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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- Statement of Comprehensive Income
- Balance Sheet: Assets
- Common-Size Balance Sheet: Assets
- Analysis of Liquidity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Debt to Equity since 2005
- Price to Book Value (P/BV) 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 financial performance from 2013 to 2018 reflects a fundamental transition in value creation, characterized by a shift from significant economic losses to positive economic profit.
- Net Operating Profit After Taxes (NOPAT)
- A general decline in NOPAT is observed over the analyzed period. After reaching a peak of 4,693 million USD in 2014, NOPAT experienced a steady downward trend, falling to 2,027 million USD by 2018. This indicates a contraction in the absolute operating earnings available to all capital providers.
- Invested Capital Dynamics
- A substantial contraction in invested capital occurred between October 31, 2015, and October 31, 2016, where the balance dropped from 71,569 million USD to 9,027 million USD. This drastic reduction in the capital base served as the primary catalyst for the shift in economic profitability, as it significantly lowered the total capital charge required to cover the cost of capital.
- Cost of Capital Trends
- The cost of capital exhibited volatility, with a notable decrease to 13.40% in 2015 followed by a consistent upward trajectory, reaching 22.59% by 2018. The rising cost of capital in the latter years increased the threshold that operating profits needed to exceed to generate economic value.
- Economic Profit Analysis
- Economic profit transitioned from substantial negative values—reaching a low of -9,053 million USD in 2014—to positive territory starting in 2016. Despite the simultaneous decline in NOPAT, the massive reduction in invested capital ensured that operating profits exceeded the capital charge. Consequently, economic profit became positive at 1,090 million USD in 2016, although this value trended downward to 318 million USD by 2018 due to the combined effect of falling NOPAT and a rising cost of capital.
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. | |||||||
| Lumentum Holdings 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 performance between 2013 and 2018 is characterized by a significant transition from value destruction to value creation, followed by a period of diminishing returns. A critical inflection point occurred between 2015 and 2016, where the company shifted from substantial economic losses to positive economic profit, coinciding with a drastic reduction in invested capital.
- Economic Profit
- A period of significant value erosion is observed from 2013 to 2015, with losses peaking at 9,053 million US dollars in 2014. A recovery trend began in 2015, culminating in a pivot to positive economic profit in 2016 at 1,090 million US dollars. However, a downward trajectory followed this peak, with economic profit declining to 957 million US dollars in 2017 and further decreasing to 318 million US dollars by 2018.
- Invested Capital
- Invested capital remained relatively stable and high between 2013 and 2015, ranging from 65,787 million to 71,569 million US dollars. A sharp contraction is noted in 2016, where invested capital fell to 9,027 million US dollars, representing a substantial restructuring of the capital base. This lower capital level was maintained through 2018, ending at 7,561 million US dollars.
- Economic Spread Ratio
- The economic spread ratio mirrored the volatility of economic profit, recording negative values from 2013 to 2015, with a low of -13.76% in 2014. A sharp reversal occurred in 2016, with the ratio climbing to a peak of 12.08%, indicating that the return on invested capital significantly exceeded the cost of capital. Following this peak, a consistent decline is observed, with the ratio falling to 9.80% in 2017 and ending at 4.21% in 2018, suggesting a narrowing spread and reduced capital efficiency toward the end of the period.
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. | |||||||
| Lumentum Holdings 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.
The financial performance from October 2013 to October 2018 indicates a significant transition from substantial economic value destruction to a period of value creation, followed by a recent narrowing of economic gains.
- Economic Profit Trends
- Economic profit remained negative between 2013 and 2015, reaching a nadir of -9,053 million US dollars in 2014. A pivotal reversal occurred in 2016, when the figure transitioned to a positive 1,090 million US dollars. However, a downward trajectory followed in the subsequent two years, with economic profit declining to 957 million US dollars in 2017 and further decreasing to 318 million US dollars by 2018.
- Adjusted Net Revenue Patterns
- Revenue levels remained above 100 billion US dollars from 2013 to 2015. A sharp reduction is observed in 2016, where revenue fell to 48,159 million US dollars. Following this contraction, a gradual recovery was noted, with revenue increasing to 52,205 million US dollars in 2017 and 58,639 million US dollars in 2018.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the trajectory of absolute economic profit, starting at -7.60% in 2013 and dipping to -8.15% in 2014. An improvement phase began in 2015 (-5.43%) and culminated in a positive margin of 2.26% in 2016. Despite the transition to positivity, the margin exhibited a steady decline thereafter, falling to 1.83% in 2017 and reaching 0.54% in 2018, indicating a reduction in the efficiency of capital utilization relative to revenue generation toward the end of the period.