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
Kellanova, economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,013 – 8.30% × 11,675 = 45
The economic profit of Kellanova exhibits significant volatility over the period from 2019 to 2023. The trajectory is characterized by a transition from initial value destruction to a period of substantial value creation, followed by a contraction and a recent return to marginal positive economic profit.
- Net Operating Profit After Taxes (NOPAT)
- A strong upward trend was observed between 2019 and 2021, with NOPAT increasing from 1,016 million US dollars to a peak of 1,799 million US dollars. This growth was followed by a sharp decline in 2022 to 1,089 million US dollars, with a further slight decrease to 1,013 million US dollars by the end of 2023, returning NOPAT to levels similar to those seen in 2019.
- Cost of Capital
- The cost of capital remained relatively stable throughout the analyzed period, fluctuating within a narrow band between 7.85% and 8.50%. A gradual increase is noted from 2020 to 2022, reaching a peak of 8.50% before moderating slightly to 8.30% in 2023.
- Invested Capital
- Invested capital showed minimal variance between 2019 and 2022, maintaining a range between approximately 13.1 billion and 13.6 billion US dollars. However, a significant reduction occurred in 2023, with invested capital falling to 11,675 million US dollars, indicating a contraction in the capital base.
- Economic Profit Trends
- Economic profit transitioned from a negative value of -35 million US dollars in 2019 to a peak of 698 million US dollars in 2021, driven by the surge in NOPAT. The trend reversed in 2022, with economic profit falling to -32 million US dollars, a result of declining operating profits coinciding with the highest cost of capital in the period. In 2023, economic profit returned to a positive 45 million US dollars; this recovery was driven less by operating profit growth and more by the substantial reduction in invested capital, which lowered the total capital charge.
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Net Operating Profit after Taxes (NOPAT)
Kellanova, NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for expected credit losses.
3 Addition of increase (decrease) in exit cost reserves.
4 Addition of increase (decrease) in equity equivalents to net income attributable to Kellanova.
5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 653 × 3.60% = 24
6 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 327 × 21.00% = 69
7 Addition of after taxes interest expense to net income attributable to Kellanova.
8 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= -3 × 21.00% = -1
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
The financial performance between 2019 and 2023 is characterized by a significant growth cycle peaking in 2021, followed by a marked contraction. Both net income and Net Operating Profit After Taxes (NOPAT) exhibit synchronized movement, suggesting that the primary drivers of profitability during this period were operational in nature.
- NOPAT Trajectory
- Net operating profit after taxes demonstrated a strong upward trend from 2019 to 2021, rising from US$ 1,016 million to a peak of US$ 1,799 million. This growth phase was followed by a sharp decline in 2022 to US$ 1,089 million and a further slight decrease to US$ 1,013 million in 2023. By the end of the analyzed period, NOPAT had effectively returned to its 2019 baseline.
- Net Income Correlation
- Net income attributable to the company mirrored the NOPAT trend, increasing from US$ 960 million in 2019 to a peak of US$ 1,488 million in 2021. A subsequent downturn occurred in 2022 and 2023, with net income falling to US$ 960 million and US$ 951 million, respectively. The high degree of correlation between these two metrics indicates that fluctuations in net income were primarily driven by changes in operating profitability.
- Operating vs. Net Profit Variance
- NOPAT remained consistently higher than net income throughout the five-year period. This persistent variance suggests the presence of non-operating expenses, such as interest payments on debt, which reduce the final net income but are excluded from NOPAT to isolate the core operational efficiency of the entity.
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Cash Operating Taxes
Kellanova, cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
The financial trajectory between 2019 and 2023 reveals a period of volatility in tax obligations, characterized by a divergence between accounting income taxes and actual cash operating taxes. Cash operating taxes, which are essential for determining the true cash flow impact within Economic Value Added (EVA) frameworks, exhibit a general downward trend from the start of the period before stabilizing in recent years.
- Cash Operating Tax Volatility
- A sharp contraction in cash operating taxes is observed between 2019 and 2020, where expenditures fell from US$ 536 million to US$ 317 million. Following this decline, cash taxes fluctuated, peaking again in 2021 at US$ 399 million before settling into a more stable range of US$ 340 million to US$ 365 million during the 2022 and 2023 fiscal years.
- Analysis of Tax Divergence
- There is a consistent variance between cash operating taxes and reported income taxes. In 2019, cash operating taxes were significantly higher than income taxes, suggesting a period of high cash outflows relative to accounting expenses. Conversely, 2021 represents the only period where income taxes (US$ 474 million) exceeded cash operating taxes (US$ 399 million), indicating a temporary reversal in the timing of tax recognitions versus payments.
- Income Tax Trend Patterns
- Income tax expenses remained relatively flat from 2019 to 2020, followed by a substantial spike in 2021. This was succeeded by a marked reduction in 2022, where income taxes dropped to US$ 244 million, the lowest point in the five-year series, before a slight increase to US$ 258 million in 2023.
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Invested Capital
Kellanova, invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
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 exit cost reserves.
5 Addition of equity equivalents to total Kellanova equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
The financial trajectory of invested capital from 2019 to 2023 reveals a period of relative stability followed by a significant contraction in the final year. While the capital base fluctuated marginally between 2019 and 2022, the 2023 fiscal year marked a notable reduction in the total resources deployed in the business.
- Debt and Lease Obligations
- A consistent downward trend is observed in total reported debt and leases. Obligations decreased annually from 8,469 million USD in 2019 to 6,526 million USD in 2023. This represents a steady deleveraging process, reducing the debt component of the invested capital by approximately 23% over the five-year period.
- Equity Dynamics
- Total equity exhibited a growth phase between 2019 and 2022, rising from 2,747 million USD to a peak of 3,941 million USD. However, this upward trend reversed in 2023, with equity declining to 3,175 million USD, indicating a reduction in the shareholders' book value during the final year of the analyzed period.
- Invested Capital Trends
- Invested capital remained comparatively stable for the first four years, peaking at 13,587 million USD in 2021 before slightly receding to 13,188 million USD in 2022. A sharp decline occurred in 2023, with invested capital dropping to 11,675 million USD. This contraction is the result of the combined effect of sustained debt reduction and the aforementioned decrease in total equity.
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Cost of Capital
Kellanova, cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,122) | 19,122) | ÷ | 25,559) | = | 0.75 | 0.75 | × | 10.26% | = | 7.68% | ||
| Notes payable and long-term debt3 | 5,784) | 5,784) | ÷ | 25,559) | = | 0.23 | 0.23 | × | 3.06% × (1 – 21.00%) | = | 0.55% | ||
| Operating lease liability4 | 653) | 653) | ÷ | 25,559) | = | 0.03 | 0.03 | × | 3.60% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 25,559) | 1.00 | 8.30% | ||||||||||
Based on: 10-K (reporting date: 2023-12-30).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 23,556) | 23,556) | ÷ | 30,510) | = | 0.77 | 0.77 | × | 10.26% | = | 7.92% | ||
| Notes payable and long-term debt3 | 6,347) | 6,347) | ÷ | 30,510) | = | 0.21 | 0.21 | × | 3.23% × (1 – 21.00%) | = | 0.53% | ||
| Operating lease liability4 | 607) | 607) | ÷ | 30,510) | = | 0.02 | 0.02 | × | 2.90% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 30,510) | 1.00 | 8.50% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,592) | 22,592) | ÷ | 30,959) | = | 0.73 | 0.73 | × | 10.26% | = | 7.49% | ||
| Notes payable and long-term debt3 | 7,749) | 7,749) | ÷ | 30,959) | = | 0.25 | 0.25 | × | 2.90% × (1 – 21.00%) | = | 0.57% | ||
| Operating lease liability4 | 618) | 618) | ÷ | 30,959) | = | 0.02 | 0.02 | × | 2.70% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 30,959) | 1.00 | 8.10% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 20,382) | 20,382) | ÷ | 29,448) | = | 0.69 | 0.69 | × | 10.26% | = | 7.10% | ||
| Notes payable and long-term debt3 | 8,429) | 8,429) | ÷ | 29,448) | = | 0.29 | 0.29 | × | 3.13% × (1 – 21.00%) | = | 0.71% | ||
| Operating lease liability4 | 637) | 637) | ÷ | 29,448) | = | 0.02 | 0.02 | × | 2.60% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 29,448) | 1.00 | 7.85% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,063) | 22,063) | ÷ | 31,137) | = | 0.71 | 0.71 | × | 10.26% | = | 7.27% | ||
| Notes payable and long-term debt3 | 8,527) | 8,527) | ÷ | 31,137) | = | 0.27 | 0.27 | × | 3.27% × (1 – 21.00%) | = | 0.71% | ||
| Operating lease liability4 | 547) | 547) | ÷ | 31,137) | = | 0.02 | 0.02 | × | 2.90% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 31,137) | 1.00 | 8.02% | ||||||||||
Based on: 10-K (reporting date: 2019-12-28).
1 US$ in millions
2 Equity. See details »
3 Notes payable and long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Kellanova, economic spread ratio calculation, comparison to benchmarks
| Dec 30, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 28, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 45) | (32) | 698) | 530) | (35) | |
| Invested capital2 | 11,675) | 13,188) | 13,587) | 13,194) | 13,101) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.38% | -0.24% | 5.13% | 4.01% | -0.27% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | 4.16% | 3.85% | 5.38% | — | — | |
| Mondelēz International Inc. | 0.06% | -3.76% | -0.75% | — | — | |
| PepsiCo Inc. | 4.39% | 4.37% | 4.92% | — | — | |
| Philip Morris International Inc. | 8.97% | 11.92% | 26.25% | — | — | |
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 45 ÷ 11,675 = 0.38%
4 Click competitor name to see calculations.
The analysis of economic value creation reveals a period of significant volatility in performance between 2019 and 2023. The organization transitioned from a state of value destruction to substantial value creation, followed by a sharp reversal and a subsequent marginal recovery.
- Economic Profit Trends
- Economic profit exhibited substantial fluctuations over the five-year period. After starting at -35 million US dollars in 2019, there was a sharp increase to 530 million US dollars in 2020, peaking at 698 million US dollars in 2021. This positive trajectory was abruptly reversed in 2022, when economic profit fell to -32 million US dollars, before returning to a modest positive position of 45 million US dollars in 2023.
- Invested Capital Dynamics
- The capital base remained relatively stable from 2019 through 2022, fluctuating within a narrow range between 13,101 million and 13,587 million US dollars. However, a notable contraction occurred in 2023, where invested capital decreased to 11,675 million US dollars, representing a reduction of approximately 11.5% from the previous year.
- Economic Spread Ratio Analysis
- The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, mirrored the volatility of economic profit. The ratio shifted from -0.27% in 2019 to a peak of 5.13% in 2021, indicating a period of high efficiency in value generation. The ratio returned to negative territory in 2022 at -0.24%, before stabilizing at a low positive value of 0.38% in 2023.
The correlation between the economic spread ratio and economic profit suggests that the fluctuations in value creation were driven primarily by operational returns rather than significant changes in the capital structure, until the substantial reduction in invested capital observed in 2023.
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Economic Profit Margin
Kellanova, economic profit margin calculation, comparison to benchmarks
| Dec 30, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 28, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 45) | (32) | 698) | 530) | (35) | |
| Net sales | 13,122) | 15,315) | 14,181) | 13,770) | 13,578) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 0.34% | -0.21% | 4.92% | 3.85% | -0.26% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | 7.59% | 7.16% | 11.18% | — | — | |
| Mondelēz International Inc. | 0.10% | -7.62% | -1.61% | — | — | |
| PepsiCo Inc. | 3.60% | 3.51% | 4.32% | — | — | |
| Philip Morris International Inc. | 13.10% | 17.77% | 24.37% | — | — | |
Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-28).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 45 ÷ 13,122 = 0.34%
3 Click competitor name to see calculations.
The analysis of economic value creation over the five-year period reveals significant volatility in both absolute economic profit and the economic profit margin. The company experienced a cycle of rapid value expansion followed by a sharp contraction and a subsequent marginal recovery.
- Economic Profit Trends
- Economic profit fluctuated from a negative value of US$ 35 million in 2019 to a peak of US$ 698 million in 2021. This upward trajectory was reversed in 2022, where economic profit fell to negative US$ 32 million, before recovering slightly to US$ 45 million by the end of 2023. This pattern indicates inconsistency in generating returns above the company's cost of capital.
- Net Sales Performance
- Revenue showed a general growth trend from 2019 through 2022, reaching a peak of US$ 15,315 million. However, 2023 marked a significant reversal, with net sales declining to US$ 13,122 million, the lowest level recorded within the analyzed period.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of absolute economic profit, starting at -0.26% in 2019 and reaching a high of 4.92% in 2021. A notable divergence occurred in 2022, where the margin dropped to -0.21% despite net sales reaching their five-year peak. This suggests that the increase in revenue during 2022 was not accompanied by sufficient operational efficiency or was offset by a rise in the cost of capital.
- Correlation Between Sales and Value Creation
- A lack of direct correlation is observed between top-line growth and economic value added. The transition from 2022 to 2023 is particularly illustrative: while net sales contracted significantly, the economic profit margin improved from -0.21% to 0.34%. This indicates that the company achieved a return exceeding its cost of capital in 2023 through means other than revenue growth, potentially through cost reductions or capital restructuring.
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