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:
- Statement of Comprehensive Income
- Analysis of Liquidity Ratios
- Analysis of Geographic Areas
- Enterprise Value to EBITDA (EV/EBITDA)
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Dividend Discount Model (DDM)
- Return on Assets (ROA) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
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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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes exhibited notable fluctuations over the six-year period. It increased from 2,212 million USD in 2014 to a peak of 2,871 million USD in 2015, followed by a sharp decline to 1,731 million USD in 2016. Subsequently, NOPAT showed a gradual recovery, rising to 1,776 million USD in 2017 and further increasing to 2,124 million USD in 2018, before reaching 2,461 million USD in 2019.
- Cost of Capital
- The cost of capital remained relatively stable but showed a slight upward trend. Starting at 15.95% in 2014, it decreased marginally to 15.01% in 2015, then increased again in the following years, peaking at 16.46% in 2018, before a small decrease to 16.14% in 2019. Overall, the cost of capital fluctuated within a narrow range around the 16% mark.
- Invested Capital
- Invested capital demonstrated a decreasing trend from 2014 to 2017, declining from 17,628 million USD to 15,181 million USD. This was followed by a modest increase in 2018 and 2019, reaching 15,617 million USD and 16,266 million USD, respectively. The overall pattern suggests an initial reduction of invested capital followed by stabilization and slight growth.
- Economic Profit
- Economic profit values reflect considerable variability and an overall improvement towards the end of the period. In 2014, the economic profit was negative at -599 million USD, turned positive to 270 million USD in 2015, but again dropped sharply to -796 million USD in 2016. The negative economic profit values persisted through 2017 and 2018, although the magnitude of losses decreased from -692 million USD to -446 million USD. In 2019, economic profit further improved significantly, reducing the negative figure to -165 million USD.
- Summary of Financial Trends
- The company experienced volatility in net operating profit after taxes, with a peak in 2015 and subsequent recovery after a decline in 2016. The cost of capital remained relatively stable near 16%, suggesting consistent financing costs over the period. Invested capital was gradually reduced during the first half of the period, then modestly increased, indicating possible strategic capital management. Despite fluctuations, economic profit mostly remained negative except for 2015, although it demonstrated a clear trend toward reducing losses, especially in the last two years. This indicates improving value creation relative to the cost of capital, yet full recovery to positive economic profit was not achieved by 2019.
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.
- Economic Profit
- The economic profit exhibited significant volatility throughout the analyzed periods. Starting with a substantial loss of 599 million USD in 2014, it improved to a positive 270 million USD in 2015. However, the profit then sharply declined again, returning to negative territory and reaching -796 million USD in 2016, followed by a slight recovery to -692 million USD in 2017. The losses continued to diminish in magnitude thereafter, with values of -446 million USD in 2018 and -165 million USD in 2019, indicating a gradual but inconsistent trend toward profitability.
- Invested Capital
- The invested capital showed a generally declining trend from 2014 to 2017, decreasing from 17,628 million USD to 15,181 million USD. Following this period of contraction, the invested capital rebounded slightly, increasing to 15,617 million USD in 2018 and further to 16,266 million USD in 2019. This pattern suggests a phase of asset reduction or divestment followed by renewed investment or asset acquisition.
- Economic Spread Ratio
- The economic spread ratio, which reflects the difference between return on invested capital and cost of capital, closely mirrored the economic profit trends. The ratio was negative in 2014 at -3.4%, improved to a positive 1.56% in 2015, and then deteriorated to negative figures in the subsequent years: -4.82% in 2016, -4.56% in 2017, and -2.86% in 2018. By 2019, the negative economic spread narrowed further to -1.01%, indicating that while the company's returns were still below cost of capital, performance was improving over time.
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.
- Economic Profit
- The economic profit demonstrated considerable volatility over the analyzed period. Initially, it was significantly negative, amounting to -599 million USD at the beginning of the period. A notable improvement occurred in the following year, reaching a positive value of 270 million USD. However, the profit reverted to negative territory in the subsequent years and remained so through the end of the period, despite a trend toward reduced losses. The negative economic profit values decreased in magnitude from -796 million USD in 2016 to -165 million USD in 2019, indicating gradual improvement in operational efficiency or profitability.
- Net Sales
- Net sales exhibited fluctuations with an overall declining trend in the first part of the period. Sales dropped from 24,537 million USD in 2014 to a low of 14,522 million USD in 2016. After this trough, net sales began a recovery phase, steadily increasing each year and reaching 18,372 million USD by 2019, though still below the initial 2014 figures. This pattern suggests challenges faced earlier in the period that were addressed in subsequent years, leading to renewed sales growth.
- Economic Profit Margin
- The economic profit margin mirrored the volatility observed in economic profit values. Starting from a negative margin of -2.44% in 2014, it improved significantly to a positive 1.21% in 2015, reflecting the economic profit gain that year. Subsequently, the margin deteriorated sharply to negative values, hitting -5.48% in 2016, which aligns with the largest negative economic profit value. Following this, the margin showed a continuous improvement trend from -4.53% in 2017 to -0.9% in 2019, indicating a reduction in relative economic losses and movement toward operational sustainability.
- Overall Analysis
- The company's economic performance over the six-year period was marked by periods of both positive and negative economic profit, with an overall trend toward recovery after a significant downturn around the midpoint. Net sales experienced an initial decline, followed by a gradual increase, which corresponds with improvements in economic profit margin. Although economic profit remained negative in the latter years, the decreasing magnitude of losses suggests enhanced profitability and potentially more effective management of resources or cost structures. The patterns imply that despite earlier difficulties, the company has been able to stabilize and improve its economic condition over time.