| Invested capital2 | 16,266) | 15,617) | 15,181) | 16,521) | 17,328) | 17,628) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -3.75% | -5.64% | -7.31% | -7.40% | -0.96% | -6.10% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -609 ÷ 16,266 = -3.75%
4 Click competitor name to see calculations.
The analysis of economic value creation from 2014 to 2019 reveals a consistent inability to generate positive economic profit, as the company operated with a negative economic spread ratio throughout the entire period. While the magnitude of value destruction fluctuated, a gradual recovery trend is evident in the latter years of the sequence.
- Economic Profit Trends
- Economic profit remained negative for six consecutive years, indicating that the returns generated were insufficient to cover the cost of invested capital. A notable peak in performance occurred in 2015, where the deficit narrowed to -167 million USD, before sharply declining to its lowest point of -1,222 million USD in 2016. From 2017 through 2019, a steady recovery is observed, with the economic loss improving each year to reach -609 million USD by the end of the period.
- Invested Capital Movements
- Invested capital exhibited a downward trend for the first four years, decreasing from 17,628 million USD in 2014 to a minimum of 15,181 million USD in 2017. This reduction suggests a period of capital contraction or divestment. Following 2017, the trend reversed, with invested capital increasing to 16,266 million USD by September 30, 2019.
- Economic Spread Ratio Analysis
- The economic spread ratio remained in negative territory, mirroring the trends seen in economic profit. The ratio reached its most critical level in 2016 at -7.40%, coinciding with the period of highest economic loss. However, the ratio demonstrates a consistent upward trajectory from 2016 onwards, improving from -7.31% in 2017 to -3.75% in 2019. This progression indicates a narrowing gap between the return on invested capital and the weighted average cost of capital, although the threshold for value creation has not yet been crossed.
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Economic Profit Margin
Emerson Electric Co., economic profit margin calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | (609) | (881) | (1,110) | (1,222) | (167) | (1,075) | |
| Net sales | 18,372) | 17,408) | 15,264) | 14,522) | 22,304) | 24,537) | |
| Performance Ratio | |||||||
| Economic profit margin2 | -3.32% | -5.06% | -7.27% | -8.42% | -0.75% | -4.38% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -609 ÷ 18,372 = -3.32%
3 Click competitor name to see calculations.
Between 2014 and 2019, the entity consistently reported negative economic profit, indicating that the returns on invested capital were insufficient to cover the cost of capital. While economic value was not created during this period, a trend of gradual recovery in both absolute economic profit and profit margins is observable following a significant contraction in 2016.
- Economic Profit Trends
- Economic profit remained in negative territory throughout the six-year period. A temporary improvement was noted in 2015, where losses narrowed significantly to -167 million USD. However, 2016 marked the lowest point of the period with an economic loss of -1,222 million USD. From 2017 through 2019, a consistent recovery trend emerged, with the deficit narrowing each year to end at -609 million USD.
- Net Sales Performance
- Net sales experienced a sharp decline between 2015 and 2016, falling from 22,304 million USD to 14,522 million USD. Following this decline, sales demonstrated a steady recovery, increasing annually to reach 18,372 million USD by September 30, 2019.
- Economic Profit Margin Analysis
- The economic profit margin followed a volatile trajectory, reaching a peak of -0.75% in 2015 before dropping to a period low of -8.42% in 2016. Subsequent years showed a steady upward trend, with margins improving to -7.27% in 2017, -5.06% in 2018, and -3.32% in 2019. This indicates an improving efficiency in capital utilization relative to revenue, although the company failed to achieve a positive economic profit margin by the end of the analyzed timeframe.
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