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
Monsanto Co., economic profit calculation
US$ in millions
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 – 17.07% × 16,366 = -211
An analysis of the financial performance from 2012 to 2017 reveals a consistent failure to generate positive economic profit, indicating that the return on invested capital remained below the company's cost of capital throughout the entire period. Value destruction is evident as the economic profit remained negative for six consecutive years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility, peaking at 2,743 million USD in 2013 before experiencing a downward trend that reached a low of 1,816 million USD in 2016. A recovery was observed in 2017, with NOPAT rising to 2,582 million USD. Despite these fluctuations, the operating profit was insufficient to cover the implied capital charge.
- Cost of Capital and Invested Capital
- The cost of capital remained relatively stable, fluctuating within a narrow range between 16.38% and 18.74%. Invested capital showed a general upward trend from 14,553 million USD in 2012 to a peak of 18,327 million USD in 2015. The subsequent reduction to 15,963 million USD in 2016 suggests a contraction or divestment of assets, yet this reduction did not immediately result in positive economic profit.
- Economic Profit Trends
- Economic profit showed a narrowing deficit between 2012 and 2014, moving from -458 million USD to -157 million USD. However, this trend reversed sharply in 2015 and 2016, with the deficit widening to -641 million USD and -806 million USD, respectively. The deterioration in 2016 coincides with the lowest recorded NOPAT in the period. By 2017, the economic profit improved to -211 million USD, though it remained in negative territory.
The interplay between rising invested capital and fluctuating operating profits created a persistent gap in value creation. The inability to align NOPAT with the required return on invested capital suggests that the business did not generate sufficient returns to satisfy the expectations of its providers of capital during this timeframe.
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Net Operating Profit after Taxes (NOPAT)
Monsanto Co., NOPAT calculation
US$ in millions
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.
An analysis of the financial performance from 2012 to 2017 reveals a period of volatility characterized by an initial growth phase, a mid-period contraction, and a subsequent recovery. Both Net Income and Net Operating Profit After Taxes (NOPAT) exhibit a high degree of correlation in their trajectories, though NOPAT remains consistently higher than net income throughout the entire period.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT experienced an initial increase, peaking in 2013 at 2,743 million US$. This was followed by a three-year downward trend, reaching a period low of 1,816 million US$ in 2016. A significant recovery is observed in 2017, with the value returning to 2,582 million US$, nearly reaching the previous peak levels.
- Net Income Performance
- Net income attributable to the company followed a similar pattern, though its peak occurred slightly later in 2014 at 2,740 million US$. A sharp decline was recorded between 2014 and 2016, with the 2016 figure of 1,336 million US$ representing the lowest point in the observed timeframe. A strong rebound is evident in 2017, with net income rising to 2,260 million US$.
- Comparative Profitability Analysis
- The consistent variance where NOPAT exceeds net income indicates that operating profitability remained stronger than bottom-line earnings. This gap was most pronounced in 2016, where the difference between NOPAT and net income reached 480 million US$, suggesting that while operational profits declined, net income was subject to additional downward pressures during that fiscal year.
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Cash Operating Taxes
Monsanto Co., cash operating taxes calculation
US$ in millions
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).
An analysis of tax expenditures from 2012 to 2017 reveals a distinct divergence between accounting-based tax provisions and actual cash outflows for operating taxes.
- Cash Operating Taxes Trend
- Cash operating taxes experienced a period of consistent growth between 2012 and 2015, rising from 708 million US$ to a peak of 1,272 million US$. This upward trajectory was followed by a sharp decline in 2016 and 2017, with values dropping to 801 million US$ and 719 million US$, respectively. This indicates a significant volatility in actual cash liquidity diverted to tax obligations over the six-year period.
- Income Tax Provision Analysis
- The income tax provision from continuing operations followed a more moderate path, increasing from 901 million US$ in 2012 to a peak of 1,078 million US$ in 2014. Subsequently, the provision entered a steady downward trend, decreasing for three consecutive years to reach 626 million US$ by August 31, 2017. This suggests a reduction in the recognized tax expense on the income statement toward the end of the period.
- Variance Between Accrual and Cash Tax
- A notable shift occurred in the relationship between the tax provision and cash operating taxes. In 2012 and 2013, the income tax provision exceeded the cash taxes paid. However, from 2014 onward, this relationship inverted, with cash operating taxes consistently surpassing the provision. The widest variance occurred in 2015, when cash taxes exceeded the provision by 408 million US$, suggesting substantial timing differences or the settlement of deferred tax liabilities during that window.
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Invested Capital
Monsanto Co., invested capital calculation (financing approach)
US$ in millions
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.
Invested capital exhibited a general upward trajectory from 2012 to 2015, peaking at 18,327 million USD, before experiencing a contraction in 2016 and a marginal recovery in 2017. This pattern indicates a period of capital expansion followed by a subsequent realignment of the financial base.
- Debt and Lease Obligations
- A significant escalation in total reported debt and leases occurred between 2013 and 2014, with values increasing from 2,547 million USD to 8,252 million USD. This growth trend continued into 2015, reaching a peak of 9,511 million USD, and remained stable through 2016 before declining to 8,582 million USD by August 31, 2017.
- Shareowners' Equity Trends
- Shareowners' equity demonstrated a pronounced inverse relationship with debt levels beginning in 2014. After reaching a peak of 12,559 million USD in 2013, equity declined steadily over three years to a low of 4,534 million USD in 2016. A partial recovery was observed in 2017, as equity rose to 6,438 million USD.
- Capital Structure Dynamics
- The period between 2013 and 2016 is characterized by a fundamental shift in the composition of invested capital. The sharp increase in debt coinciding with a substantial reduction in equity suggests a strategic transition toward a more leveraged capital structure. Despite these significant shifts in the funding mix, the total invested capital remained relatively more stable than its individual components, fluctuating between 14,553 million USD and 18,327 million USD throughout the analysis period.
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Cost of Capital
Monsanto Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 53,493) | 53,493) | ÷ | 62,431) | = | 0.86 | 0.86 | × | 19.50% | = | 16.71% | ||
| 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 | 17.07% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 44,889) | 44,889) | ÷ | 54,776) | = | 0.82 | 0.82 | × | 19.50% | = | 15.98% | ||
| 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 | 16.42% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 41,226) | 41,226) | ÷ | 50,436) | = | 0.82 | 0.82 | × | 19.50% | = | 15.94% | ||
| 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 | 16.38% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 54,303) | 54,303) | ÷ | 62,955) | = | 0.86 | 0.86 | × | 19.50% | = | 16.82% | ||
| 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 | 17.16% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 56,591) | 56,591) | ÷ | 59,307) | = | 0.95 | 0.95 | × | 19.50% | = | 18.60% | ||
| 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 | 18.74% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 47,414) | 47,414) | ÷ | 50,179) | = | 0.94 | 0.94 | × | 19.50% | = | 18.42% | ||
| 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 | 18.58% | ||||||||||
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 »
Economic Spread Ratio
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 | (211) | (806) | (641) | (157) | (212) | (458) | |
| Invested capital2 | 16,366) | 15,963) | 18,327) | 16,260) | 15,770) | 14,553) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | -1.29% | -5.05% | -3.50% | -0.96% | -1.35% | -3.15% | |
| 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 × -211 ÷ 16,366 = -1.29%
4 Click competitor name to see calculations.
Between 2012 and 2017, a consistent failure to generate positive economic value is observed, as evidenced by negative economic profit and a negative economic spread ratio across the entire six-year period.
- Economic Profit Trends
- Economic profit remained negative throughout the analyzed period, indicating that the returns generated were insufficient to cover the cost of capital. An initial improvement trend occurred between 2012 and 2014, with losses narrowing from -458 million USD to -157 million USD. However, this trend reversed sharply in 2015 and 2016, with losses expanding to -641 million USD and -806 million USD, respectively. By 2017, a significant recovery was noted, with the deficit reducing to -211 million USD.
- Invested Capital Dynamics
- Invested capital exhibited a general upward trajectory from 2012 to 2015, rising from 14,553 million USD to a peak of 18,327 million USD. A contraction occurred in 2016 to 15,963 million USD, followed by a slight increase to 16,366 million USD in 2017. The peak in invested capital in 2015 coincided with a substantial increase in economic losses, suggesting that the expansion of the capital base during that period did not result in proportional returns.
- Economic Spread Ratio Analysis
- The economic spread ratio remained negative for the duration of the period, confirming that the company's return on invested capital was consistently lower than its cost of capital. The ratio improved from -3.15% in 2012 to a peak of -0.96% in 2014. A severe deterioration followed, with the ratio dropping to -5.05% by 2016, marking the lowest point of capital efficiency. The ratio recovered to -1.29% in 2017, aligning with the recovery observed in absolute economic profit.
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Economic Profit Margin
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 | (211) | (806) | (641) | (157) | (212) | (458) | |
| 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 | -1.42% | -5.89% | -4.29% | -1.00% | -1.43% | -3.41% | |
| 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 × -211 ÷ 14,878 = -1.42%
3 Click competitor name to see calculations.
The financial performance from 2012 to 2017 is characterized by a consistent failure to generate positive economic profit, indicating that the returns on capital remained below the cost of capital throughout the entire six-year period.
- Economic Profit Margin Trends
- The economic profit margin exhibited significant volatility, fluctuating between a high of -1.00% and a low of -5.89%. A period of improvement was observed from 2012 to 2014, during which the margin narrowed from -3.41% to -1.00%. However, this trend reversed sharply in 2015 and 2016, with the margin deteriorating to -4.29% and -5.89% respectively. A notable recovery occurred in 2017, returning the margin to -1.42%.
- Analysis of Economic Profit and Adjusted Net Sales
- A strong correlation exists between adjusted net sales and the magnitude of economic losses. The peak in adjusted net sales in 2014, reaching 15,685 million US dollars, coincided with the smallest annual economic loss of 157 million US dollars. Conversely, the contraction in sales during 2015 and 2016, which bottomed at 13,688 million US dollars, aligned with the most severe economic losses, peaking at 806 million US dollars in 2016. The recovery of sales to 14,878 million US dollars in 2017 was accompanied by a significant reduction in economic profit losses to 211 million US dollars.
- Overall Economic Value Performance
- Despite periodic recoveries, the persistent negative economic profit suggests a systemic challenge in value creation. The cyclical nature of the losses, peaking in 2016, indicates a high sensitivity to the fluctuations in adjusted net sales, as the capacity to mitigate losses appears heavily dependent on top-line revenue growth.
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