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.
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- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Capital Asset Pricing Model (CAPM)
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
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Economic Profit
HP Inc., economic profit calculation
US$ in millions
| 12 months ended: | Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | |
|---|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | |||||||
| Cost of capital2 | |||||||
| Invested capital3 | |||||||
| Economic profit4 | |||||||
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The analysis of the presented financial data reveals notable fluctuations and trends across the observed periods.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT shows a general decline over the years under review. Beginning at 4,258 million USD in 2013, it increased slightly in 2014 to 4,693 million USD, then experienced a consistent decrease from 2015 onwards. By 2018, NOPAT had fallen to 2,027 million USD, indicating a significant reduction over this six-year span.
- Cost of Capital
- The cost of capital has exhibited an upward trend, rising from 15.82% in 2013 to 18.83% in 2018. This increase was not linear but generally steep, with moderate fluctuations. Notably, the cost of capital peaked at 18.83% in 2018, the highest within the observed timeframe, suggesting higher funding costs and possible increased risk perception.
- Invested Capital
- Invested capital values present an unusual pattern. They start at 67,461 million USD in 2013, dip slightly in 2014, then increase to 71,569 million USD in 2015. However, from 2016 onwards, there is a dramatic and abrupt decrease to levels around 9,000 million USD or less, ending at 7,561 million USD in 2018. This sharp decline indicates either a change in accounting treatment, divestitures, or significant disposal of assets or capital reduction, which requires further investigation.
- Economic Profit
- Economic profit, calculated as NOPAT minus the cost of capital charge on invested capital, displays substantial improvements after 2015. Initially, the company experienced negative economic profits from 2013 to 2015, with losses peaking at -6,767 million USD in 2014. From 2016, economic profit turns positive, albeit modestly, reaching 1,406 million USD in 2016 and then stabilizing around 600 to 1,300 million USD in subsequent years. This shift underscores an improved ability to generate returns exceeding the cost of capital despite declining NOPAT.
In summary, while operating profitability has decreased, the company has improved its capital efficiency or structural position, resulting in positive economic profits in the later years. The escalating cost of capital may present challenges, but the significant reduction in invested capital appears to have contributed positively to economic profit outcomes.
Net Operating Profit after Taxes (NOPAT)
HP Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
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 liabilities.
5 Addition of increase (decrease) in restructuring plans, accrued balance.
6 Addition of increase (decrease) in equity equivalents to net earnings.
7 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
8 2018 Calculation
Tax benefit of interest expense on borrowings = Adjusted interest expense on borrowings × Statutory income tax rate
= × 23.30% =
9 Addition of after taxes interest expense to net earnings.
10 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 23.30% =
11 Elimination of after taxes investment income.
12 Elimination of discontinued operations.
- Net earnings
-
Net earnings displayed a downward trend from 2013 through 2016, decreasing from 5,113 million US dollars in 2013 to a low of 2,496 million US dollars in 2016. This was followed by a period of relative stability with a slight increase to 2,526 million US dollars in 2017. In 2018, net earnings sharply rebounded to 5,327 million US dollars, surpassing the 2013 figure.
- Net operating profit after taxes (NOPAT)
-
NOPAT witnessed a decline during the same initial period, dropping from 4,258 million US dollars in 2013 to 2,997 million US dollars in 2016. There was a modest recovery in 2017, reaching 3,064 million US dollars. However, contrary to net earnings, NOPAT decreased significantly in 2018 to 2,027 million US dollars, marking the lowest value in the observed range.
- Overall Analysis
-
The data reveals diverging trends between net earnings and NOPAT in 2018. While net earnings showed a strong recovery, more than doubling relative to the previous year, NOPAT declined sharply, indicating potential changes in operational efficiency, tax effects, or non-operating income components affecting the profitability metrics differently. The earlier period from 2013 to 2016 demonstrates a consistent decline in both metrics, possibly pointing to operational challenges or adverse market conditions during those years.
Cash Operating Taxes
HP Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
- Provision for (benefit from) taxes on earnings
- The provision for taxes on earnings exhibits significant volatility over the observed period. Starting at $1,397 million in 2013, it increased to $1,544 million in 2014, followed by a sharp decline to $178 million in 2015. In 2016, the amount rose again to $1,095 million, then decreased to $750 million in 2017, before turning into a substantial tax benefit of -$2,314 million in 2018. This fluctuation indicates variability in the company's taxable income or changes in tax strategy and tax regulations over the years.
- Cash operating taxes
- Cash operating taxes show a general downward trend from 2013 to 2017, decreasing from $1,924 million to $612 million. However, there is a notable rebound in 2018 with an increase to $1,398 million. This trend suggests a gradual reduction in actual cash tax payments over the first five years, possibly due to tax planning or changes in profitability, followed by a significant rise in the final year, which could reflect an increase in taxable cash flows or changes in tax payments timing or policies.
Invested Capital
HP Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
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 liabilities.
6 Addition of restructuring plans, accrued balance.
7 Addition of equity equivalents to total HP stockholders’ equity (deficit).
8 Removal of accumulated other comprehensive income.
9 Subtraction of available-for-sale investments.
- Total reported debt & leases
- The total reported debt and leases exhibited a fluctuating pattern over the analyzed period. Starting at 25,193 million US dollars in 2013, the figure decreased to 22,206 million in 2014, followed by an increase to 27,126 million in 2015. Subsequently, there was a sharp decline to 7,737 million in 2016, with minor increases to 8,855 million in 2017 and a decrease again to 7,247 million in 2018. This indicates a significant reduction in debt levels from 2015 onwards, possibly reflecting a strategic deleveraging or asset restructuring effort.
- Total HP stockholders’ equity (deficit)
- Stockholders’ equity showed stability and slight growth from 27,269 million in 2013 to 27,768 million in 2015. However, from 2016 onwards, the equity balance turned negative, indicating a deficit position of -3,889 million in 2016. This deficit slightly improved but remained negative at -3,408 million in 2017 and -639 million in 2018. The transition to negative equity suggests significant losses or charges affecting retained earnings or valuation adjustments during this period.
- Invested capital
- Invested capital remained relatively stable and showed a mild upward trend from 67,461 million in 2013 to 71,569 million in 2015. Beginning in 2016, there was a sharp and substantial drop to 9,027 million followed by a slight increase to 9,763 million in 2017 and a decrease again to 7,561 million in 2018. The dramatic decline post-2015 aligns with reduced debt levels and negative equity, possibly reflecting a divestiture of significant assets or a fundamental change in capital structure.
Cost of Capital
HP Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 23.30%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 23.30%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2018-10-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2017-10-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2016-10-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2015-10-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2014-10-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Short- and long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2013-10-31).
1 US$ in millions
2 Equity. See details »
3 Short- and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
HP Inc., economic spread ratio calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | |||||||
| Invested capital2 | |||||||
| Performance Ratio | |||||||
| Economic spread ratio3 | |||||||
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Apple Inc. | |||||||
| Arista Networks Inc. | |||||||
| Cisco Systems Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial data reflects significant shifts in economic profit, invested capital, and economic spread ratio over the six-year period analyzed.
- Economic Profit
- Economic profit began at a substantial negative level of -6411 million USD in 2013 and continued to decline further in 2014 to -6767 million USD, indicating increasing losses during these years. However, from 2015 onwards, there was a marked improvement, moving into positive territory by 2016 with 1406 million USD. Although there was a slight decrease afterward, economic profit remained positive in 2017 and 2018, registering 1307 million USD and 603 million USD, respectively. This trend suggests a recovery phase after initial losses, albeit with some volatility in the latest periods.
- Invested Capital
- The invested capital figures show a decline from 67461 million USD in 2013 to a low of 65787 million USD in 2014, followed by an increase to 71569 million USD in 2015. A dramatic decrease occurred in 2016, dropping sharply to 9027 million USD and remaining at a comparable level through 2018, with slight fluctuations (9763 million USD in 2017 and 7561 million USD in 2018). This sharp drop might indicate a restructuring, asset divestiture, or a change in accounting or reporting practices impacting the invested capital base during this period.
- Economic Spread Ratio
- The economic spread ratio, which reflects the return above the cost of capital, was significantly negative in 2013 and 2014 at -9.5% and -10.29%, respectively. It improved in 2015 to -5.85%, then turned positive in 2016 with a robust 15.57%. Although it decreased subsequently, it remained positive, with 13.39% in 2017 and 7.97% in 2018. This ratio's trajectory aligns with the economic profit trend, indicating improved profitability relative to capital costs after 2015, but with a moderation in the last two years.
Overall, the data reveals a period of financial distress or heavy losses in the early years, followed by a recovery phase starting in 2016, with positive economic profit and spread ratios despite a significant reduction in invested capital. The decrease in invested capital alongside improved profitability metrics suggests enhanced capital efficiency or strategic shifts in asset management.
Economic Profit Margin
HP Inc., economic profit margin calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | |||||||
| Net revenue | |||||||
| Add: Increase (decrease) in deferred revenue | |||||||
| Adjusted net revenue | |||||||
| Performance Ratio | |||||||
| Economic profit margin2 | |||||||
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Apple Inc. | |||||||
| Arista Networks Inc. | |||||||
| Cisco Systems Inc. | |||||||
| Dell Technologies Inc. | |||||||
| Super Micro Computer Inc. | |||||||
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
1 Economic profit. See details »
2 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit experienced a marked improvement over the observed period. Initially, there were significant negative values, with a low of -6,767 million USD in 2014. By 2016, economic profit turned positive, reaching 1,406 million USD, and although it decreased slightly thereafter, it remained positive in 2017 and 2018, with values of 1,307 million USD and 603 million USD respectively. This shift indicates a turnaround from losses to profitability.
- Adjusted Net Revenue
- The adjusted net revenue showed a declining trend from 2013 to 2015, dropping from 111,817 million USD to 103,853 million USD. A significant decrease occurred in 2016, where it nearly halved to 48,159 million USD. However, there was a recovery in the following years, with revenue increasing to 52,205 million USD in 2017 and further to 58,639 million USD in 2018. This pattern suggests a restructuring or change in reporting standards that significantly impacted revenue figures starting in 2016.
- Economic Profit Margin
- The economic profit margin followed a trajectory consistent with the economic profit figures. It started negative at -5.73% in 2013, worsening slightly to -6.09% in 2014, and then improving to -4.03% in 2015. From 2016 onward, the margin turned positive, reaching 2.92%, then decreasing slightly to 2.5% in 2017 and further to 1.03% in 2018. This improvement in margin aligns with the transition from negative to positive economic profit, indicating better utilization of revenues to generate profit.