Economic Value Added (EVA)
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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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Reynolds American Inc. pages available for free this week:
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Debt to Equity since 2005
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Economic Profit
Reynolds American Inc., economic profit calculation
US$ in millions
| 12 months ended: | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | |
|---|---|---|---|---|---|---|
| Net operating profit after taxes (NOPAT)1 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2016 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial analysis reveals notable variability and important trends across the examined periods.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT experienced fluctuations over the five years, showing a substantial dip in 2014 compared to 2013, followed by a sharp increase in 2015 and a further significant rise in 2016. This pattern suggests periods of both contraction and robust growth in operational profitability.
- Cost of Capital
- The cost of capital remained relatively stable, ranging narrowly between approximately 7.7% and 8.2%. This stability indicates consistent financing costs or risk perceptions over time without drastic changes impacting capital expense.
- Invested Capital
- Invested capital held steady during the early years but exhibited a remarkable increase between 2014 and 2015, rising over fourfold. The investment level then remained stable into 2016. This sharp increase may imply significant asset acquisitions, restructuring, or other capital-intensive activities.
- Economic Profit
- Economic profit followed a somewhat volatile trajectory. It peaked in 2013, declined in 2014, turned negative in 2015, and then recovered strongly in 2016. The negative economic profit in 2015 is notable, indicating that during that year, the company’s returns did not cover the cost of capital despite high invested capital. The strong rebound in 2016 suggests improved value creation and operational efficiency.
Overall, the data illustrate a period characterized by significant operational profit growth and capital expansion, with fluctuations in value creation as reflected in economic profit. The considerable capital investment and subsequent increases in NOPAT and economic profit in the later years highlight a phase of expansion and enhanced profitability.
Net Operating Profit after Taxes (NOPAT)
Reynolds American Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in LIFO reserve. See details »
3 Addition of increase (decrease) in deferred revenue, related party.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2016 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
6 2016 Calculation
Tax benefit of interest and debt expense = Adjusted interest and debt expense × Statutory income tax rate
= × 35.00% =
7 Addition of after taxes interest expense to net income.
8 2016 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 35.00% =
9 Elimination of after taxes investment income.
10 Elimination of discontinued operations.
- Net Income
- Net income exhibited a positive trend over the five-year period. Starting at 1,272 million US dollars in 2012, it increased to 1,718 million US dollars in 2013, representing a strong growth. A decline occurred in 2014 to 1,470 million US dollars, followed by a substantial rise in 2015 to 3,253 million US dollars. The upward momentum continued sharply in 2016, reaching 6,073 million US dollars. Overall, this reflects significant growth with some volatility, especially the strong rebound after 2014.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT values followed a pattern similar to net income but with greater relative fluctuations. Beginning at 1,384 million US dollars in 2012, NOPAT increased notably to 2,217 million US dollars in 2013. It then declined to 1,432 million US dollars in 2014, mirroring the dip in net income. A strong recovery was observed in 2015, with NOPAT more than doubling from the prior year to 2,912 million US dollars. This trend continued with an even sharper increase to 6,935 million US dollars in 2016, surpassing the net income growth rate during the same period. This indicates improving operational efficiency or profitability after taxes, especially in the later years.
- Overall Analysis
- Both net income and NOPAT demonstrated significant growth between 2012 and 2016, with a noticeable dip in 2014 followed by rapid recovery and acceleration in the subsequent years. The company's profitability, both at the net income level and operational profit after tax level, suggests effective management of operations and potentially enhanced revenue streams or cost efficiencies post-2014. The sharper rise in NOPAT compared to net income in 2015 and 2016 may indicate improved operational performance relative to other income components such as non-operating expenses or taxes. These patterns imply a strong financial performance trajectory in the latter part of the analyzed period.
Cash Operating Taxes
Reynolds American Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
- Provision for income taxes
- The provision for income taxes exhibited an overall increasing trend from 2012 to 2016. The value rose notably from 681 million in 2012 to 1023 million in 2013, indicating a significant increase early in the period. However, in 2014, the provision decreased to 817 million, signaling a temporary decline. Subsequently, there was a sharp and substantial increase to 3131 million in 2015, followed by a further increase to 3618 million in 2016. This pattern suggests a considerable rise in tax liability or changes in tax provision accounting during the latter years.
- Cash operating taxes
- Cash operating taxes showed some fluctuations but generally increased over the five-year span. Starting at 805 million in 2012, the amount remained relatively stable at 801 million in 2013. It rose to 1096 million in 2014, marking the beginning of a more pronounced increase. In 2015, cash operating taxes surged dramatically to 3988 million, representing a significant outflow compared to prior years. However, there was a decline to 3456 million in 2016, indicating some reduction in cash taxes paid, though still well above earlier period levels. This suggests modifications in operational cash tax payments or timing differences.
Invested Capital
Reynolds American Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of LIFO reserve. See details »
4 Addition of deferred revenue, related party.
5 Addition of equity equivalents to shareholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction-in-process.
8 Subtraction of marketable securities.
- Total reported debt & leases
-
The total reported debt and leases remained relatively stable between 2012 and 2014, with values hovering slightly above 5,100 million US dollars. However, there was a significant increase in 2015, where the figure more than tripled to 17,473 million US dollars. This substantial rise was followed by a decline in 2016 to 13,190 million US dollars, though the amount remained considerably higher than in the initial three years.
- Shareholders’ equity
-
Shareholders’ equity displayed a slight downward trend from 2012 to 2014, decreasing from 5,257 million US dollars to 4,522 million US dollars. In 2015, it experienced a substantial increase to 18,252 million US dollars, continuing to rise in 2016 to 21,711 million US dollars. This growth mirrors the pattern seen in total reported debt but extends to an even higher level by the end of the period.
- Invested capital
-
Invested capital remained relatively constant and stable from 2012 through 2014, with values just below and around the 10,000 million US dollars mark. There was a marked escalation in 2015 to 45,105 million US dollars, sustaining a similar level in 2016 at 44,972 million US dollars. This sharp increase corresponds with the shifts in both debt and equity, indicating a considerable expansion in the company's capital base during this period.
- Overall Analysis
-
The financial data reveals a period of relative stability from 2012 to 2014, followed by a pronounced transformation starting in 2015. Both total reported debt and shareholders’ equity saw massive increases, which drove a nearly fourfold surge in invested capital. Although total debt decreased somewhat in 2016, it remained significantly elevated compared to the earlier years. The simultaneous rise in equity suggests that the company may have undertaken major financing and capital restructuring initiatives during 2015, resulting in a substantial enlargement of its financial structure. This shift likely reflects strategic decisions impacting the capital composition, potentially involving acquisitions, capital infusion, or other large-scale financial activities.
Cost of Capital
Reynolds American Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2016-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2014-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2013-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Long-term debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2012-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Reynolds American Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2016 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited considerable fluctuations over the observed period. It started at 568 million US dollars in 2012, increased significantly to 1384 million in 2013, and then declined to 634 million in 2014. In 2015, economic profit sharply turned negative, registering a loss of 570 million, before rebounding substantially to reach a peak of 3268 million in 2016.
- Invested Capital
- Invested capital remained relatively stable around 10,000 million US dollars from 2012 to 2014, with a slight decline in 2014 to 9728 million. However, there was a substantial increase in invested capital in 2015 and 2016, where it rose markedly to over 45,000 million US dollars, indicating a major investment or capital restructuring within the company during these years.
- Economic Spread Ratio
- The economic spread ratio followed a pattern similar to economic profit. It started at 5.48% in 2012, doubled to 13.21% in 2013, then decreased to 6.52% in 2014. In 2015, the ratio turned negative to -1.26%, signaling a potential underperformance or inefficiency in capital utilization. In 2016, the economic spread ratio recovered to 7.27%, though it remained below the 2013 peak.
Economic Profit Margin
Reynolds American Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Net sales, includes excise taxes | ||||||
| Add: Increase (decrease) in deferred revenue, related party | ||||||
| Adjusted net sales, includes excise taxes | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Economic profit. See details »
2 2016 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net sales, includes excise taxes
= 100 × ÷ =
3 Click competitor name to see calculations.
The financial data reveals significant fluctuations in the economic profit and related metrics over the five-year period under review.
- Economic Profit
- Economic profit shows a volatile trend throughout the years. It increased substantially from $568 million in 2012 to a peak of $1,384 million in 2013, followed by a sharp decline to $634 million in 2014. In 2015, the economic profit turned negative, reaching -$570 million, but rebounded strongly in 2016 to $3,268 million, the highest value recorded during this period.
- Adjusted Net Sales (Includes Excise Taxes)
- The adjusted net sales demonstrate a generally increasing trend. Starting at $12,227 million in 2012, there was a slight decline in 2013 to $11,972 million, followed by a marginal increase in 2014 to $12,080 million. Sales then showed a marked growth in 2015 to $14,885 million, continuing upward to $16,918 million in 2016. This indicates an overall strengthening in sales revenue over the five years.
- Economic Profit Margin
- The economic profit margin reflects a parallel pattern to economic profit with some volatility. It started at 4.65% in 2012, rose significantly to 11.56% in 2013, and declined to 5.25% in 2014. In 2015, the margin turned negative at -3.83%, indicating an operating loss relative to sales during that year. The margin then surged to 19.32% in 2016, demonstrating a noteworthy improvement and enhanced profitability.
In summary, the company's economic profit and margin have experienced considerable variability, with a significant downturn in 2015 followed by a strong recovery in 2016. Adjusted net sales have generally increased, supporting the growth in profitability observed in the later years. The fluctuations suggest periods of operational challenges and recovery, with the latest data indicating a robust enhancement in financial performance.