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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- Statement of Comprehensive Income
- Analysis of Profitability Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Geographic Areas
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Net Profit Margin since 2005
- Debt to Equity since 2005
- Price to Operating Profit (P/OP) 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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- From 2013 to 2014, there was an increase in NOPAT from 4,258 million USD to 4,693 million USD. However, this upward trend reversed in 2015 with a decrease to 3,947 million USD, followed by a further decline to 2,997 million USD in 2016. In 2017, a slight recovery was observed, with NOPAT increasing to 3,064 million USD, before declining again significantly to 2,027 million USD in 2018.
- Cost of Capital
- The cost of capital exhibited an overall increasing trend throughout the period analyzed. Beginning at 16.13% in 2013, it rose to 17.77% in 2014, then decreased to 11.57% in 2015, but experienced substantial increases in the following years, reaching 17.99% in 2016, 18.35% in 2017, and 19.21% in 2018. This indicates a rising expense or risk associated with the capital employed in the latter years.
- Invested Capital
- Invested capital showed a generally declining trend after 2015. Initially, it remained relatively stable, decreasing slightly from 67,461 million USD in 2013 to 65,787 million USD in 2014, then increasing to 71,569 million USD in 2015. From 2016 onward, a sharp decline occurred, with invested capital dropping dramatically to 9,027 million USD in 2016, followed by minor increases to 9,763 million USD in 2017 and a decrease again to 7,561 million USD in 2018. This sharp reduction likely reflects significant asset divestitures or restructuring.
- Economic Profit
- The economic profit was negative during the initial years from 2013 to 2015, indicating value destruction. Specifically, economic profit was -6,622 million USD in 2013, worsening to -6,998 million USD in 2014, then improving to -4,335 million USD in 2015. In 2016, economic profit turned positive at 1,374 million USD and remained positive through 2017 with 1,272 million USD, though at a lower level. However, in 2018, economic profit sharply decreased to 574 million USD, indicating a reduction in value creation.
- Summary of Trends
- Overall, the data reveals a pattern of initial profitability and capital stability followed by a period of considerable restructuring or downsizing, as seen from the sharp decline in invested capital from 2015 to 2018. Despite reductions in invested capital, NOPAT declined, reflecting potential challenges in operational performance. The rising cost of capital over the years suggests increased risks or financing costs, which combined with declining profitability, impacted economic profit negatively in some years but resulted in positive economic profit in 2016 and 2017. The decrease in economic profit in 2018 alongside falling NOPAT and high cost of capital indicates possible strain on value generation in the most recent year.
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.
- Economic Profit Trends
- Economic profit displayed a significant improvement over the analyzed period. Initially, the values were negative, with -6,622 million USD in 2013 and worsening slightly to -6,998 million USD in 2014. Thereafter, the negative economic profit decreased to -4,335 million USD in 2015, signifying a reduction in losses. A notable turnaround occurred in 2016 when economic profit became positive at 1,374 million USD, followed by slightly lower but still positive figures of 1,272 million USD in 2017 and 574 million USD in 2018. This shift from consistent losses to profitability indicates improved operational efficiency or capital allocation.
- Invested Capital Patterns
- The invested capital figures demonstrate a decreasing trend starting from 67,461 million USD in 2013 to a low of 7,027 million USD in 2016. There was a slight increase in 2017 to 9,763 million USD, followed by a decline to 7,561 million USD in 2018. The drastic drop between 2015 and 2016 is notable and appears to be unusual relative to the other years, possibly due to changes in asset valuation, divestitures, or accounting adjustments. Overall, the invested capital was substantially lower in the latter three years compared to the initial period.
- Economic Spread Ratio Behavior
- The economic spread ratio, which indicates the difference between return on invested capital and cost of capital, showed a transition from negative to positive territory. In 2013 and 2014, the ratio was negative at -9.82% and -10.64%, respectively, indicating returns below the cost of capital. In 2015, the negative spread narrowed to -6.06%. From 2016 onward, the ratio turned positive and reached a peak of 15.22% in 2016. It then slightly declined to 13.02% in 2017 and further decreased to 7.59% in 2018, maintaining a positive level but indicating a reduction in excess return over the cost of capital.
- Overall Insights
- The data suggest a significant operational and financial improvement after 2015, marked by a recovery from losses to positive economic profit and improvement in economic spread. The sharp decrease in invested capital starting 2016 could have contributed to these improved returns by reducing the capital base or reflecting a strategic shift in asset management. The positive economic spread in the later years reflects enhanced value creation over the cost of capital despite the reduction in absolute economic profit in 2018 compared to earlier positive years. The trends imply a period of restructuring or strategic shifts that positively impacted profitability and capital efficiency.
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 showed a significant negative value in the initial years, beginning at -6622 million US dollars in 2013 and worsening slightly to -6998 million in 2014. A notable improvement occurred in 2015 with a reduced loss of -4335 million. From 2016 onward, the economic profit shifted to positive figures, reaching 1374 million in 2016, then slightly decreasing to 1272 million in 2017, and further declining to 574 million in 2018. This pattern indicates a transition from sustained losses to achieving profitability, albeit with some reduction in gains in the later years.
- Adjusted Net Revenue
- Adjusted net revenue displayed a gradual decline from 111,817 million US dollars in 2013 to 103,853 million in 2015. The figures for 2016 through 2018 appear considerably lower, ranging from approximately 48,159 to 58,639 million. This sharp decrease in reported revenue for the latter years suggests either a change in accounting methodology, segment reporting, or a divestiture that might have affected revenue recognition. The slight increase from 2016 to 2018 indicates some recovery or stabilization following the marked drop.
- Economic Profit Margin
- The economic profit margin mirrored the trends observed in economic profit, registering negative margins in the initial years with -5.92% in 2013 and worsening to -6.3% in 2014. Improvement began in 2015 with the margin improving to -4.17%. By 2016, the margin turned positive at 2.85%, though it gradually declined to 2.44% in 2017 and further to 0.98% in 2018. This suggests an improvement in profitability relative to revenue, followed by a tapering off of profit margins in the most recent periods.