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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Emerson Electric Co. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Analysis of Liquidity Ratios
- Analysis of Reportable Segments
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Analysis of Debt
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Economic Profit
Emerson Electric Co., economic profit calculation
US$ in millions
| 12 months ended: | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | |
|---|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | |||||||
| Cost of capital2 | |||||||
| Invested capital3 | |||||||
| Economic profit4 | |||||||
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
= – × =
The financial performance between September 30, 2014, and September 30, 2019, is characterized by a persistent inability to generate positive economic profit, indicating that the returns on invested capital remained below the company's cost of capital throughout the period. While the magnitude of economic loss fluctuated, the overall trend from 2016 onward suggests a gradual recovery toward a break-even position.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility, reaching a peak of 2,871 million US$ in 2015 before experiencing a sharp decline to 1,731 million US$ in 2016. Following this trough, a consistent upward trajectory was observed, with NOPAT rising steadily to 2,461 million US$ by 2019, signaling an improvement in operational profitability.
- Cost of Capital and Invested Capital
- The cost of capital remained relatively stable, oscillating within a narrow band between 17.53% and 19.23%. Concurrently, invested capital showed a general downward trend from 17,628 million US$ in 2014 to a low of 15,181 million US$ in 2017, before beginning a moderate increase to 16,266 million US$ by 2019. This suggests a period of capital contraction or optimization followed by renewed investment.
- Economic Profit Analysis
- Economic profit remained negative for all six years analyzed, confirming that the company destroyed shareholder value during this timeframe. The deficit was most severe in 2016 at -1,221 million US$, coinciding with the lowest NOPAT. However, a positive trend emerged post-2016, with the economic loss narrowing to -608 million US$ by 2019. This improvement was driven by the simultaneous increase in NOPAT and the relative stability of the cost of capital, despite the increase in the invested capital base in the final two years.
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
= × =
7 2019 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
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
= × 21.00% =
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
The analysis of the financial data for the period from September 30, 2014, to September 30, 2019, reveals notable fluctuations in key profitability metrics.
- Net Earnings Common Stockholders
- The net earnings attributable to common stockholders demonstrate variability over the periods considered. Initially, there was an increase from 2,147 million USD in 2014 to a peak of 2,710 million USD in 2015. This was followed by a significant decrease to 1,635 million USD in 2016 and a slight further reduction to 1,518 million USD in 2017. Subsequently, the earnings recovered, rising to 2,203 million USD in 2018 and marginally improving to 2,306 million USD by 2019. This pattern suggests volatility in profitability, with a notable dip in the middle years before recovery in the latter two years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT shows a similar trend to net earnings, with an increase from 2,212 million USD in 2014 to 2,871 million USD in 2015, followed by a substantial decrease to 1,731 million USD in 2016. Unlike net earnings, NOPAT stabilizes somewhat in 2017 with a slight increase to 1,776 million USD. In the subsequent years, NOPAT rises consistently, reaching 2,124 million USD in 2018 and 2,461 million USD in 2019. This trend indicates a recovery in operating profitability after a period of decline, with steady improvements in the final two years.
Overall, both net earnings and NOPAT experienced a peak in 2015, followed by a decline over the next one to two years, and then a recovery phase from 2017 onward. The recovery in NOPAT appears somewhat stronger and more consistent than that in net earnings. These trends highlight periods of operational challenges and subsequent improvement in financial performance.
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).
- Income Tax Expense
- The income tax expense demonstrated a fluctuating downward trend over the six-year period. Starting at $1,164 million in 2014, it increased to a peak of $1,428 million in 2015. However, from 2015 onwards, the figure declined significantly to $697 million in 2016 and further decreased to $660 million in 2017. The downward trend continued, reaching a low of $443 million in 2018, before showing a modest increase to $531 million in 2019. This pattern suggests variability in taxable income or changes in tax rates, with a notable reduction after 2015 and slight recovery toward 2019.
- Cash Operating Taxes
- Cash operating taxes followed a similar overall declining trajectory with some variation. Beginning at $1,394 million in 2014, the amount rose to $1,525 million in 2015, indicating higher cash tax payments that year. Subsequently, there was a sharp decline to $782 million in 2016 and a marginal decrease to $766 million in 2017. The downward movement persisted, with taxes dropping to $737 million in 2018 and then declining further to $619 million in 2019. This trend mirrors the reduction observed in income tax expense, possibly reflecting lower taxable income or effective tax management strategies resulting in decreased cash tax obligations over time.
Invested Capital
Emerson Electric Co., invested capital calculation (financing approach)
US$ 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.
- Total Reported Debt & Leases
- The total reported debt and leases exhibited a non-linear trend over the analyzed periods. It increased from 6,834 million USD in 2014 to peak at 7,624 million USD in 2015, followed by a reduction to 5,137 million USD in 2017. Subsequently, the amount rose again, reaching 6,191 million USD by 2019. This pattern suggests fluctuations in debt management, with a notable decrease in the middle period before a moderate rebound.
- Common Stockholders’ Equity
- Common stockholders’ equity showed a general decline from 10,119 million USD in 2014 to 7,568 million USD in 2016. Thereafter, it increased to 8,947 million USD in 2018, before descending again to 8,233 million USD in 2019. This series of movements indicates some volatility but overall a downward pressure on equity levels during the period.
- Invested Capital
- Invested capital steadily decreased from 17,628 million USD in 2014 to a low of 15,181 million USD in 2017. After 2017, it gradually increased to 16,266 million USD by 2019. The downward trend in the initial years followed by a recovery suggests adjustments in the company's capital investment strategy or asset base.
- Overall Observations
- The data reflects a period of financial adjustment, with both liabilities and equity experiencing declines and recoveries at different times. The decrease in invested capital up until 2017, coupled with reduced debt levels in the same period, could indicate an active effort to deleverage or optimize capital structure. Subsequently, the increases in debt and invested capital alongside fluctuating equity values imply dynamic financial management responsive to changing conditions or strategic priorities.
Cost of Capital
Emerson Electric Co., 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: 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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 24.50%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 24.50%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | |||||||
| Invested capital2 | |||||||
| Performance Ratio | |||||||
| Economic spread ratio3 | |||||||
| 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 × ÷ =
4 Click competitor name to see calculations.
The analysis of economic value added metrics from 2014 to 2019 reveals a consistent period of value destruction, as indicated by negative economic profit and a negative economic spread ratio throughout the observed timeframe. Despite the persistence of these negative values, a general trend of recovery is evident in the latter years of the period.
- Economic Profit Trends
- Economic profit remained negative for all six years, signifying that the returns on invested capital failed to exceed the cost of capital. A period of significant volatility is observed between 2014 and 2016, with a temporary improvement in 2015 followed by a sharp decline to a period low of -1,221 million USD in 2016. From 2016 onward, a steady recovery trend is visible, with the economic loss narrowing consistently to -608 million USD by September 30, 2019.
- Invested Capital Dynamics
- Invested capital exhibited a downward trend for the first four years, declining from 17,628 million USD in 2014 to a minimum of 15,181 million USD in 2017. This contraction suggests a reduction in the capital base, potentially through asset divestment or operational optimization. However, this trend reversed in 2018, with invested capital increasing to 16,266 million USD by 2019, indicating a return to capital deployment.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative throughout the period, confirming that the company operated below its cost of capital. After reaching a trough of -7.39% in 2016, the ratio showed a sustained upward trajectory, improving to -3.74% by 2019. This narrowing spread indicates that the gap between the actual return on capital and the required return decreased over time, reflecting improved capital efficiency and a reduction in the rate of value destruction.
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 | |||||||
| Net sales | |||||||
| Performance Ratio | |||||||
| Economic profit margin2 | |||||||
| 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 × ÷ =
3 Click competitor name to see calculations.
Between 2014 and 2019, the organization consistently recorded negative economic profit, indicating that the returns generated were insufficient to cover the company's cost of capital. Despite the persistent deficit, a general trend of recovery in value creation is observable from 2016 onwards.
- Economic Profit Trends
- Economic profit remained in negative territory for the entire six-year period. A significant peak in economic loss occurred on September 30, 2016, reaching 1,221 million USD. Following this low point, a consistent improvement was observed, as losses narrowed sequentially from 1,108 million USD in 2017 to 608 million USD by 2019.
- Net Sales Volatility
- A substantial contraction in net sales was recorded between 2015 and 2016, where revenue dropped from 22,304 million USD to 14,522 million USD. This sharp decline was followed by a steady period of growth, with net sales recovering to 18,372 million USD by September 30, 2019.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit and sales figures. The margin reached its most critical point in 2016 at -8.41%. Subsequent years showed a progressive upward trend, with the margin improving to -7.26% in 2017, -5.05% in 2018, and finally -3.31% in 2019. This trajectory suggests an increasing efficiency in reducing the gap between actual returns and the required cost of capital relative to the volume of sales.