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.
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Valero Energy Corp. pages available for free this week:
- Statement of Comprehensive Income
- Cash Flow Statement
- Common-Size Balance Sheet: Assets
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Enterprise Value to EBITDA (EV/EBITDA)
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Analysis of Debt
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Economic Profit
Valero Energy Corp., economic profit calculation
US$ in millions
| 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 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) experienced considerable volatility, beginning with a positive value in 2019, followed by a substantial loss in 2020, recovery in 2021, a peak in 2022, and a decline in 2023. The cost of capital also exhibited variation, generally increasing over the period. Invested capital showed a consistent upward trend throughout the five years. These factors combined to create a complex pattern in economic profit.
- Economic Profit Trend
- Economic profit was negative in 2019 and 2020, reaching its lowest point in 2020 at a loss of US$7,424 million. A modest recovery occurred in 2021, but the most substantial improvement was observed in 2022, when economic profit turned positive at US$5,060 million. However, this positive trend reversed in 2023, with economic profit declining to a loss of US$734 million. This suggests a weakening in the company’s ability to generate returns exceeding its cost of capital in the most recent year.
- NOPAT and Cost of Capital Relationship
- The negative economic profit in 2019 and 2020 coincided with periods where NOPAT was either negative (2020) or insufficient to cover the cost of capital (2019). While NOPAT improved significantly in 2021 and 2022, the increasing cost of capital in those years partially offset these gains. The decline in NOPAT in 2023, coupled with a still-elevated cost of capital, resulted in a return to negative economic profit.
- Invested Capital Impact
- Invested capital consistently increased throughout the period. This growth in capital employed did not consistently translate into improved economic profit. The substantial increase in invested capital between 2021 and 2023 did not yield a corresponding increase in economic profit, indicating potential inefficiencies in capital allocation or utilization. The higher capital base may have contributed to the negative economic profit in 2023.
In summary, the economic profit performance was highly sensitive to changes in NOPAT and the cost of capital. While the company demonstrated an ability to generate positive economic profit in 2022, this was not sustained, and the most recent year showed a return to negative economic profit despite continued growth in invested capital.
Net Operating Profit after Taxes (NOPAT)
Valero Energy Corp., NOPAT calculation
US$ 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
= × =
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
= × 21.00% =
7 Addition of after taxes interest expense to net income (loss) attributable to Valero Energy Corporation stockholders.
- Net Income (Loss) Attributable to Stockholders
- The net income experienced a significant decline in the year ending 2020, moving from a positive 2,422 million US dollars in 2019 to a negative 1,421 million US dollars. This was followed by a recovery period, with net income rising to 930 million US dollars in 2021. The company then showed strong profitability in 2022, reaching 11,528 million US dollars, before seeing a decrease to 8,835 million US dollars in 2023. Overall, this pattern indicates volatility with a substantial rebound post-2020.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT data mirrors the trends seen in net income, starting at 4,429 million US dollars in 2019 and dropping to negative 1,650 million US dollars in 2020. There was a pronounced recovery in 2021, with NOPAT increasing to 5,561 million US dollars. The highest value in the series occurred in 2022, with 13,520 million US dollars, followed by a reduction to 7,868 million US dollars in 2023. This fluctuation highlights a similar pattern of operational profitability impact and recovery as observed in net income.
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 the annual financial data reveals significant fluctuations in the income tax expense (benefit) and cash operating taxes over the five-year period.
- Income Tax Expense (Benefit)
- The income tax expense exhibited a notable negative value in 2020, reaching a benefit of -$903 million, which contrasts sharply with the positive expense of $702 million in 2019. Following this period, the tax expense rose to $255 million in 2021, before surging substantially to $3,428 million in 2022. In 2023, this figure decreased somewhat but remained elevated at $2,619 million, indicating a return to significant tax liabilities compared to the earlier years.
- Cash Operating Taxes
- Cash operating taxes mirrored the trend seen in the income tax expense, with a negative outflow of -$931 million in 2020 compared to $577 million in 2019. Subsequently, there was a marked increase to $519 million in 2021, which escalated dramatically to $3,508 million in 2022. In the most recent year, 2023, cash operating taxes declined slightly to $2,654 million, but still remained considerably higher than pre-2020 levels.
Overall, the data indicates a period of tax benefit in 2020 followed by a consistent and substantial increase in tax expenses and cash operating taxes in the subsequent years. The sharp rise in both metrics during 2022 and 2023 suggests changes in earnings, tax policies, or other factors impacting the company's tax payable status, resulting in a significantly higher cash outflow related to taxes despite the decrease from the 2022 peak.
Invested Capital
Valero Energy Corp., invested capital calculation (financing approach)
US$ 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.
- Total reported debt & leases
- The total reported debt and leases exhibited a rising trend from 2019 to 2020, increasing from $10,962 million to $15,847 million. Subsequently, there was a consistent decline over the next three years, with figures decreasing to $15,125 million in 2021, then dropping more significantly to $12,722 million in 2022, and further to $12,637 million by the end of 2023. This indicates a period of increased leverage followed by a notable reduction in debt levels.
- Total Valero Energy Corporation stockholders’ equity
- Stockholders' equity showed a downward trajectory between 2019 and 2021, falling from $21,803 million to $18,430 million. However, a reversal occurred in 2022 when equity increased sharply to $23,561 million and continued to grow substantially to $26,346 million in 2023. This pattern suggests an initial period of equity erosion followed by a recovery and strengthening of the equity base.
- Invested capital
- Invested capital demonstrated a mostly steady upward movement over the five-year span. Starting at $40,757 million in 2019, it slightly increased in 2020 to $40,966 million, then advanced more markedly to $44,526 million in 2021. The growth trend continued with an increase to $49,772 million in 2022, reaching $51,119 million in 2023. This represents ongoing investment and capital deployment over the period.
- Summary
- Overall, the financial data reflect a phase of increased debt leverage in 2020, followed by deliberate deleveraging from 2021 onward. Concurrently, stockholders’ equity declined in the early years but rebounded strongly in the latest two years, indicating improved financial health or retained earnings accumulation. The continuous growth in invested capital suggests sustained investment efforts, aligning with the strengthening equity position and reduced reliance on debt financing during the latter years.
Cost of Capital
Valero Energy Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ 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 | ÷ | = | × | = | |||||||||
| Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Debt and finance lease obligations, including current portion3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
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 × ÷ =
4 Click competitor name to see calculations.
The economic spread ratio exhibited significant fluctuations between 2019 and 2023. Initially negative, the ratio demonstrated a substantial decline in 2020 before recovering to positive territory in 2021 and peaking in 2022. However, the ratio reverted to a negative value in 2023, indicating a weakening in value creation relative to invested capital.
- Economic Spread Ratio
- In 2019, the economic spread ratio was -4.57%, suggesting that the company’s return on invested capital was below its cost of capital. This situation worsened considerably in 2020, with the ratio falling to -18.12%, indicating a substantial shortfall in returns compared to the cost of capital. A recovery was observed in 2021, with the ratio improving to -2.38%, signaling a narrowing of the gap between returns and cost of capital. The most significant improvement occurred in 2022, when the ratio reached 10.17%, demonstrating that the company generated returns exceeding its cost of capital. However, this positive trend was not sustained, as the ratio decreased to -1.44% in 2023, indicating a renewed underperformance relative to the cost of capital.
The economic profit mirrored the trend of the economic spread ratio. Negative economic profit values were recorded in 2019, 2020, 2021, and 2023, while a positive economic profit was observed in 2022. The magnitude of the negative economic profit was most substantial in 2020, aligning with the lowest economic spread ratio during the analyzed period.
- Invested Capital
- Invested capital consistently increased throughout the period, rising from US$40,757 million in 2019 to US$51,119 million in 2023. This continuous growth in invested capital occurred alongside fluctuating economic spread ratios and economic profits, suggesting that increased investment did not consistently translate into improved value creation.
The interplay between invested capital and the economic spread ratio suggests that while the company continued to deploy capital, its ability to generate returns exceeding its cost of capital varied considerably. The peak in the economic spread ratio in 2022 coincided with a positive economic profit, while the return to a negative ratio in 2023 resulted in a negative economic profit, highlighting the direct relationship between these metrics.
Economic Profit Margin
Valero Energy Corp., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | ||||||
| Revenues, includes excise taxes on sales by certain of foreign operations | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Chevron Corp. | ||||||
| ConocoPhillips | ||||||
| Exxon Mobil Corp. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The economic profit margin exhibited significant fluctuations between 2019 and 2023. Initially negative, the margin experienced a substantial decline in 2020 before recovering and turning positive in 2022, only to revert to a negative value in 2023. This volatility suggests a sensitivity to underlying economic profit and revenue dynamics.
- Economic Profit Margin Trend
- In 2019, the economic profit margin stood at -1.72%. This metric deteriorated considerably in 2020, reaching -11.44%, indicating a substantial shortfall in returns relative to the cost of capital. A recovery was observed in 2021, with the margin improving to -0.93%, suggesting some gains in profitability. The most significant shift occurred in 2022, when the margin turned positive at 2.87%, demonstrating a period where economic profit exceeded the cost of capital. However, this positive trend was not sustained, as the margin decreased to -0.51% in 2023.
The economic profit margin’s movement closely mirrors the changes in economic profit. The large negative economic profit values in 2020 and 2019 directly contributed to the low margins observed in those years. The positive economic profit in 2022 drove the margin into positive territory, while the negative economic profit in 2023 resulted in a negative margin once again. Revenue fluctuations also play a role, but the primary driver appears to be the absolute level of economic profit.
- Revenue Relationship
- Revenues decreased significantly in 2020, coinciding with the lowest economic profit margin. Revenues then increased in 2021 and experienced a substantial jump in 2022, aligning with the peak margin. A decrease in revenues occurred in 2023, which, combined with negative economic profit, resulted in a negative margin. While revenue growth generally supports margin improvement, it does not guarantee it, as demonstrated by the 2023 outcome.
The inconsistency in the economic profit margin highlights the importance of monitoring the factors influencing both profitability and the cost of capital. Further investigation into the drivers of economic profit, such as operational efficiency, capital allocation, and cost of capital changes, would be beneficial to understand these fluctuations and inform future strategic decisions.