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.
Economic Profit
Home Depot Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2026 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 16,839 – 15.94% × 82,289 = 3,725
An analysis of the economic profit trends reveals a significant divergence between the growth of invested capital and the generation of net operating profit after taxes (NOPAT), resulting in a consistent decline in economic value added after 2022.
- Net Operating Profit After Taxes (NOPAT)
- Operating performance exhibited a sharp increase between 2021 and 2022, rising from 14,172 million to 18,148 million. This peak was maintained through 2023 before experiencing a contraction in 2024. From 2024 to 2026, NOPAT shows a pattern of stabilization with modest incremental growth, ending at 16,839 million.
- Invested Capital Expansion
- The capital base remained relatively stable between 2021 and 2022, followed by a period of accelerating expansion. A substantial increase in invested capital is observed starting in 2025, where the figure rose to 72,841 million, and further climbed to 82,289 million by 2026. This represents a significant increase in the total resources deployed in the business.
- Cost of Capital Stability
- The cost of capital has remained remarkably consistent throughout the period, fluctuating within a narrow range between 15.94% and 16.55%. This stability indicates that the decline in economic profit is not driven by changes in the required rate of return or market risk premiums, but rather by the efficiency of capital utilization.
- Economic Profit Trajectory
- Economic profit peaked in 2022 at 10,281 million, coinciding with a period of high NOPAT and relatively low invested capital. Since that peak, a persistent downward trend is evident, with economic profit falling to 3,725 million by 2026. The erosion of economic profit is directly attributable to the rising capital charge resulting from the expanded invested capital base, which has outpaced the growth in operating returns.
In summary, while the company has significantly increased its invested capital base since 2023, these investments have not yet yielded proportional increases in NOPAT. Consequently, the spread between the return on invested capital and the cost of capital has narrowed, leading to a sustained reduction in the economic value generated.
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Net Operating Profit after Taxes (NOPAT)
Home Depot Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in deferred revenue.
3 Addition of increase (decrease) in equity equivalents to net earnings.
4 2026 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 9,578 × 4.20% = 402
5 2026 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 2,814 × 21.00% = 591
6 Addition of after taxes interest expense to net earnings.
Net earnings and net operating profit after taxes (NOPAT) exhibited generally positive performance between 2021 and 2025, followed by a slight decline into 2026. NOPAT consistently exceeded net earnings throughout the observed period. A detailed examination of the NOPAT figures reveals specific trends worthy of note.
- NOPAT Trend (2021-2026)
- NOPAT demonstrated a consistent upward trajectory from 2021 to 2023, increasing from US$14,172 million to US$18,170 million. This represents a substantial growth of approximately 28.2% over the two-year period. A moderate decrease was then observed in 2024, with NOPAT falling to US$16,384 million. This decline was partially recovered in 2025, reaching US$16,730 million, and continued slightly into 2026, reaching US$16,839 million.
- Growth Rate Analysis
- The most significant growth in NOPAT occurred between 2021 and 2022, with an increase of approximately 28.0%. The growth rate slowed considerably between 2022 and 2023, at approximately 0.1%. The decline from 2023 to 2024 was approximately 10.4%, while the subsequent increases from 2024 to 2025 and 2025 to 2026 were relatively modest, at 2.1% and 0.6% respectively.
- Relationship to Net Earnings
- Throughout the period, NOPAT consistently exceeded net earnings. The difference between the two figures varied, but generally remained within a range of approximately US$1,000 to US$2,000 million annually. This suggests that non-operating items, such as interest expense or gains/losses on investments, have a notable impact on reported net earnings.
In summary, while NOPAT experienced strong growth in the initial years of the period, the rate of increase slowed and a slight decline occurred in 2024, followed by a modest recovery in 2025 and 2026. The consistent difference between NOPAT and net earnings indicates the importance of considering non-operating factors when assessing overall profitability.
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Cash Operating Taxes
Home Depot Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
The provision for income taxes and cash operating taxes exhibited distinct patterns over the observed six-year period. Both metrics initially increased, then demonstrated a leveling off, followed by a decline in more recent years.
- Provision for Income Taxes
- The provision for income taxes increased from US$4,112 million in 2021 to US$5,372 million in 2023, representing a compound annual growth rate of approximately 8.8%. Subsequently, the provision decreased, reaching US$4,446 million in 2026. This suggests a potential shift in taxable income or changes in applicable tax rates. The decrease from the 2023 peak to 2026 represents a decline of approximately 17.3%.
- Cash Operating Taxes
- Cash operating taxes followed a similar trajectory to the provision for income taxes. An increase was observed from US$5,040 million in 2021 to US$5,876 million in 2022, followed by a peak of US$5,622 million in 2023. A subsequent decline was noted, with cash operating taxes falling to US$4,542 million in 2026. This represents a decrease of approximately 19.2% from the 2023 value. The fluctuations in cash operating taxes may be influenced by timing differences between taxable income and accounting income, as well as changes in tax payments.
The convergence of decreasing trends in both the provision for income taxes and cash operating taxes from 2023 to 2026 warrants further investigation. Potential contributing factors could include changes in profitability, tax planning strategies, or alterations in the tax legislative environment. The relatively consistent values between the provision for income taxes and cash operating taxes suggest a limited impact from significant temporary differences.
- Relationship between Metrics
- The cash operating taxes consistently exceeded the provision for income taxes throughout the period. This difference likely reflects the impact of items such as deferred taxes and tax credits. The difference between the two metrics remained relatively stable between approximately US$900 million and US$1,200 million for most of the period, narrowing slightly in the later years.
Overall, the observed trends indicate a period of initial tax expense growth followed by a recent decline. Continued monitoring of these metrics is recommended to assess the sustainability of the downward trend and its potential impact on future financial performance.
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Invested Capital
Home Depot Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of deferred revenue.
4 Addition of equity equivalents to stockholders’ equity (deficit).
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
The reported invested capital demonstrates a fluctuating pattern over the observed period. Initially, a slight decrease is noted, followed by a period of growth, and then a more substantial increase in later years. A closer examination of the components contributing to invested capital reveals further insights.
- Total Reported Debt & Leases
- Total reported debt and leases consistently increased throughout the period, rising from US$43,422 million in 2021 to US$65,350 million in 2026. The rate of increase accelerated between 2024 and 2025, and again between 2025 and 2026, suggesting a potential shift in financing strategy or increased investment in debt-funded projects.
- Stockholders’ Equity (Deficit)
- Stockholders’ equity experienced significant volatility. A deficit was recorded in 2022 at US$-1,696 million, indicating a period where liabilities exceeded assets from an equity perspective. However, equity recovered to positive values in subsequent years, culminating in US$12,813 million in 2026. This recovery suggests improved profitability, share repurchases, or other factors bolstering equity.
- Invested Capital Trend
- Invested capital decreased slightly from US$49,973 million in 2021 to US$48,299 million in 2022. A subsequent increase was observed, reaching US$55,111 million in 2023 and US$55,884 million in 2024. The most significant growth occurred between 2024 and 2026, with invested capital reaching US$72,841 million and then US$82,289 million. This substantial increase in later years is likely driven by the combined effect of rising debt and recovering stockholders’ equity.
The interplay between debt and equity significantly influences the overall trend in invested capital. While debt consistently increased, the fluctuations in stockholders’ equity introduced volatility. The substantial growth in invested capital observed in the final years of the period suggests a period of increased investment and/or financing activity.
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Cost of Capital
Home Depot Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 329,610) | 329,610) | ÷ | 391,865) | = | 0.84 | 0.84 | × | 18.36% | = | 15.44% | ||
| Debt3 | 52,677) | 52,677) | ÷ | 391,865) | = | 0.13 | 0.13 | × | 3.88% × (1 – 21.00%) | = | 0.41% | ||
| Operating lease liability4 | 9,578) | 9,578) | ÷ | 391,865) | = | 0.02 | 0.02 | × | 4.20% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 391,865) | 1.00 | 15.94% | ||||||||||
Based on: 10-K (reporting date: 2026-02-01).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 349,054) | 349,054) | ÷ | 407,112) | = | 0.86 | 0.86 | × | 18.36% | = | 15.74% | ||
| Debt3 | 49,151) | 49,151) | ÷ | 407,112) | = | 0.12 | 0.12 | × | 3.90% × (1 – 21.00%) | = | 0.37% | ||
| Operating lease liability4 | 8,907) | 8,907) | ÷ | 407,112) | = | 0.02 | 0.02 | × | 4.00% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 407,112) | 1.00 | 16.18% | ||||||||||
Based on: 10-K (reporting date: 2025-02-02).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 375,585) | 375,585) | ÷ | 425,480) | = | 0.88 | 0.88 | × | 18.36% | = | 16.21% | ||
| Debt3 | 41,763) | 41,763) | ÷ | 425,480) | = | 0.10 | 0.10 | × | 3.65% × (1 – 21.00%) | = | 0.28% | ||
| Operating lease liability4 | 8,132) | 8,132) | ÷ | 425,480) | = | 0.02 | 0.02 | × | 3.70% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 425,480) | 1.00 | 16.55% | ||||||||||
Based on: 10-K (reporting date: 2024-01-28).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 292,277) | 292,277) | ÷ | 341,270) | = | 0.86 | 0.86 | × | 18.36% | = | 15.72% | ||
| Debt3 | 41,822) | 41,822) | ÷ | 341,270) | = | 0.12 | 0.12 | × | 3.61% × (1 – 21.00%) | = | 0.35% | ||
| Operating lease liability4 | 7,171) | 7,171) | ÷ | 341,270) | = | 0.02 | 0.02 | × | 3.20% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 341,270) | 1.00 | 16.13% | ||||||||||
Based on: 10-K (reporting date: 2023-01-29).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 327,624) | 327,624) | ÷ | 377,475) | = | 0.87 | 0.87 | × | 18.36% | = | 15.94% | ||
| Debt3 | 43,668) | 43,668) | ÷ | 377,475) | = | 0.12 | 0.12 | × | 3.48% × (1 – 21.00%) | = | 0.32% | ||
| Operating lease liability4 | 6,183) | 6,183) | ÷ | 377,475) | = | 0.02 | 0.02 | × | 2.70% × (1 – 21.00%) | = | 0.03% | ||
| Total: | 377,475) | 1.00 | 16.29% | ||||||||||
Based on: 10-K (reporting date: 2022-01-30).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 315,312) | 315,312) | ÷ | 365,551) | = | 0.86 | 0.86 | × | 18.36% | = | 15.84% | ||
| Debt3 | 44,055) | 44,055) | ÷ | 365,551) | = | 0.12 | 0.12 | × | 3.68% × (1 – 21.00%) | = | 0.35% | ||
| Operating lease liability4 | 6,184) | 6,184) | ÷ | 365,551) | = | 0.02 | 0.02 | × | 2.90% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 365,551) | 1.00 | 16.23% | ||||||||||
Based on: 10-K (reporting date: 2021-01-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Home Depot Inc., economic spread ratio calculation, comparison to benchmarks
| Feb 1, 2026 | Feb 2, 2025 | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 3,725) | 4,942) | 7,137) | 9,282) | 10,281) | 6,063) | |
| Invested capital2 | 82,289) | 72,841) | 55,884) | 55,111) | 48,299) | 49,973) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 4.53% | 6.79% | 12.77% | 16.84% | 21.29% | 12.13% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Amazon.com Inc. | — | -1.84% | -5.48% | -11.00% | -21.94% | -2.18% | |
| Lowe’s Cos. Inc. | 7.75% | 15.81% | 18.58% | 13.58% | 21.55% | 9.10% | |
| TJX Cos. Inc. | 8.37% | 7.43% | 7.16% | 4.22% | 4.24% | -12.61% | |
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2026 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 3,725 ÷ 82,289 = 4.53%
4 Click competitor name to see calculations.
The financial trajectory from 2021 to 2026 reveals a divergence between capital deployment and the generation of economic value. While there has been a substantial increase in the capital base over the long term, the corresponding economic returns have diminished, leading to a compression of the economic spread.
- Economic Profit Trends
- Economic profit experienced a significant initial surge, peaking at 10,281 million USD in January 2022. Following this peak, a consistent and accelerating downward trend is observed, with values declining sequentially through February 2026, where profit reached 3,725 million USD. This indicates a steady reduction in the value created in excess of the required return on capital.
- Invested Capital Growth
- Invested capital remained relatively stable between 2021 and 2022 before entering a sustained growth phase. A notable acceleration in the capital base is evident between January 2024 and February 2026, during which invested capital rose from 55,884 million USD to 82,289 million USD. This represents a substantial expansion of the resource base allocated to the business operations.
- Economic Spread Ratio Analysis
- The economic spread ratio, reflecting the efficiency of capital utilization relative to the cost of capital, peaked at 21.29% in 2022. Since that time, the ratio has undergone a steep and continuous decline, falling to 4.53% by February 2026. The inverse correlation between the rising invested capital and the falling spread ratio suggests that recent capital investments have failed to generate proportional economic gains, resulting in diminished capital efficiency.
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Economic Profit Margin
Home Depot Inc., economic profit margin calculation, comparison to benchmarks
| Feb 1, 2026 | Feb 2, 2025 | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 3,725) | 4,942) | 7,137) | 9,282) | 10,281) | 6,063) | |
| Net sales | 164,683) | 159,514) | 152,669) | 157,403) | 151,157) | 132,110) | |
| Add: Increase (decrease) in deferred revenue | (35) | (152) | (302) | (532) | 773) | 707) | |
| Adjusted net sales | 164,648) | 159,362) | 152,367) | 156,871) | 151,930) | 132,817) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 2.26% | 3.10% | 4.68% | 5.92% | 6.77% | 4.57% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Amazon.com Inc. | — | -1.22% | -3.21% | -6.20% | -11.45% | -0.94% | |
| Lowe’s Cos. Inc. | 3.31% | 4.97% | 5.58% | 3.47% | 5.86% | 2.88% | |
| TJX Cos. Inc. | 3.47% | 2.98% | 2.79% | 1.72% | 1.72% | -8.78% | |
Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).
1 Economic profit. See details »
2 2026 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × 3,725 ÷ 164,648 = 2.26%
3 Click competitor name to see calculations.
The analysis of economic value generation reveals a significant divergence between revenue growth and the ability to generate economic profit over the six-year period ending February 1, 2026.
- Economic Profit Trends
- Economic profit experienced a sharp increase between 2021 and 2022, reaching a peak of 10,281 million US dollars. This peak was followed by a consistent and accelerating decline, falling to 3,725 million US dollars by 2026. This trajectory indicates a substantial reduction in value creation above the cost of capital in the latter half of the observed period.
- Adjusted Net Sales Performance
- Adjusted net sales demonstrated a generally positive trajectory, increasing from 132,817 million US dollars in 2021 to 164,648 million US dollars in 2026. Despite a marginal contraction in 2024, the overall trend indicates sustained top-line growth over the long term.
- Economic Profit Margin Analysis
- The economic profit margin closely mirrors the trend of absolute economic profit, peaking at 6.77% in 2022 before entering a period of continuous contraction. By 2026, the margin declined to 2.26%, the lowest point in the series. The simultaneous increase in adjusted net sales and the sharp decrease in the economic profit margin suggest that revenue growth has not translated into proportional economic value, pointing toward diminishing returns on capital employed or an increase in the cost of capital.
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