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
Valero Energy Corp., economic profit calculation
US$ in millions
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
= 7,868 – 19.57% × 51,119 = -2,136
The analysis of economic value added reveals a volatile performance characterized by significant fluctuations in profitability and a consistent expansion of the capital base. For the majority of the analyzed period, the entity failed to generate returns exceeding its cost of capital, resulting in negative economic profit in four out of five years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited extreme volatility, plummeting to a deficit of 1,650 million US$ in 2020 before recovering sharply. A peak was reached in 2022 with 13,520 million US$, followed by a correction to 7,868 million US$ in 2023. This pattern indicates a high sensitivity to external market conditions and operational instability during the early part of the period.
- Capital Structure and Cost of Capital
- The cost of capital remained elevated, fluctuating within a narrow range between 16.30% and 19.78%. Simultaneously, invested capital demonstrated a consistent upward trajectory, increasing from 40,757 million US$ in 2019 to 51,119 million US$ by 2023. The steady growth of the capital base increased the absolute dollar amount of profit required to achieve a positive economic result.
- Economic Profit and Value Creation
- Economic profit remained negative for the majority of the period, reaching a significant trough of -8,328 million US$ in 2020. Value creation was achieved only in 2022, when economic profit surged to 3,676 million US$, directly correlating with the peak in NOPAT. However, this trend did not persist, as economic profit returned to a negative value of -2,136 million US$ in 2023, signifying that the NOPAT was insufficient to cover the cost of the expanded invested capital base.
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Net Operating Profit after Taxes (NOPAT)
Valero Energy Corp., NOPAT calculation
US$ in millions
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 credit losses.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Valero Energy Corporation stockholders.
5 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 1,113 × 5.70% = 63
6 2023 Calculation
Tax benefit of interest and debt expense, net of capitalized interest = Adjusted interest and debt expense, net of capitalized interest × Statutory income tax rate
= 655 × 21.00% = 138
7 Addition of after taxes interest expense to net income (loss) attributable to Valero Energy Corporation stockholders.
The financial performance from 2019 through 2023 exhibits significant volatility, characterized by a sharp contraction in 2020 followed by a period of substantial growth that peaked in 2022 before undergoing a correction in 2023.
- Net Operating Profit After Taxes (NOPAT) Trends
- A dramatic fluctuation is observed in NOPAT, which fell from 4,429 million US$ in 2019 to a deficit of 1,650 million US$ in 2020. A robust recovery followed, with NOPAT ascending to 5,561 million US$ in 2021 and reaching a five-year peak of 13,520 million US$ in 2022. By the end of 2023, NOPAT experienced a notable decline to 7,868 million US$, representing a reduction of approximately 41.8% from the previous year's high.
- Net Income Volatility
- Net income attributable to stockholders mirrored the trajectory of NOPAT, shifting from a profit of 2,422 million US$ in 2019 to a loss of 1,421 million US$ in 2020. The recovery phase saw net income rise to 930 million US$ in 2021 and surge to 11,528 million US$ in 2022. The 2023 figure settled at 8,835 million US$, maintaining a significantly higher level than pre-2022 figures despite the year-over-year decrease.
- Comparative Analysis of NOPAT and Net Income
- The divergence between NOPAT and net income provides insight into the impact of non-operating items and financing costs. In 2021, a substantial gap is evident, where NOPAT (5,561 million US$) far exceeded net income (930 million US$), suggesting that operational profitability was significantly offset by interest expenses, taxes, or other non-operating losses. Conversely, in 2023, net income (8,835 million US$) surpassed NOPAT (7,868 million US$), indicating that non-operating gains or financing benefits contributed positively to the final bottom line, offsetting a decline in pure operational profit.
- Operational Peak and Correction
- The year 2022 represents the zenith of both operational and net profitability within the analyzed period. The subsequent decline in 2023 indicates a normalization of earnings or a shift in market conditions, although both metrics remain substantially elevated compared to the 2019-2021 baseline.
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Cash Operating Taxes
Valero Energy Corp., cash operating taxes calculation
US$ in millions
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).
The analysis of tax obligations between 2019 and 2023 reveals significant volatility in both accrual-based income tax expenses and cash-based tax outflows. The period is characterized by a sharp transition from tax benefits in 2020 to substantial tax expenditures in 2022 and 2023, reflecting high variability in taxable income.
- Cash Operating Tax Trends
- Cash operating taxes exhibited extreme fluctuations, moving from US$ 577 million in 2019 to a tax benefit of US$ 931 million in 2020. A recovery followed in 2021 with payments of US$ 519 million, culminating in a peak of US$ 3,508 million in 2022. By 2023, cash operating taxes decreased slightly to US$ 2,654 million, yet remained significantly higher than pre-2022 levels.
- Correlation Between Accrual and Cash Taxes
- There is a tight correlation between income tax expense and cash operating taxes across the reported timeframe. The minimal variance between these two metrics indicates that tax liabilities are largely settled in cash within the same reporting period, suggesting a low impact from deferred tax adjustments on the total tax burden.
- Operational Profitability Indicators
- The exponential increase in cash tax payments observed in 2022 and 2023 suggests a period of intensified profitability. The shift from a negative tax position in 2020 to multi-billion dollar payments in subsequent years highlights a substantial increase in the company's taxable operating base.
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Invested Capital
Valero Energy Corp., invested capital calculation (financing approach)
US$ in millions
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 equity equivalents to total Valero Energy Corporation stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
Invested capital exhibited a consistent upward trajectory over the five-year period ending December 31, 2023. From a base of 40,757 million in 2019, the total expanded to 51,119 million by 2023, indicating a sustained increase in the total capital employed by the organization to generate economic value.
- Invested Capital Growth
- The most significant acceleration in invested capital occurred between 2021 and 2022, where the value increased from 44,526 million to 49,772 million. This indicates a period of intensified capital allocation or asset accumulation.
- Debt and Lease Trends
- Total reported debt and leases experienced a sharp increase in 2020, peaking at 15,847 million. Following this peak, a consistent deleveraging trend is observed, with debt levels receding to 12,637 million by the end of 2023.
- Stockholders' Equity Fluctuations
- Equity showed a decline from 21,803 million in 2019 to a low of 18,430 million in 2021. However, a robust recovery followed, with equity growing to 26,346 million by 2023, becoming the primary driver of the overall increase in invested capital in the final two years of the period.
- Capital Structure Shift
- The composition of invested capital shifted toward a higher proportion of equity funding. While the 2020 period was characterized by increased debt and decreased equity, the 2022 and 2023 periods reflect a transition toward equity-based capital strengthening and concurrent debt reduction.
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Cost of Capital
Valero Energy Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 46,474) | 46,474) | ÷ | 59,002) | = | 0.79 | 0.79 | × | 23.81% | = | 18.75% | ||
| Debt and finance lease obligations, including current portion3 | 11,415) | 11,415) | ÷ | 59,002) | = | 0.19 | 0.19 | × | 4.80% × (1 – 21.00%) | = | 0.73% | ||
| Operating lease liability4 | 1,113) | 1,113) | ÷ | 59,002) | = | 0.02 | 0.02 | × | 5.70% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 59,002) | 1.00 | 19.57% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 49,152) | 49,152) | ÷ | 61,535) | = | 0.80 | 0.80 | × | 23.81% | = | 19.02% | ||
| Debt and finance lease obligations, including current portion3 | 11,296) | 11,296) | ÷ | 61,535) | = | 0.18 | 0.18 | × | 4.76% × (1 – 21.00%) | = | 0.69% | ||
| Operating lease liability4 | 1,087) | 1,087) | ÷ | 61,535) | = | 0.02 | 0.02 | × | 5.20% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 61,535) | 1.00 | 19.78% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 35,135) | 35,135) | ÷ | 51,978) | = | 0.68 | 0.68 | × | 23.81% | = | 16.09% | ||
| Debt and finance lease obligations, including current portion3 | 15,588) | 15,588) | ÷ | 51,978) | = | 0.30 | 0.30 | × | 4.43% × (1 – 21.00%) | = | 1.05% | ||
| Operating lease liability4 | 1,255) | 1,255) | ÷ | 51,978) | = | 0.02 | 0.02 | × | 4.20% × (1 – 21.00%) | = | 0.08% | ||
| Total: | 51,978) | 1.00 | 17.22% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 30,973) | 30,973) | ÷ | 48,910) | = | 0.63 | 0.63 | × | 23.81% | = | 15.08% | ||
| Debt and finance lease obligations, including current portion3 | 16,767) | 16,767) | ÷ | 48,910) | = | 0.34 | 0.34 | × | 4.20% × (1 – 21.00%) | = | 1.14% | ||
| Operating lease liability4 | 1,170) | 1,170) | ÷ | 48,910) | = | 0.02 | 0.02 | × | 4.70% × (1 – 21.00%) | = | 0.09% | ||
| Total: | 48,910) | 1.00 | 16.30% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 29,358) | 29,358) | ÷ | 42,022) | = | 0.70 | 0.70 | × | 23.81% | = | 16.63% | ||
| Debt and finance lease obligations, including current portion3 | 11,374) | 11,374) | ÷ | 42,022) | = | 0.27 | 0.27 | × | 5.21% × (1 – 21.00%) | = | 1.11% | ||
| Operating lease liability4 | 1,290) | 1,290) | ÷ | 42,022) | = | 0.03 | 0.03 | × | 4.90% × (1 – 21.00%) | = | 0.12% | ||
| Total: | 42,022) | 1.00 | 17.86% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease obligations, including current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Valero Energy Corp., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,136) | 3,676) | (2,107) | (8,328) | (2,852) | |
| Invested capital2 | 51,119) | 49,772) | 44,526) | 40,966) | 40,757) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -4.18% | 7.39% | -4.73% | -20.33% | -7.00% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | -3.87% | 6.63% | -2.48% | — | — | |
| ConocoPhillips | 6.35% | 19.09% | 4.79% | — | — | |
| Exxon Mobil Corp. | 2.88% | 11.64% | 3.03% | — | — | |
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 × -2,136 ÷ 51,119 = -4.18%
4 Click competitor name to see calculations.
Between 2019 and 2023, a pattern of significant volatility is observed in the company's ability to generate economic value, characterized by inconsistent economic profit and a steadily expanding capital base.
- Economic Profit Volatility
- Economic profit remained negative for the majority of the analyzed period. A substantial contraction occurred in 2020, with losses deepening to 8,328 million US$. Although a recovery was noted in 2021 and a peak of positive value creation was achieved in 2022 at 3,676 million US$, this trend reversed in 2023, with economic profit falling back to -2,136 million US$.
- Invested Capital Growth
- A consistent upward trend in invested capital is evident, increasing from 40,757 million US$ in 2019 to 51,119 million US$ by December 31, 2023. This growth indicates a continuous deployment of capital into the business operations despite the fluctuating nature of the economic returns.
- Economic Spread Ratio Analysis
- The economic spread ratio closely tracks the fluctuations of economic profit, reflecting the degree to which returns exceeded or fell short of the cost of capital. The ratio reached a trough of -20.33% in 2020 before climbing to a peak of 7.39% in 2022. The decline to -4.18% in 2023 underscores a persistent challenge in maintaining a positive spread, as the company failed to create economic value in four of the five years examined.
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Economic Profit Margin
Valero Energy Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,136) | 3,676) | (2,107) | (8,328) | (2,852) | |
| Revenues, includes excise taxes on sales by certain of foreign operations | 144,766) | 176,383) | 113,977) | 64,912) | 108,324) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -1.48% | 2.08% | -1.85% | -12.83% | -2.63% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | -4.18% | 5.97% | -3.09% | — | — | |
| ConocoPhillips | 9.20% | 18.36% | 7.98% | — | — | |
| Exxon Mobil Corp. | 2.64% | 8.67% | 2.98% | — | — | |
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 ÷ Revenues, includes excise taxes on sales by certain of foreign operations
= 100 × -2,136 ÷ 144,766 = -1.48%
3 Click competitor name to see calculations.
The analysis of economic value added between 2019 and 2023 reveals a period of significant volatility, characterized by a recurring inability to generate returns exceeding the cost of capital, with the exception of a single outlier year. The correlation between top-line revenue and economic profit is pronounced, indicating that value creation is highly sensitive to revenue fluctuations.
- Economic Profit Margin Volatility
- The economic profit margin experienced extreme fluctuations over the five-year period. After starting at -2.63% in 2019, the margin deteriorated sharply to -12.83% in 2020, marking the lowest point of value erosion. A recovery phase followed, with the margin improving to -1.85% in 2021 and reaching a peak of 2.08% in 2022, before regressing to -1.48% in 2023.
- Correlation Between Revenue and Economic Value
- A direct relationship is observed between revenue performance and the capacity to generate economic profit. The substantial revenue contraction in 2020, which fell to 64,912 million US$, coincided with the maximum economic loss of 8,328 million US$. Conversely, the revenue peak in 2022 of 176,383 million US$ was the primary driver that pushed economic profit into positive territory, reaching 3,676 million US$.
- Analysis of Value Creation and Erosion
- Economic profit remained negative in four of the five analyzed years, suggesting that the cost of capital frequently exceeded the net operating profit after tax. While the 2022 performance demonstrated a temporary capacity for value creation, the return to a negative margin of -1.48% in 2023 indicates a return to value erosion, despite revenues remaining significantly higher than those recorded in 2019 and 2021.
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