Stock Analysis on Net

Sherwin-Williams Co. (NYSE:SHW)

Economic Value Added (EVA)

Microsoft Excel

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

Sherwin-Williams Co., economic profit calculation

US$ in thousands

Microsoft Excel
12 months ended: Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Net operating profit after taxes (NOPAT)1 2,509,420 2,478,341 2,357,407 2,190,395 1,657,866
Cost of capital2 13.62% 13.10% 13.20% 13.24% 13.01%
Invested capital3 16,412,900 17,346,300 15,808,100 15,489,500 16,416,500
 
Economic profit4 273,818 206,543 270,046 139,845 (477,576)

Based on: 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), 10-K (reporting date: 2019-12-31).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,509,42013.62% × 16,412,900 = 273,818

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. Sherwin-Williams Co. economic profit decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Net Operating Profit after Taxes (NOPAT)

Sherwin-Williams Co., NOPAT calculation

US$ in thousands

Microsoft Excel
12 months ended: Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Net income 2,388,800 2,020,100 1,864,400 2,030,400 1,541,300
Deferred income tax expense (benefit)1 (88,900) (144,800) (80,300) (145,300) (131,100)
Increase (decrease) in allowance for current expected credit losses2 3,000 7,700 (4,600) 17,000 (9,400)
Increase (decrease) in LIFO reserve3 (124,700) 199,700 280,900 (27,700) (37,300)
Increase (decrease) in accrual for product warranty claims4 4,200 1,000 (8,100) 1,000 (14,800)
Increase (decrease) in restructuring Plan5 (41,700) 41,700
Increase (decrease) in equity equivalents6 (248,100) 105,300 187,900 (155,000) (192,600)
Interest expense 417,500 390,800 334,700 340,400 349,300
Interest expense, operating lease liability7 74,434 63,961 56,412 61,928 67,950
Adjusted interest expense 491,934 454,761 391,112 402,328 417,250
Tax benefit of interest expense8 (103,306) (95,500) (82,134) (84,489) (87,622)
Adjusted interest expense, after taxes9 388,628 359,261 308,978 317,839 329,627
Interest income (25,200) (8,000) (4,900) (3,600) (25,900)
Investment income, before taxes (25,200) (8,000) (4,900) (3,600) (25,900)
Tax expense (benefit) of investment income10 5,292 1,680 1,029 756 5,439
Investment income, after taxes11 (19,908) (6,320) (3,871) (2,844) (20,461)
Net operating profit after taxes (NOPAT) 2,509,420 2,478,341 2,357,407 2,190,395 1,657,866

Based on: 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), 10-K (reporting date: 2019-12-31).

1 Elimination of deferred tax expense. See details »

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

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

4 Addition of increase (decrease) in accrual for product warranty claims.

5 Addition of increase (decrease) in restructuring Plan.

6 Addition of increase (decrease) in equity equivalents to net income.

7 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,958,800 × 3.80% = 74,434

8 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 491,934 × 21.00% = 103,306

9 Addition of after taxes interest expense to net income.

10 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 25,200 × 21.00% = 5,292

11 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. Sherwin-Williams Co. NOPAT increased from 2021 to 2022 and from 2022 to 2023.

Cash Operating Taxes

Sherwin-Williams Co., cash operating taxes calculation

US$ in thousands

Microsoft Excel
12 months ended: Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Provisions for income taxes 721,100 553,000 384,200 488,800 440,500
Less: Deferred income tax expense (benefit) (88,900) (144,800) (80,300) (145,300) (131,100)
Add: Tax savings from interest expense 103,306 95,500 82,134 84,489 87,622
Less: Tax imposed on investment income 5,292 1,680 1,029 756 5,439
Cash operating taxes 908,014 791,620 545,605 717,833 653,783

Based on: 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), 10-K (reporting date: 2019-12-31).

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. Sherwin-Williams Co. cash operating taxes increased from 2021 to 2022 and from 2022 to 2023.

Invested Capital

Sherwin-Williams Co., invested capital calculation (financing approach)

US$ in thousands

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Short-term borrowings 374,200 978,100 763,500 100 204,700
Current portion of long-term debt 1,098,800 600 260,600 25,100 429,800
Long-term debt, excluding current portion 8,377,900 9,591,000 8,590,900 8,266,900 8,050,700
Operating lease liability1 1,958,800 1,938,200 1,880,400 1,821,400 1,742,300
Total reported debt & leases 11,809,700 12,507,900 11,495,400 10,113,500 10,427,500
Shareholders’ equity 3,715,800 3,102,100 2,437,200 3,610,800 4,123,300
Net deferred tax (assets) liabilities2 606,100 604,600 705,400 778,500 911,600
Allowance for current expected credit losses3 59,600 56,600 48,900 53,500 36,500
Excess of FIFO over LIFO4 668,000 792,700 593,000 312,100 339,800
Accrual for product warranty claims5 40,400 36,200 35,200 43,300 42,300
Restructuring Plan6 41,700
Equity equivalents7 1,374,100 1,531,800 1,382,500 1,187,400 1,330,200
Accumulated other comprehensive (income) loss, net of tax8 624,300 700,600 698,400 718,300 679,500
Adjusted shareholders’ equity 5,714,200 5,334,500 4,518,100 5,516,500 6,133,000
Construction in progress9 (1,111,000) (496,100) (205,400) (140,500) (144,000)
Invested capital 16,412,900 17,346,300 15,808,100 15,489,500 16,416,500

Based on: 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), 10-K (reporting date: 2019-12-31).

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 accrual for product warranty claims.

6 Addition of restructuring Plan.

7 Addition of equity equivalents to shareholders’ equity.

8 Removal of accumulated other comprehensive income.

9 Subtraction of construction in progress.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Sherwin-Williams Co. invested capital increased from 2021 to 2022 but then slightly decreased from 2022 to 2023 not reaching 2021 level.

Cost of Capital

Sherwin-Williams Co., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 79,204,627 79,204,627 ÷ 90,153,527 = 0.88 0.88 × 15.10% = 13.27%
Debt3 8,990,100 8,990,100 ÷ 90,153,527 = 0.10 0.10 × 3.63% × (1 – 21.00%) = 0.29%
Operating lease liability4 1,958,800 1,958,800 ÷ 90,153,527 = 0.02 0.02 × 3.80% × (1 – 21.00%) = 0.07%
Total: 90,153,527 1.00 13.62%

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 57,537,005 57,537,005 ÷ 68,837,105 = 0.84 0.84 × 15.10% = 12.62%
Debt3 9,361,900 9,361,900 ÷ 68,837,105 = 0.14 0.14 × 3.71% × (1 – 21.00%) = 0.40%
Operating lease liability4 1,938,200 1,938,200 ÷ 68,837,105 = 0.03 0.03 × 3.30% × (1 – 21.00%) = 0.07%
Total: 68,837,105 1.00 13.10%

Based on: 10-K (reporting date: 2022-12-31).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 69,577,080 69,577,080 ÷ 82,000,280 = 0.85 0.85 × 15.10% = 12.82%
Debt3 10,542,800 10,542,800 ÷ 82,000,280 = 0.13 0.13 × 3.29% × (1 – 21.00%) = 0.33%
Operating lease liability4 1,880,400 1,880,400 ÷ 82,000,280 = 0.02 0.02 × 3.00% × (1 – 21.00%) = 0.05%
Total: 82,000,280 1.00 13.20%

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 64,236,476 64,236,476 ÷ 75,791,476 = 0.85 0.85 × 15.10% = 12.80%
Debt3 9,733,600 9,733,600 ÷ 75,791,476 = 0.13 0.13 × 3.67% × (1 – 21.00%) = 0.37%
Operating lease liability4 1,821,400 1,821,400 ÷ 75,791,476 = 0.02 0.02 × 3.40% × (1 – 21.00%) = 0.06%
Total: 75,791,476 1.00 13.24%

Based on: 10-K (reporting date: 2020-12-31).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 52,876,910 52,876,910 ÷ 63,830,410 = 0.83 0.83 × 15.10% = 12.51%
Debt3 9,211,200 9,211,200 ÷ 63,830,410 = 0.14 0.14 × 3.61% × (1 – 21.00%) = 0.41%
Operating lease liability4 1,742,300 1,742,300 ÷ 63,830,410 = 0.03 0.03 × 3.90% × (1 – 21.00%) = 0.08%
Total: 63,830,410 1.00 13.01%

Based on: 10-K (reporting date: 2019-12-31).

1 US$ in thousands

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »


Economic Spread Ratio

Sherwin-Williams Co., economic spread ratio calculation, comparison to benchmarks

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Economic profit1 273,818 206,543 270,046 139,845 (477,576)
Invested capital2 16,412,900 17,346,300 15,808,100 15,489,500 16,416,500
Performance Ratio
Economic spread ratio3 1.67% 1.19% 1.71% 0.90% -2.91%
Benchmarks
Economic Spread Ratio, Competitors4
Linde plc -3.57% -6.82% -6.80% -8.30% -8.64%

Based on: 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), 10-K (reporting date: 2019-12-31).

1 Economic profit. See details »

2 Invested capital. See details »

3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 273,818 ÷ 16,412,900 = 1.67%

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. Sherwin-Williams Co. economic spread ratio deteriorated from 2021 to 2022 but then improved from 2022 to 2023 not reaching 2021 level.

Economic Profit Margin

Sherwin-Williams Co., economic profit margin calculation, comparison to benchmarks

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Economic profit1 273,818 206,543 270,046 139,845 (477,576)
Net sales 23,051,900 22,148,900 19,944,600 18,361,700 17,900,800
Performance Ratio
Economic profit margin2 1.19% 0.93% 1.35% 0.76% -2.67%
Benchmarks
Economic Profit Margin, Competitors3
Linde plc -7.97% -14.80% -16.01% -23.99% -24.05%

Based on: 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), 10-K (reporting date: 2019-12-31).

1 Economic profit. See details »

2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 273,818 ÷ 23,051,900 = 1.19%

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. Sherwin-Williams Co. economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 not reaching 2021 level.