Economic Value Added (EVA)
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
Time Warner Inc., economic profit calculation
US$ in millions
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 – 13.24% × 57,150 = -2,527
The analysis of economic value added indicates a consistent failure to generate returns exceeding the cost of capital over the five-year period from 2013 to 2017. Economic profit remained negative throughout the entire duration, reflecting a persistent destruction of shareholder value.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited relative stability, fluctuating between a low of 4,751 million USD in 2015 and a peak of 5,167 million USD in 2014. Although a recovery trend was observed between 2015 and 2017, the growth in operating earnings was insufficient to overcome the capital charges associated with the business operations.
- Cost of Capital
- The cost of capital remained consistently high and stable, ranging from 12.42% in 2015 to 13.27% in 2016. This stability suggests a constant requirement for returns, which the company's operating performance failed to meet.
- Invested Capital
- Invested capital experienced an initial decline in 2014 to 52,455 million USD, followed by a steady upward trajectory that peaked at 57,150 million USD by December 31, 2017. The expansion of the capital base in the latter three years of the period occurred without a commensurate increase in NOPAT.
- Economic Profit Performance
- Economic profit demonstrated a brief improvement in 2014, narrowing to -1,722 million USD. However, from 2015 onward, a clear deterioration is observed, with the economic loss widening to -2,527 million USD by 2017. The negative trend is primarily driven by the increase in invested capital combined with a high cost of capital, which effectively outpaced the stable but stagnant NOPAT.
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Net Operating Profit after Taxes (NOPAT)
Time Warner Inc., NOPAT calculation
US$ in millions
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.
- Net Income Attributable to Time Warner Inc. Shareholders
- A consistent upward trend in net income is observable over the five-year period. Starting at $3,691 million in 2013, net income increased marginally each year, reaching $3,927 million in 2016. A notable rise occurred in 2017, with net income sharply increasing to $5,247 million, indicating a significant enhancement in profitability in that year.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT shows a relatively stable but slightly fluctuating pattern. From $5,150 million in 2013, it increased slightly to $5,167 million in 2014, followed by a decline to $4,751 million in 2015. The figure then recovered somewhat in 2016 and 2017, reaching $5,040 million by the end of 2017. Overall, NOPAT remained within a narrow range, suggesting moderate operational profit stability with some variation over the years.
- Comparative Observations
- While net income demonstrated a robust growth trajectory, especially in the final year, NOPAT displayed greater stability but without a clear upward trend. The divergence between the increasing net income and relatively stable NOPAT in the last year might indicate changes in non-operating factors such as financing activities, tax adjustments, or other income components contributing positively to net income.
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Cash Operating Taxes
Time Warner Inc., cash operating taxes calculation
US$ in millions
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).
- Current and Deferred Income Taxes on Income from Continuing Operations
- The amount of current and deferred income taxes provided on income from continuing operations exhibited a fluctuating trend over the five-year period. In 2013, the value was 1,749 million US dollars, which decreased significantly to 785 million in 2014. It then increased again to 1,651 million in 2015, followed by a decline to 1,281 million in 2016. By the end of 2017, this measure further dropped to 701 million US dollars, marking the lowest point in the observed range. Overall, the data suggest variability with no clear upward or downward long-term trend, but a general reduction from the starting value.
- Cash Operating Taxes
- Cash operating taxes showed a more consistent upward trend compared to the income taxes provided on continuing operations. Starting at 1,442 million US dollars in 2013, there was a notable increase to 1,048 million in 2014, which appears to be a decline; however, the following years reversed this pattern with values rising to 1,757 million in 2015 and then slightly decreasing to 1,465 million in 2016. The amount surged substantially in 2017 to 2,078 million US dollars, representing the highest value within the period. This trend indicates growing cash tax liabilities over time, with some minor fluctuations in the middle years.
- Comparison Insights
- Comparing both tax-related measures reveals divergent patterns: while current and deferred income taxes showed a volatile yet generally declining trend, cash operating taxes tended to increase, especially markedly in the final year. This divergence may indicate changes in tax accounting, timing differences, or shifts in taxable income and cash tax payment obligations across the reporting years.
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Invested Capital
Time Warner Inc., invested capital calculation (financing approach)
US$ in millions
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.
- Total Reported Debt & Leases
- The total reported debt and leases exhibited a generally increasing trend from 2013 to 2016, rising from $21,765 million to $25,355 million. However, in 2017, there was a slight decrease to $24,720 million. This indicates an overall growth in debt commitments over the period, with a minor reduction in the final year.
- Total Time Warner Inc. Shareholders’ Equity
- Shareholders’ equity showed a declining trend from 2013 through 2015, decreasing from $29,904 million to $23,619 million. In 2016, the equity slightly increased to $24,335 million and further rebounded more significantly in 2017 to $28,375 million. This pattern suggests a period of equity contraction followed by recovery toward the end of the analyzed timeframe.
- Invested Capital
- Invested capital declined from $56,262 million in 2013 to $52,455 million in 2014, followed by a modest increase in subsequent years, reaching $57,150 million in 2017. The leveling and eventual rise in invested capital imply a stabilization and renewed investment activities after an initial drop.
- Overall Observations
- Over the five-year period, the company’s financial structure demonstrated changes characterized by an initial increase in debt and decrease in equity and invested capital, followed by a stabilization and partial recovery. The reduction in shareholders’ equity between 2013 and 2015 could be indicative of challenges faced, while the subsequent increases in equity and invested capital suggest restored confidence and investment. The relatively stable debt levels near the end of the period highlight a controlled leverage approach.
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Cost of Capital
Time Warner Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 73,595) | 73,595) | ÷ | 99,897) | = | 0.74 | 0.74 | × | 16.97% | = | 12.50% | ||
| Debt3 | 25,327) | 25,327) | ÷ | 99,897) | = | 0.25 | 0.25 | × | 4.32% × (1 – 35.00%) | = | 0.71% | ||
| Operating lease liability4 | 976) | 976) | ÷ | 99,897) | = | 0.01 | 0.01 | × | 4.10% × (1 – 35.00%) | = | 0.03% | ||
| Total: | 99,897) | 1.00 | 13.24% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ 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 | × | 16.97% | = | 12.41% | ||
| 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 | 13.27% | ||||||||||
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 | × | 16.97% | = | 11.17% | ||
| 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 | 12.42% | ||||||||||
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 | × | 16.97% | = | 12.04% | ||
| 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 | 13.13% | ||||||||||
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 | × | 16.97% | = | 11.91% | ||
| 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 | 13.09% | ||||||||||
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
Time Warner Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,527) | (2,352) | (1,854) | (1,722) | (2,217) | |
| Invested capital2 | 57,150) | 54,961) | 53,163) | 52,455) | 56,262) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -4.42% | -4.28% | -3.49% | -3.28% | -3.94% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | — | — | — | — | — | |
| Comcast Corp. | — | — | — | — | — | |
| Meta Platforms Inc. | — | — | — | — | — | |
| Netflix Inc. | — | — | — | — | — | |
| Trade Desk 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 × -2,527 ÷ 57,150 = -4.42%
4 Click competitor name to see calculations.
The analysis of economic value creation between 2013 and 2017 reveals a persistent inability to generate positive economic profit, with the organization consistently failing to meet its cost of capital requirements.
- Economic Profit Trends
- Economic profit remained negative for the entire five-year period. Although a marginal improvement occurred in 2014, with losses narrowing to -1,722 million USD, a steady downward trajectory followed. By December 31, 2017, economic profit declined to its lowest level of -2,527 million USD, indicating a sustained destruction of shareholder value.
- Invested Capital Fluctuations
- Invested capital experienced an initial reduction from 56,262 million USD in 2013 to 52,455 million USD in 2014. Following this dip, a consistent year-over-year increase was observed, with capital growing to 57,150 million USD by the end of 2017.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative throughout the observed period, confirming that returns on invested capital were consistently below the cost of capital. After a brief recovery to -3.28% in 2014, the ratio deteriorated progressively over the subsequent three years, ending at -4.42% in 2017. This widening negative spread, coupled with increasing invested capital, suggests a decline in capital efficiency and an increasing gap between operational performance and the required rate of return.
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Economic Profit Margin
Time Warner Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,527) | (2,352) | (1,854) | (1,722) | (2,217) | |
| 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 | -8.05% | -8.00% | -6.57% | -6.30% | -7.45% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | — | — | — | — | — | |
| Comcast Corp. | — | — | — | — | — | |
| Meta Platforms Inc. | — | — | — | — | — | |
| Netflix Inc. | — | — | — | — | — | |
| Trade Desk 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 × -2,527 ÷ 31,400 = -8.05%
3 Click competitor name to see calculations.
An analysis of the financial performance from 2013 to 2017 reveals a persistent failure to generate positive economic value. Throughout the entire five-year period, economic profit remained negative, indicating that the returns generated were insufficient to cover the company's cost of capital.
- Economic Profit Trajectory
- Economic profit exhibited significant volatility with an overall downward trend. After an initial improvement in 2014, where losses narrowed to -1,722 million US$, there was a consistent deterioration over the subsequent three years. By December 31, 2017, economic profit reached its lowest point in the period at -2,527 million US$, representing a marked decline from the 2014 peak.
- Adjusted Revenue Trends
- Adjusted revenues showed a recovery and growth pattern following a dip in 2014. From a low of 27,360 million US$ in 2014, revenues climbed steadily to 31,400 million US$ by 2017. This indicates that while the top-line growth was positive in the latter half of the period, it did not translate into economic value creation.
- Economic Profit Margin Analysis
- The economic profit margin reflects the inefficiency of capital utilization relative to revenue. The margin improved slightly to -6.30% in 2014 but steadily eroded thereafter, reaching -8.05% by 2017. The divergence between increasing adjusted revenues and a declining economic profit margin suggests that the costs associated with generating those revenues, or the cost of the capital employed, increased at a rate that outpaced revenue growth.
In summary, the period is characterized by a widening gap between operational scale and economic viability. The steady decline in both absolute economic profit and the economic profit margin from 2014 to 2017 confirms a diminishing ability to create value for shareholders despite the growth in adjusted revenues.
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