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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.
Economic Profit
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
= 2,027 – 17.62% × 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)
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
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
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
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
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. |