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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Monsanto Co., economic profit calculation

US$ in millions

12 months ended:	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014	Aug 31, 2013	Aug 31, 2012
Net operating profit after taxes (NOPAT)¹	2,582)	1,816)	2,361)	2,633)	2,743)	2,247)
Cost of capital²	17.13%	16.49%	16.44%	17.22%	18.81%	18.66%
Invested capital³	16,366)	15,963)	18,327)	16,260)	15,770)	14,553)

Economic profit⁴	(222)	(816)	(653)	(167)	(224)	(468)

Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2017 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,582 – 17.13% × 16,366 = -222

The financial performance over the period from 2012 to 2017 is characterized by a persistent failure to achieve positive economic profit, indicating that the returns generated by operations were insufficient to cover the cost of the capital employed.

Net Operating Profit After Taxes (NOPAT): NOPAT exhibited significant volatility throughout the analyzed timeframe. An initial increase from US$ 2,247 million in 2012 to a peak of US$ 2,743 million in 2013 was followed by a steady decline over the next three years, reaching a period low of US$ 1,816 million in 2016. A sharp recovery occurred in 2017, with NOPAT rising to US$ 2,582 million.
Invested Capital and Cost of Capital: Invested capital followed a growth trajectory from 2012 to 2015, rising from US$ 14,553 million to a peak of US$ 18,327 million. A notable reduction occurred in 2016, where capital decreased to US$ 15,963 million, before a slight uptick to US$ 16,366 million in 2017. During this same period, the cost of capital trended generally downward, decreasing from 18.66% in 2012 to a low of 16.44% in 2015, ending the period at 17.13% in 2017.
Economic Profit Dynamics: Economic profit remained negative across all reported years, signifying continuous value destruction. The deficit initially narrowed from US$ 468 million in 2012 to US$ 167 million in 2014. However, the economic loss widened substantially in 2015 and 2016, reaching its most severe point of negative US$ 816 million in 2016. This deterioration coincided with the lowest observed NOPAT and a period of high invested capital. By 2017, the economic profit improved to negative US$ 222 million, driven by the recovery in operating profits despite a slight increase in the cost of capital.

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Monsanto Co., NOPAT calculation

US$ in millions

12 months ended:	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014	Aug 31, 2013	Aug 31, 2012
Net income attributable to Monsanto Company	2,260)	1,336)	2,314)	2,740)	2,482)	2,045)
Deferred income tax expense (benefit)¹	46)	28)	(288)	(45)	126)	241)
Increase (decrease) in allowance for doubtful trade receivables²	(16)	35)	(13)	4)	4)	(34)
Increase (decrease) in LIFO reserve³	(6)	(4)	(6)	(9)	26)	(43)
Increase (decrease) in deferred revenues⁴	238)	186)	(68)	(170)	14)	(69)
Increase (decrease) in restructuring reserves⁵	(198)	27)	217)	—)	—)	(24)
Increase (decrease) in equity equivalents⁶	64)	272)	(158)	(220)	170)	71)
Interest expense	452)	436)	433)	248)	172)	191)
Interest expense, operating lease liability⁷	18)	18)	17)	19)	20)	14)
Adjusted interest expense	470)	454)	450)	267)	192)	205)
Tax benefit of interest expense⁸	(164)	(159)	(158)	(93)	(67)	(72)
Adjusted interest expense, after taxes⁹	305)	295)	293)	173)	124)	133)
(Gain) loss on marketable securities	3)	2)	(4)	(5)	(9)	8)
Interest income	(76)	(74)	(105)	(102)	(92)	(77)
Investment income, before taxes	(73)	(72)	(109)	(107)	(101)	(69)
Tax expense (benefit) of investment income¹⁰	26)	25)	38)	37)	35)	24)
Investment income, after taxes¹¹	(47)	(47)	(71)	(70)	(66)	(45)
(Income) loss from discontinued operations, net of tax¹²	(13)	(17)	(28)	(13)	(11)	(6)
Net income (loss) attributable to noncontrolling interest	13)	(23)	11)	22)	43)	48)
Net operating profit after taxes (NOPAT)	2,582)	1,816)	2,361)	2,633)	2,743)	2,247)

Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful trade receivables.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in deferred revenues.

⁵ Addition of increase (decrease) in restructuring reserves.

⁶ Addition of increase (decrease) in equity equivalents to net income attributable to Monsanto Company.

⁷ 2017 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 458 × 3.88% = 18

⁸ 2017 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 470 × 35.00% = 164

⁹ Addition of after taxes interest expense to net income attributable to Monsanto Company.

¹⁰ 2017 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 73 × 35.00% = 26

¹¹ Elimination of after taxes investment income.

¹² Elimination of discontinued operations.

The financial data reveals certain trends in profitability for the analyzed company over a six-year period ending August 31, 2017.

Net Income Attributable to the Company: Net income shows an overall fluctuating pattern across the years. It increased steadily from 2045 million US dollars in 2012 to a peak of 2740 million in 2014. Subsequently, it experienced a decline to 2314 million in 2015 and a more pronounced decrease to 1336 million in 2016, indicating a significant setback in profitability during that year. However, the net income rebounded sharply to 2260 million in 2017, signaling recovery but not reaching the earlier peak levels.
Net Operating Profit After Taxes (NOPAT): NOPAT similarly experienced variations over the examined period. It rose from 2247 million USD in 2012 to 2743 million in 2013, before slightly declining to 2633 million in 2014. The value then decreased further to 2361 million in 2015 and took a more substantial fall to 1816 million in 2016. In 2017, NOPAT saw a notable recovery to 2582 million. This suggests operational efficiency or profitability challenges during 2015 and 2016 with improvement thereafter.

Overall, both net income and NOPAT indicate a peak generally around 2013-2014, followed by declines in 2015 and notably in 2016. The recovery in 2017 reflects a positive turnaround. The inconsistency observed in both metrics suggests volatility in profitability and operational performance during these years, highlighting a period of financial challenges mid-cycle with subsequent recovery efforts yielding results by the final year reported.

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Monsanto Co., cash operating taxes calculation

US$ in millions

12 months ended:	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014	Aug 31, 2013	Aug 31, 2012
Income tax provision from continuing operations	626)	695)	864)	1,078)	915)	901)
Less: Deferred income tax expense (benefit)	46)	28)	(288)	(45)	126)	241)
Add: Tax savings from interest expense	164)	159)	158)	93)	67)	72)
Less: Tax imposed on investment income	26)	25)	38)	37)	35)	24)
Cash operating taxes	719)	801)	1,272)	1,179)	821)	708)

Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).

Income Tax Provision from Continuing Operations: The income tax provision from continuing operations exhibited a fluctuating trend over the six-year period. Starting at 901 million USD in 2012, a slight increase to 915 million USD was observed in 2013. This upward movement continued more notably in 2014, reaching a peak of 1,078 million USD. However, the subsequent years showed a declining pattern: it decreased to 864 million USD in 2015, further dropped to 695 million USD in 2016, and reached its lowest point at 626 million USD in 2017. Overall, despite an initial rise until 2014, the income tax provision has generally declined in the latter part of the timeframe.
Cash Operating Taxes: Cash operating taxes demonstrated more volatility relative to the income tax provision. Beginning at 708 million USD in 2012, there was a steady increase to 821 million USD in 2013, followed by a substantial spike to 1,179 million USD in 2014. The upward trend continued into 2015, peaking at 1,272 million USD. However, unlike income tax provision, cash operating taxes experienced a sharp decrease in 2016, falling to 801 million USD, and then a further decline to 719 million USD by 2017. Despite the fluctuations, the values at the end of the period remained higher than the initial 2012 figures.
Comparative Observations: Both income tax provision and cash operating taxes display a pattern of increasing values through the early years, reaching peaks around 2014 or 2015, followed by a notable decline in the last two years. The cash operating taxes showed more pronounced increases and decreases compared to the income tax provision, suggesting greater variability in actual tax cash outflows relative to the accounting provisions. The consistent decline in both items after 2015 might indicate changes in tax strategy, operational performance, or tax regulations affecting the company's tax liabilities.

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Monsanto Co., invested capital calculation (financing approach)

US$ in millions

	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014	Aug 31, 2013	Aug 31, 2012
Short-term debt, including current portion of long-term debt	870)	1,587)	615)	233)	51)	36)
Long-term debt, excluding current portion	7,254)	7,453)	8,429)	7,528)	2,061)	2,038)
Operating lease liability¹	458)	464)	467)	491)	435)	318)
Total reported debt & leases	8,582)	9,504)	9,511)	8,252)	2,547)	2,392)
Total Monsanto Company shareowners’ equity	6,438)	4,534)	6,990)	7,875)	12,559)	11,833)
Net deferred tax (assets) liabilities²	(372)	(545)	(677)	(506)	(526)	(742)
Allowance for doubtful trade receivables³	78)	94)	59)	72)	68)	64)
Excess of FIFO over LIFO cost⁴	144)	150)	154)	160)	169)	143)
Deferred revenues⁵	841)	603)	417)	485)	655)	641)
Restructuring reserves⁶	46)	244)	217)	—)	—)	—)
Equity equivalents⁷	737)	546)	170)	211)	366)	106)
Accumulated other comprehensive (income) loss, net of tax⁸	2,427)	2,808)	2,801)	1,114)	1,278)	1,036)
Noncontrolling interest	20)	11)	15)	39)	169)	203)
Adjusted total Monsanto Company shareowners’ equity	9,622)	7,899)	9,976)	9,239)	14,372)	13,178)
Construction in progress and other⁹	(1,820)	(1,367)	(1,096)	(1,169)	(873)	(680)
Investments¹⁰	(18)	(73)	(64)	(62)	(276)	(337)
Invested capital	16,366)	15,963)	18,327)	16,260)	15,770)	14,553)

Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).

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 LIFO reserve. See details »

⁵ Addition of deferred revenues.

⁶ Addition of restructuring reserves.

⁷ Addition of equity equivalents to total Monsanto Company shareowners’ equity.

⁸ Removal of accumulated other comprehensive income.

⁹ Subtraction of construction in progress and other.

¹⁰ Subtraction of investments.

The financial data reveals several important trends and shifts over the six-year period ending August 31, 2017.

Total reported debt & leases: This metric shows a notable increase from 2012 through 2015, rising sharply from approximately $2.4 billion to $9.5 billion. The peak occurs in 2015 with a slight decline thereafter, dropping to $8.6 billion by 2017. This suggests a significant increase in leverage or borrowing activities during the mid-period, followed by some reduction in debt levels.
Total Monsanto Company shareowners’ equity: Shareowners’ equity exhibits a declining trend over the years. Starting at about $11.8 billion in 2012, equity increases slightly in 2013 but then declines steadily to a low of $4.5 billion in 2016. A partial recovery to $6.4 billion in 2017 is observed. This decreasing equity position alongside rising debt levels in the earlier years indicates possible financial restructuring or share buybacks impacting the equity base.
Invested capital: Invested capital shows a general upward trend from 2012 through 2015, rising from approximately $14.6 billion to $18.3 billion before declining to around $16.0 billion in 2016. A slight increase to $16.4 billion in 2017 occurs. The growth in invested capital up to 2015 parallels the increases in both debt and equity during that period, suggesting expansion or acquisition initiatives. The subsequent decrease and stabilization may reflect a period of consolidation or reevaluation of capital investment.

Overall, the data suggest that the company experienced increased leverage with a peak in debt around 2015, accompanied by declining shareholders’ equity after 2013. Despite fluctuations, invested capital remained relatively high, implying continued commitment to the company's operational base or growth efforts. The partial recovery in equity and reduction in debt post-2015 could indicate a strategic shift towards strengthening the balance sheet and deleveraging.

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Monsanto Co., cost of capital calculations

Aug 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	53,493)	53,493)	÷	62,431)	=	0.86	0.86	×	19.57%	=	16.77%
Debt³	8,480)	8,480)	÷	62,431)	=	0.14	0.14	×	3.88% × (1 – 35.00%)	=	0.34%
Operating lease liability⁴	458)	458)	÷	62,431)	=	0.01	0.01	×	3.88% × (1 – 35.00%)	=	0.02%
Total:	62,431)					1.00					17.13%

Based on: 10-K (reporting date: 2017-08-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Aug 31, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	44,889)	44,889)	÷	54,776)	=	0.82	0.82	×	19.57%	=	16.04%
Debt³	9,423)	9,423)	÷	54,776)	=	0.17	0.17	×	3.80% × (1 – 35.00%)	=	0.42%
Operating lease liability⁴	464)	464)	÷	54,776)	=	0.01	0.01	×	3.80% × (1 – 35.00%)	=	0.02%
Total:	54,776)					1.00					16.49%

Based on: 10-K (reporting date: 2016-08-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Aug 31, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	41,226)	41,226)	÷	50,436)	=	0.82	0.82	×	19.57%	=	16.00%
Debt³	8,743)	8,743)	÷	50,436)	=	0.17	0.17	×	3.74% × (1 – 35.00%)	=	0.42%
Operating lease liability⁴	467)	467)	÷	50,436)	=	0.01	0.01	×	3.74% × (1 – 35.00%)	=	0.02%
Total:	50,436)					1.00					16.44%

Based on: 10-K (reporting date: 2015-08-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Aug 31, 2014

	Capital (fair value)¹	Weights					Cost of capital
Equity²	54,303)	54,303)	÷	62,955)	=	0.86	0.86	×	19.57%	=	16.88%
Debt³	8,161)	8,161)	÷	62,955)	=	0.13	0.13	×	3.78% × (1 – 35.00%)	=	0.32%
Operating lease liability⁴	491)	491)	÷	62,955)	=	0.01	0.01	×	3.78% × (1 – 35.00%)	=	0.02%
Total:	62,955)					1.00					17.22%

Based on: 10-K (reporting date: 2014-08-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Aug 31, 2013

	Capital (fair value)¹	Weights					Cost of capital
Equity²	56,591)	56,591)	÷	59,307)	=	0.95	0.95	×	19.57%	=	18.68%
Debt³	2,282)	2,282)	÷	59,307)	=	0.04	0.04	×	4.49% × (1 – 35.00%)	=	0.11%
Operating lease liability⁴	435)	435)	÷	59,307)	=	0.01	0.01	×	4.49% × (1 – 35.00%)	=	0.02%
Total:	59,307)					1.00					18.81%

Based on: 10-K (reporting date: 2013-08-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Aug 31, 2012

	Capital (fair value)¹	Weights					Cost of capital
Equity²	47,414)	47,414)	÷	50,179)	=	0.94	0.94	×	19.57%	=	18.49%
Debt³	2,447)	2,447)	÷	50,179)	=	0.05	0.05	×	4.48% × (1 – 35.00%)	=	0.14%
Operating lease liability⁴	318)	318)	÷	50,179)	=	0.01	0.01	×	4.48% × (1 – 35.00%)	=	0.02%
Total:	50,179)					1.00					18.66%

Based on: 10-K (reporting date: 2012-08-31).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Monsanto Co., economic spread ratio calculation, comparison to benchmarks

	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014	Aug 31, 2013	Aug 31, 2012
Selected Financial Data (US$ in millions)
Economic profit¹	(222)	(816)	(653)	(167)	(224)	(468)
Invested capital²	16,366)	15,963)	18,327)	16,260)	15,770)	14,553)
Performance Ratio
Economic spread ratio³	-1.36%	-5.11%	-3.56%	-1.03%	-1.42%	-3.22%
Benchmarks
Economic Spread Ratio, Competitors⁴
lululemon athletica inc.	—	—	—	—	—	—
Nike Inc.	—	—	—	—	—	—

Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2017 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -222 ÷ 16,366 = -1.36%

⁴ Click competitor name to see calculations.

The financial performance between August 31, 2012, and August 31, 2017, is characterized by a persistent inability to generate positive economic profit. Throughout the entire observed period, the company operated with a negative economic profit, indicating that the returns on invested capital consistently failed to exceed the required cost of capital, thereby resulting in a destruction of shareholder value.

Economic Profit Trends: A period of relative improvement occurred between 2012 and 2014, with economic profit narrowing from -468 million US$ to -167 million US$. However, this trend reversed sharply in 2015 and 2016, with losses widening to -653 million US$ and -816 million US$, respectively. A significant recovery was noted by August 31, 2017, as economic profit improved to -222 million US$, though it remained in negative territory.
Invested Capital Dynamics: Invested capital exhibited a general upward trajectory from 14,553 million US$ in 2012 to a peak of 18,327 million US$ in 2015. This increase in the capital base coincided with a sharp decline in economic performance. Following the 2015 peak, invested capital decreased to 15,963 million US$ in 2016 and stabilized at 16,366 million US$ by 2017.
Economic Spread Ratio Analysis: The economic spread ratio remained negative throughout the six-year duration, mirroring the trend of the economic profit. The ratio improved from -3.22% in 2012 to a period high of -1.03% in 2014. A substantial deterioration followed, reaching a minimum of -5.11% in 2016, which represents the point of maximum value destruction relative to the capital employed. By 2017, the ratio recovered to -1.36%, indicating a return toward the levels seen in 2013 and 2014.

The correlation between the peak in invested capital in 2015 and the subsequent decline in the economic spread ratio suggests that the expansion of the capital base did not yield proportional increases in returns. The recovery observed in 2017 indicates a reduction in the gap between the actual return on capital and the cost of capital, although the company has not yet achieved a positive economic spread.

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Monsanto Co., economic profit margin calculation, comparison to benchmarks

	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014	Aug 31, 2013	Aug 31, 2012
Selected Financial Data (US$ in millions)
Economic profit¹	(222)	(816)	(653)	(167)	(224)	(468)

Net sales	14,640)	13,502)	15,001)	15,855)	14,861)	13,504)
Add: Increase (decrease) in deferred revenues	238)	186)	(68)	(170)	14)	(69)
Adjusted net sales	14,878)	13,688)	14,933)	15,685)	14,875)	13,435)
Performance Ratio
Economic profit margin²	-1.49%	-5.96%	-4.37%	-1.07%	-1.50%	-3.49%
Benchmarks
Economic Profit Margin, Competitors³
lululemon athletica inc.	—	—	—	—	—	—
Nike Inc.	—	—	—	—	—	—

Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).

¹ Economic profit. See details »

² 2017 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales
= 100 × -222 ÷ 14,878 = -1.49%

³ Click competitor name to see calculations.

The analysis of economic profit and economic profit margin from 2012 to 2017 reveals a consistent failure to generate returns exceeding the cost of capital, as economic profit remained negative throughout the entire observed period.

Economic Profit Trajectory: An initial improvement trend is observed between 2012 and 2014, with economic profit narrowing from -468 million USD to -167 million USD. This positive momentum reversed sharply in 2015 and 2016, with losses expanding to -653 million USD and peaking at -816 million USD, respectively. A recovery phase began in 2017, with economic profit improving to -222 million USD.
Economic Profit Margin Volatility: The economic profit margin followed a similar cyclical pattern, starting at -3.49% in 2012 and reaching a period high of -1.07% in 2014. A significant deterioration occurred over the following two years, with the margin falling to -4.37% in 2015 and reaching its lowest point of -5.96% in 2016. By 2017, the margin recovered to -1.49%.
Correlation with Adjusted Net Sales: Adjusted net sales fluctuated between a high of 15,685 million USD in 2014 and a low of 13,688 million USD in 2016. The most severe contraction in the economic profit margin coincided with the lowest recorded sales in 2016, indicating that the decline in revenue volume likely compounded the inability to cover the cost of capital during that period.

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Monsanto Co. (NYSE:MON)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin