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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.
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Economic Profit
12 months ended: | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | ||||||
Cost of capital2 | ||||||
Invested capital3 | ||||||
Economic profit4 |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data reflects several distinct trends and shifts over the five-year period under review.
- Net Operating Profit After Taxes (NOPAT)
-
NOPAT demonstrates significant volatility across the years. In 2020, the company experienced a considerable loss of US$ 1,590 million. This position reversed sharply in 2021, with a positive profit of US$ 5,054 million, marking a strong recovery. The profit then slightly declined to US$ 4,663 million in 2022 and further to US$ 4,118 million in 2023. However, in 2024, NOPAT increased substantially again to US$ 6,483 million, suggesting improved operational efficiency or favorable market conditions in the most recent year.
- Cost of Capital
-
The cost of capital has shown a gradual upward trend over the period. Starting from 6.53% in 2020, it increased incrementally to 6.95% in 2024. Although the yearly changes are relatively small, the consistent rise indicates a slightly higher risk profile or changes in financing conditions affecting the company’s capital costs.
- Invested Capital
-
Invested capital decreased steadily from US$ 115,597 million in 2020 to US$ 111,328 million in 2024. This persistent reduction suggests either asset disposals, reduced capital expenditures, or improved capital management practices aimed at optimizing the investment base.
- Economic Profit
-
Economic profit remained negative throughout the period but showed a marked improvement. The largest negative value was in 2020 at -US$ 9,143 million, reflecting a significant destruction of shareholder value. This deficit narrowed considerably to -US$ 1,258 million in 2024, indicating operational gains and better alignment of returns exceeding the cost of capital, though the company has not yet achieved positive economic profit.
In summary, the company improved its operating profit and reduced invested capital over time, although economic profit remains negative. The gradual increase in cost of capital could pose some challenges for future profitability. The recent uptick in NOPAT in 2024 is a positive indicator and may signal stronger financial performance moving forward if the trend is sustained.
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 equity equivalents to net income (loss) attributable to common shareowners.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net income (loss) attributable to common shareowners.
7 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
8 Elimination of after taxes investment income.
9 Elimination of discontinued operations.
- Net Income (Loss) Attributable to Common Shareowners
- The data reveals a significant turnaround in net income over the five-year span. Starting with a substantial loss of $3,519 million in 2020, the company moved to positive net income in 2021, earning $3,864 million. This positive trajectory continued with net income increasing to $5,197 million in 2022. However, there was a notable decline in 2023, with net income dropping to $3,195 million. The year 2024 saw a substantial recovery, with net income rising again to $4,774 million. Overall, the trend shows strong volatility but an underlying recovery and growth following initial losses.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT also exhibits considerable improvement from 2020 through 2024. It started in negative territory at -$1,590 million in 2020, then sharply increased to $5,054 million in 2021. A slight decrease occurred in 2022, with NOPAT falling to $4,663 million, followed by a further decline to $4,118 million in 2023. In 2024, there was a substantial increase to $6,483 million, marking the highest point during the observed period. This suggests strong operating performance recovery and improved profitability post-2020.
- General Observations
- Both net income and NOPAT reveal a pattern of initial recovery after a period of losses, with some fluctuations between 2022 and 2023. The company demonstrates resilience with net income and operating profit growing significantly from 2020 lows to much higher figures by 2024. The decline in 2023 warrants attention as it interrupts the otherwise upward trend, but the subsequent recovery indicates an overall positive financial health trajectory.
Cash Operating Taxes
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
- Income Tax Expense
- The income tax expense exhibits variability over the analyzed five-year period. Starting at 575 million US dollars in 2020, it increased notably to 786 million in 2021. However, in 2022, it declined to 700 million before experiencing a further reduction to 456 million in 2023. In 2024, a significant rise to 1181 million occurred, marking the highest level in the period. The fluctuation suggests the influence of changing taxable income, tax rates, or tax planning strategies impacting reported tax expenses.
- Cash Operating Taxes
- Cash operating taxes show a generally upward trend with some volatility. Beginning at 978 million US dollars in 2020, this figure increased to 1158 million in 2021. A sharp and substantial increase to 2635 million is seen in 2022, more than doubling the previous year’s amount. This peak was followed by a considerable decline to 1197 million in 2023. In 2024, cash operating taxes rose again to 1638 million. This pattern indicates significant fluctuations in actual cash tax payments, potentially reflecting changes in tax regulations, timing of tax payments, or differences between accounting tax expense and cash tax outflows.
Invested Capital
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
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 equity equivalents to shareowners’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of marketable securities held in trusts.
- Total Reported Debt & Leases
- The total reported debt and leases remained relatively stable from 2020 through 2022, with values around 33,800 million US dollars. However, a notable increase occurred in 2023, where the amount rose sharply to 45,587 million US dollars. This increase was followed by a slight decline in 2024 to 43,260 million US dollars, yet still remaining substantially higher than the levels observed in the initial years.
- Shareowners’ Equity
- Shareowners’ equity showed a slight upward trend from 2020 to 2021, reaching 73,068 million US dollars. It then experienced a minor decrease in 2022, followed by a significant reduction in 2023 to 59,798 million US dollars. In 2024, the equity levels stabilized modestly with a small increase to 60,156 million US dollars, but overall, the equity remained below the earlier period’s highs.
- Invested Capital
- Invested capital demonstrated a gradual decline over the entire period. From 115,597 million US dollars in 2020, it decreased steadily each year to reach 111,328 million US dollars by 2024. This consistent downward trend suggests a contraction in the company's invested assets or capital base over this timeframe.
Cost of Capital
RTX Corp., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2024-12-31).
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 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2023-12-31).
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 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2022-12-31).
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 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-12-31).
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 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Invested capital2 | ||||||
Performance Ratio | ||||||
Economic spread ratio3 | ||||||
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
Boeing Co. | ||||||
Caterpillar Inc. | ||||||
Eaton Corp. plc | ||||||
GE Aerospace | ||||||
Honeywell International Inc. | ||||||
Lockheed Martin Corp. |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The analysis of the financial data over the five-year period reveals a consistent pattern of economic performance marked by significant challenges and gradual improvement.
- Economic Profit
- Economic profit figures consistently indicate negative values throughout the period, signaling that the company's returns fall short of the cost of capital. However, the magnitude of economic losses has diminished considerably from a deep deficit of -9,143 million US dollars in 2020 to a much smaller loss of -1,258 million US dollars in 2024. This trend suggests an ongoing effort to reduce inefficiencies or enhance profitability.
- Invested Capital
- Invested capital shows a slight but steady decline over the years from 115,597 million US dollars in 2020 to 111,328 million US dollars in 2024. This gradual reduction might indicate asset divestitures, optimization of capital usage, or a scaling back of investments, aligning with the efforts to improve overall returns.
- Economic Spread Ratio
- The economic spread ratio remains negative for the entire period, highlighting that returns on invested capital are consistently below the cost of capital. Nevertheless, there is a clear trend of ratio improvement, moving from -7.91% in 2020 to -1.13% in 2024. This narrowing negative spread further supports the observation of enhanced operational efficiency or improved profitability margins over time.
Overall, the data illustrate persistent economic challenges but also indicate a positive trajectory towards better financial performance, with reductions in losses and a closing gap between returns and costs. This suggests the potential effectiveness of strategies aimed at improving capital efficiency and profitability, although full recovery to economic profit remains an objective to be achieved.
Economic Profit Margin
Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Net sales | ||||||
Performance Ratio | ||||||
Economic profit margin2 | ||||||
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
Boeing Co. | ||||||
Caterpillar Inc. | ||||||
Eaton Corp. plc | ||||||
GE Aerospace | ||||||
Honeywell International Inc. | ||||||
Lockheed Martin Corp. |
Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × ÷ =
3 Click competitor name to see calculations.
- Net Sales
- Over the examined period, net sales exhibited a consistent upward trend. Starting from $56,587 million at the end of 2020, sales increased each year, reaching $80,738 million by the end of 2024. This reflects steady revenue growth, with the largest year-over-year increase observed between 2023 and 2024.
- Economic Profit
- Economic profit, although negative throughout the period, showed a marked improvement. The loss narrowed from -$9,143 million in 2020 to -$1,258 million in 2024. Despite remaining in negative territory, the reduction in economic loss indicates better value creation over time, with the steepest improvement occurring between 2023 and 2024.
- Economic Profit Margin
- The economic profit margin followed a similar trend to economic profit, remaining negative but moving closer to zero. Starting at -16.16% in 2020, it improved to -1.56% by 2024. This suggests enhanced operational efficiency or profitability per dollar of sales, although the company has yet to achieve a positive margin.
- Overall Analysis
- The data reflects a company experiencing consistent growth in revenue, alongside a gradual move towards economic profitability. While economic profit remains negative, the continuous improvement in both absolute economic profit and its margin indicates a positive trajectory. The converging trend towards breakeven economic profit hints at strengthening financial health, possibly supported by strategies that boost sales and control costs more effectively over the years.