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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: 2017-12-31), 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).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2017 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 5,040 – 10.60% × 57,150 = -1,015
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. | Time Warner Inc. economic profit decreased from 2015 to 2016 and from 2016 to 2017. |
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2017-12-31), 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).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in accrued restructuring and severance costs.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Time Warner Inc. shareholders.
6 2017 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 976 × 4.10% = 40
7 2017 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,254 × 35.00% = 439
8 Addition of after taxes interest expense to net income attributable to Time Warner Inc. shareholders.
9 2017 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 205 × 35.00% = 72
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
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. | Time Warner Inc. NOPAT increased from 2015 to 2016 and from 2016 to 2017. |
Cash Operating Taxes
Based on: 10-K (reporting date: 2017-12-31), 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).
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. | Time Warner Inc. cash operating taxes decreased from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Invested Capital
Based on: 10-K (reporting date: 2017-12-31), 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).
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 deferred revenue.
5 Addition of accrued restructuring and severance costs.
6 Addition of equity equivalents to total Time Warner Inc. shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of marketable securities.
Item | Description | The company |
---|---|---|
Invested capital | Capital is an approximation of the economic book value of all cash invested in going-concern business activities. | Time Warner Inc. invested capital increased from 2015 to 2016 and from 2016 to 2017. |
Cost of Capital
Time Warner Inc., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | 73,595) | 73,595) | ÷ | 99,897) | = | 0.74 | 0.74 | × | 13.38% | = | 9.86% | ||
Debt3 | 25,327) | 25,327) | ÷ | 99,897) | = | 0.25 | 0.25 | × | 4.32% × (1 – 35.00%) | = | 0.71% | ||
Operating lease liability4 | 976) | 976) | ÷ | 99,897) | = | 0.01 | 0.01 | × | 4.10% × (1 – 35.00%) | = | 0.03% | ||
Total: | 99,897) | 1.00 | 10.60% |
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 | 75,157) | 75,157) | ÷ | 102,750) | = | 0.73 | 0.73 | × | 13.38% | = | 9.79% | ||
Debt3 | 26,577) | 26,577) | ÷ | 102,750) | = | 0.26 | 0.26 | × | 4.97% × (1 – 35.00%) | = | 0.84% | ||
Operating lease liability4 | 1,016) | 1,016) | ÷ | 102,750) | = | 0.01 | 0.01 | × | 3.91% × (1 – 35.00%) | = | 0.03% | ||
Total: | 102,750) | 1.00 | 10.65% |
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 | 52,672) | 52,672) | ÷ | 80,037) | = | 0.66 | 0.66 | × | 13.38% | = | 8.81% | ||
Debt3 | 26,282) | 26,282) | ÷ | 80,037) | = | 0.33 | 0.33 | × | 5.65% × (1 – 35.00%) | = | 1.21% | ||
Operating lease liability4 | 1,083) | 1,083) | ÷ | 80,037) | = | 0.01 | 0.01 | × | 5.45% × (1 – 35.00%) | = | 0.05% | ||
Total: | 80,037) | 1.00 | 10.06% |
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 »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | 68,452) | 68,452) | ÷ | 96,458) | = | 0.71 | 0.71 | × | 13.38% | = | 9.50% | ||
Debt3 | 26,745) | 26,745) | ÷ | 96,458) | = | 0.28 | 0.28 | × | 5.80% × (1 – 35.00%) | = | 1.05% | ||
Operating lease liability4 | 1,262) | 1,262) | ÷ | 96,458) | = | 0.01 | 0.01 | × | 5.38% × (1 – 35.00%) | = | 0.05% | ||
Total: | 96,458) | 1.00 | 10.59% |
Based on: 10-K (reporting date: 2014-12-31).
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 | 57,746) | 57,746) | ÷ | 82,265) | = | 0.70 | 0.70 | × | 13.38% | = | 9.39% | ||
Debt3 | 22,919) | 22,919) | ÷ | 82,265) | = | 0.28 | 0.28 | × | 6.11% × (1 – 35.00%) | = | 1.11% | ||
Operating lease liability4 | 1,600) | 1,600) | ÷ | 82,265) | = | 0.02 | 0.02 | × | 5.83% × (1 – 35.00%) | = | 0.07% | ||
Total: | 82,265) | 1.00 | 10.57% |
Based on: 10-K (reporting date: 2013-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | (1,015) | (909) | (597) | (386) | (799) | |
Invested capital2 | 57,150) | 54,961) | 53,163) | 52,455) | 56,262) | |
Performance Ratio | ||||||
Economic spread ratio3 | -1.78% | -1.65% | -1.12% | -0.73% | -1.42% | |
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
Alphabet Inc. | — | — | — | — | — | |
Comcast Corp. | — | — | — | — | — | |
Meta Platforms Inc. | — | — | — | — | — | |
Netflix Inc. | — | — | — | — | — | |
Walt Disney Co. | — | — | — | — | — |
Based on: 10-K (reporting date: 2017-12-31), 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).
1 Economic profit. See details »
2 Invested capital. See details »
3 2017 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,015 ÷ 57,150 = -1.78%
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. | Time Warner Inc. economic spread ratio deteriorated from 2015 to 2016 and from 2016 to 2017. |
Economic Profit Margin
Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | (1,015) | (909) | (597) | (386) | (799) | |
Revenues | 31,271) | 29,318) | 28,118) | 27,359) | 29,795) | |
Add: Increase (decrease) in deferred revenue | 129) | 82) | 74) | 1) | (57) | |
Adjusted revenues | 31,400) | 29,400) | 28,192) | 27,360) | 29,738) | |
Performance Ratio | ||||||
Economic profit margin2 | -3.23% | -3.09% | -2.12% | -1.41% | -2.69% | |
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
Alphabet Inc. | — | — | — | — | — | |
Comcast Corp. | — | — | — | — | — | |
Meta Platforms Inc. | — | — | — | — | — | |
Netflix Inc. | — | — | — | — | — | |
Walt Disney Co. | — | — | — | — | — |
Based on: 10-K (reporting date: 2017-12-31), 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).
1 Economic profit. See details »
2 2017 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -1,015 ÷ 31,400 = -3.23%
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. | Time Warner Inc. economic profit margin deteriorated from 2015 to 2016 and from 2016 to 2017. |