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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

Parker-Hannifin Corp., economic profit calculation

US$ in thousands

12 months ended:	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Net operating profit after taxes (NOPAT)¹	1,166,223)	1,895,230)	1,466,070)	1,718,681)	1,184,764)	1,132,702)
Cost of capital²	16.66%	17.95%	16.25%	15.99%	17.46%	16.60%
Invested capital³	21,994,132)	16,926,500)	17,529,292)	15,269,283)	13,016,451)	13,507,821)

Economic profit⁴	(2,497,358)	(1,142,586)	(1,382,703)	(722,613)	(1,088,113)	(1,110,198)

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,166,223 – 16.66% × 21,994,132 = -2,497,358

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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.	Parker-Hannifin Corp. economic profit increased from 2020 to 2021 but then decreased significantly from 2021 to 2022.

Parker-Hannifin Corp., NOPAT calculation

US$ in thousands

12 months ended:	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Net income attributable to common shareholders	1,315,605)	1,746,100)	1,206,341)	1,512,364)	1,060,801)	983,412)
Deferred income tax expense (benefit)¹	(351,200)	(51,500)	13,692)	32,537)	(41,412)	37,024)
Increase (decrease) in allowance for credit losses²	(2,136)	434)	2,770)	(798)	(4,664)	6,326)
Increase (decrease) in LIFO reserve³	—)	—)	(2,861)	19,523)	9,259)	(6,314)
Increase (decrease) in equity equivalents⁴	(353,336)	(51,066)	13,601)	51,262)	(36,817)	37,036)
Interest expense	255,252)	250,036)	308,161)	190,138)	213,873)	162,436)
Interest expense, operating lease liability⁵	2,182)	2,414)	2,935)	5,416)	9,028)	9,598)
Adjusted interest expense	257,434)	252,450)	311,096)	195,554)	222,901)	172,034)
Tax benefit of interest expense⁶	(54,061)	(53,014)	(65,330)	(41,066)	(62,635)	(60,212)
Adjusted interest expense, after taxes⁷	203,373)	199,435)	245,766)	154,488)	160,266)	111,822)
Net income (loss) attributable to noncontrolling interest	581)	761)	362)	567)	514)	432)
Net operating profit after taxes (NOPAT)	1,166,223)	1,895,230)	1,466,070)	1,718,681)	1,184,764)	1,132,702)

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for credit losses.

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

⁴ Addition of increase (decrease) in equity equivalents to net income attributable to common shareholders.

⁵ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 136,360 × 1.60% = 2,182

⁶ 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 257,434 × 21.00% = 54,061

⁷ Addition of after taxes interest expense to net income attributable to common shareholders.

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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.	Parker-Hannifin Corp. NOPAT increased from 2020 to 2021 but then decreased significantly from 2021 to 2022.

Parker-Hannifin Corp., cash operating taxes calculation

US$ in thousands

12 months ended:	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Income taxes	298,040)	500,096)	305,924)	420,494)	640,962)	344,797)
Less: Deferred income tax expense (benefit)	(351,200)	(51,500)	13,692)	32,537)	(41,412)	37,024)
Add: Tax savings from interest expense	54,061)	53,014)	65,330)	41,066)	62,635)	60,212)
Cash operating taxes	703,301)	604,610)	357,562)	429,023)	745,009)	367,985)

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

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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.	Parker-Hannifin Corp. cash operating taxes increased from 2020 to 2021 and from 2021 to 2022.

Parker-Hannifin Corp., invested capital calculation (financing approach)

US$ in thousands

	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Notes payable and long-term debt payable within one year	1,724,310)	2,824)	809,529)	587,014)	638,466)	1,008,465)
Long-term debt, excluding payable within one year	9,755,825)	6,582,053)	7,652,256)	6,520,831)	4,318,559)	4,861,895)
Operating lease liability¹	136,360)	134,097)	139,773)	125,951)	201,970)	213,295)
Total reported debt & leases	11,616,495)	6,718,974)	8,601,558)	7,233,796)	5,158,995)	6,083,655)
Shareholders’ equity	8,848,011)	8,398,307)	6,113,983)	5,961,969)	5,859,866)	5,261,649)
Net deferred tax (assets) liabilities²	196,459)	449,730)	255,689)	42,604)	177,235)	185,733)
Allowance for credit losses³	9,942)	12,078)	11,644)	8,874)	9,672)	14,336)
LIFO reserve⁴	—)	—)	219,854)	222,715)	203,192)	193,933)
Equity equivalents⁵	206,401)	461,808)	487,187)	274,193)	390,099)	394,002)
Accumulated other comprehensive (income) loss, net of tax⁶	1,543,198)	1,566,727)	2,558,875)	2,059,048)	1,763,086)	1,924,204)
Noncontrolling interests	11,909)	15,363)	14,546)	6,183)	5,627)	5,697)
Adjusted shareholders’ equity	10,609,519)	10,442,205)	9,174,591)	8,301,393)	8,018,678)	7,585,552)
Construction in progress⁷	(204,020)	(195,563)	(176,052)	(114,975)	(128,227)	(122,068)
Marketable securities and other investments⁸	(27,862)	(39,116)	(70,805)	(150,931)	(32,995)	(39,318)
Invested capital	21,994,132)	16,926,500)	17,529,292)	15,269,283)	13,016,451)	13,507,821)

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

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 equity equivalents to shareholders’ equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction in progress.

⁸ Subtraction of marketable securities and other investments.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Parker-Hannifin Corp. invested capital decreased from 2020 to 2021 but then increased from 2021 to 2022 exceeding 2020 level.

Parker-Hannifin Corp., cost of capital calculations

Jun 30, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	36,646,215)	36,646,215)	÷	47,914,012)	=	0.76	0.76	×	20.78%	=	15.89%
Notes payable and long-term debt³	11,131,437)	11,131,437)	÷	47,914,012)	=	0.23	0.23	×	4.14% × (1 – 21.00%)	=	0.76%
Operating lease liability⁴	136,360)	136,360)	÷	47,914,012)	=	0.00	0.00	×	1.60% × (1 – 21.00%)	=	0.00%
Total:	47,914,012)					1.00					16.66%

Based on: 10-K (reporting date: 2022-06-30).

¹ US$ in thousands

² Equity. See details »

³ Notes payable and long-term debt. See details »

⁴ Operating lease liability. See details »

Jun 30, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	39,183,577)	39,183,577)	÷	46,844,947)	=	0.84	0.84	×	20.78%	=	17.38%
Notes payable and long-term debt³	7,527,273)	7,527,273)	÷	46,844,947)	=	0.16	0.16	×	4.42% × (1 – 21.00%)	=	0.56%
Operating lease liability⁴	134,097)	134,097)	÷	46,844,947)	=	0.00	0.00	×	1.80% × (1 – 21.00%)	=	0.00%
Total:	46,844,947)					1.00					17.95%

Based on: 10-K (reporting date: 2021-06-30).

¹ US$ in thousands

² Equity. See details »

³ Notes payable and long-term debt. See details »

⁴ Operating lease liability. See details »

Jun 30, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	26,969,656)	26,969,656)	÷	36,407,330)	=	0.74	0.74	×	20.78%	=	15.39%
Notes payable and long-term debt³	9,297,901)	9,297,901)	÷	36,407,330)	=	0.26	0.26	×	4.22% × (1 – 21.00%)	=	0.85%
Operating lease liability⁴	139,773)	139,773)	÷	36,407,330)	=	0.00	0.00	×	2.10% × (1 – 21.00%)	=	0.01%
Total:	36,407,330)					1.00					16.25%

Based on: 10-K (reporting date: 2020-06-30).

¹ US$ in thousands

² Equity. See details »

³ Notes payable and long-term debt. See details »

⁴ Operating lease liability. See details »

Jun 30, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	20,297,657)	20,297,657)	÷	28,023,035)	=	0.72	0.72	×	20.78%	=	15.05%
Notes payable and long-term debt³	7,599,427)	7,599,427)	÷	28,023,035)	=	0.27	0.27	×	4.30% × (1 – 21.00%)	=	0.92%
Operating lease liability⁴	125,951)	125,951)	÷	28,023,035)	=	0.00	0.00	×	4.30% × (1 – 21.00%)	=	0.02%
Total:	28,023,035)					1.00					15.99%

Based on: 10-K (reporting date: 2019-06-30).

¹ US$ in thousands

² Equity. See details »

³ Notes payable and long-term debt. See details »

⁴ Operating lease liability. See details »

Jun 30, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	22,703,715)	22,703,715)	÷	27,992,535)	=	0.81	0.81	×	20.78%	=	16.85%
Notes payable and long-term debt³	5,086,851)	5,086,851)	÷	27,992,535)	=	0.18	0.18	×	4.47% × (1 – 28.10%)	=	0.58%
Operating lease liability⁴	201,970)	201,970)	÷	27,992,535)	=	0.01	0.01	×	4.47% × (1 – 28.10%)	=	0.02%
Total:	27,992,535)					1.00					17.46%

Based on: 10-K (reporting date: 2018-06-30).

¹ US$ in thousands

² Equity. See details »

³ Notes payable and long-term debt. See details »

⁴ Operating lease liability. See details »

Jun 30, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	20,941,339)	20,941,339)	÷	27,334,363)	=	0.77	0.77	×	20.78%	=	15.92%
Notes payable and long-term debt³	6,179,729)	6,179,729)	÷	27,334,363)	=	0.23	0.23	×	4.50% × (1 – 35.00%)	=	0.66%
Operating lease liability⁴	213,295)	213,295)	÷	27,334,363)	=	0.01	0.01	×	4.50% × (1 – 35.00%)	=	0.02%
Total:	27,334,363)					1.00					16.60%

Based on: 10-K (reporting date: 2017-06-30).

¹ US$ in thousands

² Equity. See details »

³ Notes payable and long-term debt. See details »

⁴ Operating lease liability. See details »

Parker-Hannifin Corp., economic spread ratio calculation, comparison to benchmarks

	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	(2,497,358)	(1,142,586)	(1,382,703)	(722,613)	(1,088,113)	(1,110,198)
Invested capital²	21,994,132)	16,926,500)	17,529,292)	15,269,283)	13,016,451)	13,507,821)
Performance Ratio
Economic spread ratio³	-11.35%	-6.75%	-7.89%	-4.73%	-8.36%	-8.22%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-21.24%	-19.77%	-31.28%	—	—	—
Caterpillar Inc.	0.03%	0.19%	-6.33%	—	—	—
Eaton Corp. plc	-6.06%	-5.79%	-7.88%	—	—	—
GE Aerospace	-10.16%	-15.13%	-4.96%	—	—	—
Honeywell International Inc.	-2.25%	-1.18%	-2.51%	—	—	—
Lockheed Martin Corp.	12.70%	13.70%	17.02%	—	—	—
RTX Corp.	-2.83%	-2.37%	-7.92%	—	—	—

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,497,358 ÷ 21,994,132 = -11.35%

⁴ Click competitor name to see calculations.

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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.	Parker-Hannifin Corp. economic spread ratio improved from 2020 to 2021 but then deteriorated significantly from 2021 to 2022.

Parker-Hannifin Corp., economic profit margin calculation, comparison to benchmarks

	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018	Jun 30, 2017
Selected Financial Data (US$ in thousands)
Economic profit¹	(2,497,358)	(1,142,586)	(1,382,703)	(722,613)	(1,088,113)	(1,110,198)
Net sales	15,861,608)	14,347,640)	13,695,520)	14,320,324)	14,302,392)	12,029,312)
Performance Ratio
Economic profit margin²	-15.74%	-7.96%	-10.10%	-5.05%	-7.61%	-9.23%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-16.21%	-15.69%	-25.62%	—	—	—
Caterpillar Inc.	0.03%	0.22%	-8.76%	—	—	—
Eaton Corp. plc	-8.98%	-8.69%	-12.09%	—	—	—
GE Aerospace	-9.21%	-15.27%	-7.93%	—	—	—
Honeywell International Inc.	-2.97%	-1.64%	-3.72%	—	—	—
Lockheed Martin Corp.	5.12%	5.85%	7.30%	—	—	—
RTX Corp.	-4.78%	-4.22%	-16.18%	—	—	—

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

¹ Economic profit. See details »

² 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × -2,497,358 ÷ 15,861,608 = -15.74%

³ Click competitor name to see calculations.

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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.	Parker-Hannifin Corp. economic profit margin improved from 2020 to 2021 but then deteriorated significantly from 2021 to 2022.

Parker-Hannifin Corp. (NYSE:PH)

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