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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Trane Technologies plc, economic profit calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net operating profit after taxes (NOPAT)¹	2,138,919)	1,673,718)	1,265,645)	1,640,972)	1,451,904)
Cost of capital²	13.51%	13.12%	12.90%	12.88%	12.94%
Invested capital³	13,518,500)	13,354,600)	13,835,000)	15,640,000)	13,684,819)

Economic profit⁴	312,889)	(78,842)	(519,655)	(373,018)	(319,154)

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,138,919 – 13.51% × 13,518,500 = 312,889

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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.	Trane Technologies plc economic profit increased from 2020 to 2021 and from 2021 to 2022.

Trane Technologies plc, NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net earnings attributable to Trane Technologies plc	1,756,500)	1,423,400)	854,900)	1,410,900)	1,337,600)
Deferred income tax expense (benefit)¹	67,800)	(25,200)	22,200)	16,800)	(143,800)
Increase (decrease) in allowance for credit losses²	3,800)	(100)	7,800)	9,500)	5,800)
Increase (decrease) in LIFO reserve³	57,300)	31,500)	7,600)	2,100)	14,600)
Increase (decrease) in deferred revenue⁴	6,000)	7,300)	1,600)	11,900)	(800)
Increase (decrease) in standard product warranty liability⁵	27,400)	13,500)	31,300)	5,800)	8,400)
Increase (decrease) in equity equivalents⁶	162,300)	27,000)	70,500)	46,100)	(115,800)
Interest expense	223,500)	233,700)	248,700)	243,000)	220,700)
Interest expense, operating lease liability⁷	14,079)	10,196)	13,705)	22,090)	24,566)
Adjusted interest expense	237,579)	243,896)	262,405)	265,090)	245,266)
Tax benefit of interest expense⁸	(49,892)	(51,218)	(55,105)	(55,669)	(51,506)
Adjusted interest expense, after taxes⁹	187,687)	192,678)	207,300)	209,421)	193,760)
Interest income	(9,200)	(4,000)	(4,500)	(3,100)	(6,400)
Investment income, before taxes	(9,200)	(4,000)	(4,500)	(3,100)	(6,400)
Tax expense (benefit) of investment income¹⁰	1,932)	840)	945)	651)	1,344)
Investment income, after taxes¹¹	(7,268)	(3,160)	(3,555)	(2,449)	(5,056)
(Income) loss from discontinued operations, net of tax¹²	21,500)	20,600)	121,400)	(40,600)	21,500)
Net income (loss) attributable to noncontrolling interest	18,200)	13,200)	15,100)	17,600)	19,900)
Net operating profit after taxes (NOPAT)	2,138,919)	1,673,718)	1,265,645)	1,640,972)	1,451,904)

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ Elimination of deferred tax expense. See details »

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

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

⁴ Addition of increase (decrease) in deferred revenue.

⁵ Addition of increase (decrease) in standard product warranty liability.

⁶ Addition of increase (decrease) in equity equivalents to net earnings attributable to Trane Technologies plc.

⁷ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 469,300 × 3.00% = 14,079

⁸ 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 237,579 × 21.00% = 49,892

⁹ Addition of after taxes interest expense to net earnings attributable to Trane Technologies plc.

¹⁰ 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 9,200 × 21.00% = 1,932

¹¹ Elimination of after taxes investment income.

¹² Elimination of discontinued operations.

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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.	Trane Technologies plc NOPAT increased from 2020 to 2021 and from 2021 to 2022.

Trane Technologies plc, cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Tax expense	375,900)	333,500)	296,800)	353,700)	281,300)
Less: Deferred income tax expense (benefit)	67,800)	(25,200)	22,200)	16,800)	(143,800)
Add: Tax savings from interest expense	49,892)	51,218)	55,105)	55,669)	51,506)
Less: Tax imposed on investment income	1,932)	840)	945)	651)	1,344)
Cash operating taxes	356,060)	409,078)	328,760)	391,918)	475,262)

Based on: 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), 10-K (reporting date: 2018-12-31).

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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.	Trane Technologies plc cash operating taxes increased from 2020 to 2021 but then slightly decreased from 2021 to 2022 not reaching 2020 level.

Trane Technologies plc, invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Short-term borrowings and current maturities of long-term debt	1,048,000)	350,400)	775,600)	650,500)	350,600)
Long-term debt,excluding current maturities	3,788,300)	4,491,700)	4,496,500)	4,922,900)	3,740,700)
Operating lease liability¹	469,300)	443,300)	415,300)	566,400)	545,919)
Total reported debt & leases	5,305,600)	5,285,400)	5,687,400)	6,139,800)	4,637,219)
Total Trane Technologies plc shareholders’ equity	6,088,600)	6,255,900)	6,407,700)	7,267,600)	7,022,700)
Net deferred tax (assets) liabilities²	526,600)	438,100)	420,800)	464,600)	331,400)
Allowance for credit losses³	43,700)	39,900)	40,000)	42,200)	32,700)
LIFO reserve⁴	129,900)	72,600)	41,100)	85,600)	83,500)
Deferred revenue⁵	317,700)	311,700)	304,400)	304,100)	292,200)
Standard product warranty liability⁶	323,600)	296,200)	282,700)	284,700)	278,900)
Equity equivalents⁷	1,341,500)	1,158,500)	1,089,000)	1,181,200)	1,018,700)
Accumulated other comprehensive (income) loss, net of tax⁸	766,200)	637,600)	631,500)	1,006,600)	964,100)
Noncontrolling interest	16,600)	17,200)	19,400)	44,800)	42,100)
Adjusted total Trane Technologies plc shareholders’ equity	8,212,900)	8,069,200)	8,147,600)	9,500,200)	9,047,600)
Invested capital	13,518,500)	13,354,600)	13,835,000)	15,640,000)	13,684,819)

Based on: 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), 10-K (reporting date: 2018-12-31).

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 deferred revenue.

⁶ Addition of standard product warranty liability.

⁷ Addition of equity equivalents to total Trane Technologies plc shareholders’ equity.

⁸ Removal of accumulated other comprehensive income.

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Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Trane Technologies plc invested capital decreased from 2020 to 2021 but then slightly increased from 2021 to 2022.

Trane Technologies plc, cost of capital calculations

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	41,952,745)	41,952,745)	÷	47,022,045)	=	0.89	0.89	×	14.73%	=	13.14%
Debt³	4,600,000)	4,600,000)	÷	47,022,045)	=	0.10	0.10	×	4.41% × (1 – 21.00%)	=	0.34%
Operating lease liability⁴	469,300)	469,300)	÷	47,022,045)	=	0.01	0.01	×	3.00% × (1 – 21.00%)	=	0.02%
Total:	47,022,045)					1.00					13.51%

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 »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	36,658,474)	36,658,474)	÷	42,701,774)	=	0.86	0.86	×	14.73%	=	12.65%
Debt³	5,600,000)	5,600,000)	÷	42,701,774)	=	0.13	0.13	×	4.42% × (1 – 21.00%)	=	0.46%
Operating lease liability⁴	443,300)	443,300)	÷	42,701,774)	=	0.01	0.01	×	2.30% × (1 – 21.00%)	=	0.02%
Total:	42,701,774)					1.00					13.12%

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 »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	34,741,446)	34,741,446)	÷	41,456,746)	=	0.84	0.84	×	14.73%	=	12.35%
Debt³	6,300,000)	6,300,000)	÷	41,456,746)	=	0.15	0.15	×	4.44% × (1 – 21.00%)	=	0.53%
Operating lease liability⁴	415,300)	415,300)	÷	41,456,746)	=	0.01	0.01	×	3.30% × (1 – 21.00%)	=	0.03%
Total:	41,456,746)					1.00					12.90%

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 »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	34,560,998)	34,560,998)	÷	41,327,398)	=	0.84	0.84	×	14.73%	=	12.32%
Debt³	6,200,000)	6,200,000)	÷	41,327,398)	=	0.15	0.15	×	4.35% × (1 – 21.00%)	=	0.52%
Operating lease liability⁴	566,400)	566,400)	÷	41,327,398)	=	0.01	0.01	×	3.90% × (1 – 21.00%)	=	0.04%
Total:	41,327,398)					1.00					12.88%

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 »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	25,124,995)	25,124,995)	÷	29,914,914)	=	0.84	0.84	×	14.73%	=	12.37%
Debt³	4,244,000)	4,244,000)	÷	29,914,914)	=	0.14	0.14	×	4.50% × (1 – 21.00%)	=	0.50%
Operating lease liability⁴	545,919)	545,919)	÷	29,914,914)	=	0.02	0.02	×	4.50% × (1 – 21.00%)	=	0.06%
Total:	29,914,914)					1.00					12.94%

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Trane Technologies plc, economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	312,889)	(78,842)	(519,655)	(373,018)	(319,154)
Invested capital²	13,518,500)	13,354,600)	13,835,000)	15,640,000)	13,684,819)
Performance Ratio
Economic spread ratio³	2.31%	-0.59%	-3.76%	-2.39%	-2.33%
Benchmarks
Economic Spread Ratio, Competitors⁴
Boeing Co.	-20.76%	-19.34%	-30.86%	-21.07%	—
Caterpillar Inc.	0.25%	0.24%	-5.88%	0.52%	—
Eaton Corp. plc	-5.40%	-5.16%	-7.26%	-4.55%	—
GE Aerospace	-9.56%	-14.53%	-4.50%	-7.03%	—
Honeywell International Inc.	-1.64%	-0.57%	-2.00%	2.24%	—
Lockheed Martin Corp.	12.84%	13.84%	17.16%	—	—
RTX Corp.	-3.47%	-2.99%	-8.49%	0.01%	—

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 312,889 ÷ 13,518,500 = 2.31%

⁴ Click competitor name to see calculations.

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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.	Trane Technologies plc economic spread ratio improved from 2020 to 2021 and from 2021 to 2022.

Trane Technologies plc, economic profit margin calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	312,889)	(78,842)	(519,655)	(373,018)	(319,154)

Net revenues	15,991,700)	14,136,400)	12,454,700)	16,598,900)	15,668,200)
Add: Increase (decrease) in deferred revenue	6,000)	7,300)	1,600)	11,900)	(800)
Adjusted net revenues	15,997,700)	14,143,700)	12,456,300)	16,610,800)	15,667,400)
Performance Ratio
Economic profit margin²	1.96%	-0.56%	-4.17%	-2.25%	-2.04%
Benchmarks
Economic Profit Margin, Competitors³
Boeing Co.	-15.85%	-15.34%	-25.28%	-9.78%	—
Caterpillar Inc.	0.24%	0.28%	-8.17%	0.56%	—
Eaton Corp. plc	-8.02%	-7.74%	-11.14%	-6.27%	—
GE Aerospace	-8.66%	-14.67%	-7.20%	-10.45%	—
Honeywell International Inc.	-2.16%	-0.80%	-2.97%	2.61%	—
Lockheed Martin Corp.	5.18%	5.91%	7.36%	—	—
RTX Corp.	-5.87%	-5.32%	-17.34%	0.01%	—

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ Economic profit. See details »

² 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × 312,889 ÷ 15,997,700 = 1.96%

³ Click competitor name to see calculations.

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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.	Trane Technologies plc economic profit margin improved from 2020 to 2021 and from 2021 to 2022.

Trane Technologies plc (NYSE:TT)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin