Stock Analysis on Net

HP Inc. (NYSE:HPQ)

This company has been moved to the archive! The financial data has not been updated since August 29, 2019.

Economic Value Added (EVA)

Microsoft Excel

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.


Economic Profit

HP Inc., economic profit calculation

US$ in millions

Microsoft Excel
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 2,027 3,064 2,997 3,947 4,693 4,258
Cost of capital2 17.62% 16.83% 16.50% 10.71% 16.29% 14.82%
Invested capital3 7,561 9,763 9,027 71,569 65,787 67,461
 
Economic profit4 695 1,421 1,508 (3,716) (6,026) (5,736)

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
= 2,02717.62% × 7,561 = 695

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. HP Inc. economic profit decreased from 2016 to 2017 and from 2017 to 2018.

Net Operating Profit after Taxes (NOPAT)

HP Inc., NOPAT calculation

US$ in millions

Microsoft Excel
12 months ended: Oct 31, 2018 Oct 31, 2017 Oct 31, 2016 Oct 31, 2015 Oct 31, 2014 Oct 31, 2013
Net earnings 5,327 2,526 2,496 4,554 5,013 5,113
Deferred income tax expense (benefit)1 (3,654) 239 403 (701) (33) (410)
Increase (decrease) in allowance for doubtful accounts2 28 (6) 27 (43) (100) (132)
Increase (decrease) in deferred revenue3 167 149 (79) 498 (310) (481)
Increase (decrease) in product warranty liabilities4 17 (82) (204) (248) (75) (139)
Increase (decrease) in restructuring plans, accrued balance5 (49) 50 (5) (309) (3) 90
Increase (decrease) in equity equivalents6 (3,491) 350 142 (803) (521) (1,072)
Interest expense on borrowings 312 309 273 327 344 426
Interest expense, operating lease liability7 58 46 42 103 102 106
Adjusted interest expense on borrowings 370 355 315 430 446 532
Tax benefit of interest expense on borrowings8 (86) (124) (110) (151) (156) (186)
Adjusted interest expense on borrowings, after taxes9 284 230 205 280 290 345
(Gain) loss on marketable securities (5) (1) (49)
Interest income (116) (66) (24) (129) (136) (148)
Investment income, before taxes (121) (66) (24) (129) (137) (197)
Tax expense (benefit) of investment income10 28 23 8 45 48 69
Investment income, after taxes11 (93) (43) (16) (84) (89) (128)
(Income) loss from discontinued operations, net of tax12 170
Net operating profit after taxes (NOPAT) 2,027 3,064 2,997 3,947 4,693 4,258

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
= 1,260 × 4.60% = 58

8 2018 Calculation
Tax benefit of interest expense on borrowings = Adjusted interest expense on borrowings × Statutory income tax rate
= 370 × 23.30% = 86

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
= 121 × 23.30% = 28

11 Elimination of after taxes investment income.

12 Elimination of discontinued operations.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. HP Inc. NOPAT increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.

Cash Operating Taxes

HP Inc., cash operating taxes calculation

US$ in millions

Microsoft Excel
12 months ended: Oct 31, 2018 Oct 31, 2017 Oct 31, 2016 Oct 31, 2015 Oct 31, 2014 Oct 31, 2013
Provision for (benefit from) taxes on earnings (2,314) 750 1,095 178 1,544 1,397
Less: Deferred income tax expense (benefit) (3,654) 239 403 (701) (33) (410)
Add: Tax savings from interest expense on borrowings 86 124 110 151 156 186
Less: Tax imposed on investment income 28 23 8 45 48 69
Cash operating taxes 1,398 612 794 984 1,685 1,924

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).

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. HP Inc. cash operating taxes decreased from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Invested Capital

HP Inc., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel
Oct 31, 2018 Oct 31, 2017 Oct 31, 2016 Oct 31, 2015 Oct 31, 2014 Oct 31, 2013
Notes payable and short-term borrowings 1,463 1,072 78 2,885 3,486 5,979
Long-term debt, excluding current portion 4,524 6,747 6,758 21,780 16,039 16,608
Operating lease liability1 1,260 1,036 901 2,461 2,681 2,606
Total reported debt & leases 7,247 8,855 7,737 27,126 22,206 25,193
Total HP stockholders’ equity (deficit) (639) (3,408) (3,889) 27,768 26,731 27,269
Net deferred tax (assets) liabilities2 (2,331) 1,068 862 (2,650) (2,086) (2,196)
Allowance for doubtful accounts3 129 101 107 189 232 332
Deferred revenue4 2,100 1,933 1,784 10,572 10,074 10,384
Product warranty liabilities5 915 898 980 1,708 1,956 2,031
Restructuring plans, accrued balance6 59 108 58 805 1,114 1,117
Equity equivalents7 872 4,108 3,791 10,624 11,290 11,668
Accumulated other comprehensive (income) loss, net of tax8 845 1,418 1,438 6,302 5,881 3,778
Non-controlling interests 383 396 387
Adjusted total HP stockholders’ equity (deficit) 1,078 2,118 1,340 45,077 44,298 43,102
Available-for-sale investments9 (764) (1,210) (50) (634) (717) (834)
Invested capital 7,561 9,763 9,027 71,569 65,787 67,461

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.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. HP Inc. invested capital increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.

Cost of Capital

HP Inc., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 34,627 34,627 ÷ 41,888 = 0.83 0.83 × 20.57% = 17.00%
Short- and long-term debt3 6,000 6,000 ÷ 41,888 = 0.14 0.14 × 4.60% × (1 – 23.30%) = 0.51%
Operating lease liability4 1,260 1,260 ÷ 41,888 = 0.03 0.03 × 4.60% × (1 – 23.30%) = 0.11%
Total: 41,888 1.00 17.62%

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 34,122 34,122 ÷ 43,258 = 0.79 0.79 × 20.57% = 16.23%
Short- and long-term debt3 8,100 8,100 ÷ 43,258 = 0.19 0.19 × 4.40% × (1 – 35.00%) = 0.54%
Operating lease liability4 1,036 1,036 ÷ 43,258 = 0.02 0.02 × 4.40% × (1 – 35.00%) = 0.07%
Total: 43,258 1.00 16.83%

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 26,452 26,452 ÷ 34,452 = 0.77 0.77 × 20.57% = 15.79%
Short- and long-term debt3 7,100 7,100 ÷ 34,452 = 0.21 0.21 × 4.69% × (1 – 35.00%) = 0.63%
Operating lease liability4 901 901 ÷ 34,452 = 0.03 0.03 × 4.69% × (1 – 35.00%) = 0.08%
Total: 34,452 1.00 16.50%

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 21,968 21,968 ÷ 49,129 = 0.45 0.45 × 20.57% = 9.20%
Short- and long-term debt3 24,700 24,700 ÷ 49,129 = 0.50 0.50 × 4.20% × (1 – 35.00%) = 1.37%
Operating lease liability4 2,461 2,461 ÷ 49,129 = 0.05 0.05 × 4.20% × (1 – 35.00%) = 0.14%
Total: 49,129 1.00 10.71%

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 73,033 73,033 ÷ 95,614 = 0.76 0.76 × 20.57% = 15.71%
Short- and long-term debt3 19,900 19,900 ÷ 95,614 = 0.21 0.21 × 3.79% × (1 – 35.00%) = 0.51%
Operating lease liability4 2,681 2,681 ÷ 95,614 = 0.03 0.03 × 3.79% × (1 – 35.00%) = 0.07%
Total: 95,614 1.00 16.29%

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 53,579 53,579 ÷ 78,885 = 0.68 0.68 × 20.57% = 13.97%
Short- and long-term debt3 22,700 22,700 ÷ 78,885 = 0.29 0.29 × 4.05% × (1 – 35.00%) = 0.76%
Operating lease liability4 2,606 2,606 ÷ 78,885 = 0.03 0.03 × 4.05% × (1 – 35.00%) = 0.09%
Total: 78,885 1.00 14.82%

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

Microsoft Excel
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 695 1,421 1,508 (3,716) (6,026) (5,736)
Invested capital2 7,561 9,763 9,027 71,569 65,787 67,461
Performance Ratio
Economic spread ratio3 9.19% 14.55% 16.70% -5.19% -9.16% -8.50%
Benchmarks
Economic Spread Ratio, Competitors4
Apple Inc.
Arista Networks Inc.
Cisco Systems Inc.
Super Micro Computer Inc. -2.37%

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 × 695 ÷ 7,561 = 9.19%

4 Click competitor name to see calculations.

Performance ratio Description The company
Economic spread ratio The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. HP Inc. economic spread ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

Economic Profit Margin

HP Inc., economic profit margin calculation, comparison to benchmarks

Microsoft Excel
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 695 1,421 1,508 (3,716) (6,026) (5,736)
 
Net revenue 58,472 52,056 48,238 103,355 111,454 112,298
Add: Increase (decrease) in deferred revenue 167 149 (79) 498 (310) (481)
Adjusted net revenue 58,639 52,205 48,159 103,853 111,144 111,817
Performance Ratio
Economic profit margin2 1.19% 2.72% 3.13% -3.58% -5.42% -5.13%
Benchmarks
Economic Profit Margin, Competitors3
Apple Inc.
Arista Networks Inc.
Cisco Systems Inc.
Super Micro Computer Inc. -0.77%

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 × 695 ÷ 58,639 = 1.19%

3 Click competitor name to see calculations.

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. HP Inc. economic profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.