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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
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2019 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 5,344 – 11.61% × 50,827 = -559
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. | Phillips 66 economic profit increased from 2017 to 2018 and from 2018 to 2019. |
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in equity equivalents to net income attributable to Phillips 66.
5 2019 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,261 × 3.80% = 48
6 2019 Calculation
Tax benefit of interest and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= 506 × 21.00% = 106
7 Addition of after taxes interest expense to net income attributable to Phillips 66.
8 2019 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 43 × 21.00% = 9
9 Elimination of after taxes investment income.
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. | Phillips 66 NOPAT increased from 2017 to 2018 and from 2018 to 2019. |
Cash Operating Taxes
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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. | Phillips 66 cash operating taxes increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level. |
Invested Capital
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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 equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
Item | Description | The company |
---|---|---|
Invested capital | Capital is an approximation of the economic book value of all cash invested in going-concern business activities. | Phillips 66 invested capital decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
Cost of Capital
Phillips 66, cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | 39,221) | 39,221) | ÷ | 53,683) | = | 0.73 | 0.73 | × | 14.67% | = | 10.72% | ||
Debt3 | 13,201) | 13,201) | ÷ | 53,683) | = | 0.25 | 0.25 | × | 4.25% × (1 – 21.00%) | = | 0.83% | ||
Operating lease liability4 | 1,261) | 1,261) | ÷ | 53,683) | = | 0.02 | 0.02 | × | 3.80% × (1 – 21.00%) | = | 0.07% | ||
Total: | 53,683) | 1.00 | 11.61% |
Based on: 10-K (reporting date: 2019-12-31).
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 | 44,290) | 44,290) | ÷ | 56,793) | = | 0.78 | 0.78 | × | 14.67% | = | 11.44% | ||
Debt3 | 11,111) | 11,111) | ÷ | 56,793) | = | 0.20 | 0.20 | × | 4.39% × (1 – 21.00%) | = | 0.68% | ||
Operating lease liability4 | 1,391) | 1,391) | ÷ | 56,793) | = | 0.02 | 0.02 | × | 4.39% × (1 – 21.00%) | = | 0.08% | ||
Total: | 56,793) | 1.00 | 12.20% |
Based on: 10-K (reporting date: 2018-12-31).
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 | 46,029) | 46,029) | ÷ | 58,724) | = | 0.78 | 0.78 | × | 14.67% | = | 11.50% | ||
Debt3 | 11,088) | 11,088) | ÷ | 58,724) | = | 0.19 | 0.19 | × | 4.31% × (1 – 35.00%) | = | 0.53% | ||
Operating lease liability4 | 1,608) | 1,608) | ÷ | 58,724) | = | 0.03 | 0.03 | × | 4.31% × (1 – 35.00%) | = | 0.08% | ||
Total: | 58,724) | 1.00 | 12.10% |
Based on: 10-K (reporting date: 2017-12-31).
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 | 40,731) | 40,731) | ÷ | 52,811) | = | 0.77 | 0.77 | × | 14.67% | = | 11.31% | ||
Debt3 | 10,708) | 10,708) | ÷ | 52,811) | = | 0.20 | 0.20 | × | 4.32% × (1 – 35.00%) | = | 0.57% | ||
Operating lease liability4 | 1,372) | 1,372) | ÷ | 52,811) | = | 0.03 | 0.03 | × | 4.32% × (1 – 35.00%) | = | 0.07% | ||
Total: | 52,811) | 1.00 | 11.96% |
Based on: 10-K (reporting date: 2016-12-31).
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 | 42,244) | 42,244) | ÷ | 52,692) | = | 0.80 | 0.80 | × | 14.67% | = | 11.76% | ||
Debt3 | 8,692) | 8,692) | ÷ | 52,692) | = | 0.16 | 0.16 | × | 4.38% × (1 – 35.00%) | = | 0.47% | ||
Operating lease liability4 | 1,756) | 1,756) | ÷ | 52,692) | = | 0.03 | 0.03 | × | 4.38% × (1 – 35.00%) | = | 0.09% | ||
Total: | 52,692) | 1.00 | 12.33% |
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | (559) | (796) | (1,269) | (1,046) | (1,954) | |
Invested capital2 | 50,827) | 48,544) | 49,009) | 46,215) | 42,469) | |
Performance Ratio | ||||||
Economic spread ratio3 | -1.10% | -1.64% | -2.59% | -2.26% | -4.60% | |
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
Chevron Corp. | -12.86% | — | — | — | — | |
ConocoPhillips | -0.61% | — | — | — | — | |
Exxon Mobil Corp. | -5.91% | — | — | — | — | |
Marathon Petroleum Corp. | -3.26% | — | — | — | — | |
Occidental Petroleum Corp. | -10.78% | — | — | — | — | |
Valero Energy Corp. | -3.42% | — | — | — | — |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2019 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -559 ÷ 50,827 = -1.10%
4 Click competitor name to see calculations.
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. | Phillips 66 economic spread ratio improved from 2017 to 2018 and from 2018 to 2019. |
Economic Profit Margin
Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | (559) | (796) | (1,269) | (1,046) | (1,954) | |
Sales and other operating revenues | 107,293) | 111,461) | 102,354) | 84,279) | 98,975) | |
Performance Ratio | ||||||
Economic profit margin2 | -0.52% | -0.71% | -1.24% | -1.24% | -1.97% | |
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
Chevron Corp. | -17.99% | — | — | — | — | |
ConocoPhillips | -1.07% | — | — | — | — | |
Exxon Mobil Corp. | -7.01% | — | — | — | — | |
Marathon Petroleum Corp. | -2.15% | — | — | — | — | |
Occidental Petroleum Corp. | -44.48% | — | — | — | — | |
Valero Energy Corp. | -1.29% | — | — | — | — |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Economic profit. See details »
2 2019 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales and other operating revenues
= 100 × -559 ÷ 107,293 = -0.52%
3 Click competitor name to see calculations.
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. | Phillips 66 economic profit margin improved from 2017 to 2018 and from 2018 to 2019. |