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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.
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Williams-Sonoma Inc. pages available for free this week:
- Cash Flow Statement
- Common-Size Income Statement
- Common-Size Balance Sheet: Assets
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Capital Asset Pricing Model (CAPM)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2005
- Aggregate Accruals
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Economic Profit
12 months ended: | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | Feb 2, 2020 | Feb 3, 2019 | |
---|---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | |||||||
Cost of capital2 | |||||||
Invested capital3 | |||||||
Economic profit4 |
Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-02-02), 10-K (reporting date: 2019-02-03).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The analysis of the financial data reveals several notable trends and shifts over the six-year period examined.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibits a generally upward trajectory from 2019 through 2022, increasing from approximately $390 million in 2019 to a peak of around $1.24 billion in 2022. However, this peak is followed by a decline in subsequent years, dropping to about $1.17 billion in 2023 and further to approximately $1.03 billion in 2024. This pattern suggests a period of robust growth culminating in 2022, followed by a reduction in profitability in the last two years of the dataset.
- Cost of Capital
- The cost of capital shows variability but remains within a range of approximately 14.7% to 19.38%. Starting at 15.59% in 2019, it declines slightly to 14.7% in 2020, then experiences an upward trend with some fluctuations, reaching its highest point in 2024 at 19.38%. This increase in cost of capital over time may have implications for investment decisions and the company's valuation metrics.
- Invested Capital
- Invested capital remains relatively stable between 2019 and 2023, fluctuating between roughly $3.1 billion and $3.5 billion. In 2024, there is a notable increase to approximately $3.9 billion, indicating a significant rise in the capital base. This expansion could be associated with increased investments or asset acquisitions during the most recent year.
- Economic Profit
- The economic profit experienced a marked shift during the period under study. It started negative in 2019 and 2020, at roughly -$108 million and -$58 million respectively, indicating returns below the cost of capital. Beginning in 2021, economic profit turned positive with $140 million and surged substantially in 2022 to $616 million. Although remaining positive afterward, economic profit decreases to $551 million in 2023 and further to $277 million in 2024. This pattern reflects improved value creation until 2022, followed by a decline in the surplus generated over the company’s cost of capital.
In summary, the company demonstrated rising profitability and economic value creation from 2019 through 2022, coupled with a stable invested capital base. However, subsequent years show a downturn in profit metrics, alongside increasing cost of capital and a growth in invested capital, which could point to pressure on returns and efficiency in capital utilization.
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-02-02), 10-K (reporting date: 2019-02-03).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in gift card and other deferred revenue.
3 Addition of increase (decrease) in equity equivalents to net earnings.
4 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
5 2024 Calculation
Tax benefit of interest income (expense), net = Adjusted interest income (expense), net × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net earnings.
- Net Earnings Trend
- Net earnings showed a positive growth trajectory from 2019 to 2022, rising from $333.7 million to approximately $1.13 billion. This represents a more than threefold increase over four years, demonstrating robust profitability expansion. However, in the following years, net earnings stabilized around the $1.13 billion mark in 2023, before declining to about $949.8 million in 2024, indicating a contraction in profitability after a period of sustained growth.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT followed a similar growth pattern as net earnings, increasing from $390.1 million in 2019 to a peak of approximately $1.24 billion in 2022. This near tripling of after-tax operating profit highlights improved operational efficiency or increased operating income during this period. Subsequently, NOPAT decreased slightly to $1.17 billion in 2023 and further declined to roughly $1.03 billion in 2024, suggesting a marginal deterioration in operating performance or higher operating costs affecting profitability.
- Comparative Observations
- The parallel movement of net earnings and NOPAT indicates that the company's profitability growth was primarily driven by operational improvements, as both metrics expanded significantly up to 2022. The decline observed in both metrics from 2023 onwards might reflect weakening margins or increased expenses. Notably, net earnings seem to have decreased proportionally more than NOPAT in 2024, which could imply the impact of non-operating factors such as higher interest expenses, taxes, or other non-operational costs.
- Summary
- The company experienced a period of considerable earnings growth and operational profitability increase through 2022, indicating strong financial performance. However, the subsequent reduction in both net earnings and NOPAT in the last two years is a point of concern, suggesting a potential slowdown in growth or emerging challenges affecting earnings quality and operating efficiency.
Cash Operating Taxes
Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-02-02), 10-K (reporting date: 2019-02-03).
- Provision for income taxes
- The provision for income taxes showed an overall upward trend from February 2019 to January 2023, increasing from 95,563 thousand US dollars in 2019 to a peak of 372,778 thousand US dollars in 2023. However, in the most recent period ending January 28, 2024, this figure declined to 323,593 thousand US dollars, indicating a notable decrease after several years of growth.
- Cash operating taxes
- Cash operating taxes followed a similar increasing pattern, rising from 83,339 thousand US dollars in 2019 to a peak of 406,434 thousand US dollars in 2023. Thereafter, there was a decline to 357,651 thousand US dollars in 2024. The growth over the years was relatively consistent until the slight downturn in the last recorded period.
- Overall summary
- Both provision for income taxes and cash operating taxes showed strong growth over the five-year span from 2019 through 2023, more than doubling or nearly doubling in magnitude. The simultaneous decline in both metrics in the latest year could signal changes in tax planning, profitability, or tax rates affecting the financial outflows related to taxes. The parallel movement of these two items suggests a close relationship between tax provisioning and actual cash tax payments over time.
Invested Capital
Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-02-02), 10-K (reporting date: 2019-02-03).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of gift card and other deferred revenue.
4 Addition of equity equivalents to stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
The data reveals several notable trends in the financial structure over the six-year period.
- Total reported debt & leases
-
This figure shows a general decreasing trend from 2019 to 2022, dropping from approximately 1,784 million USD to around 1,284 million USD. However, there is a reversal in 2023, with debt increasing to about 1,444 million USD, before slightly declining again to approximately 1,391 million USD in 2024. Overall, the company's leverage appears to have been reduced significantly in the first part of the period before stabilizing somewhat in the most recent years.
- Stockholders’ equity
-
Stockholders’ equity exhibits a consistent upward trend each year, starting at roughly 1,156 million USD in 2019 and rising steadily to over 2,127 million USD by 2024. This indicates a strengthening equity base and suggests improved retained earnings or additional capital contributions over the years. The growth from 2023 to 2024 is particularly pronounced, highlighting accelerated equity accumulation recently.
- Invested capital
-
Invested capital fluctuates somewhat but generally rises from about 3,193 million USD in 2019 to approximately 3,907 million USD in 2024. There is a dip noted in 2022, falling to roughly 3,333 million USD from a peak of around 3,503 million USD in 2021, but it resumes growth afterward. This pattern suggests some variability in total capital deployment, but the overall increase aligns with rising equity and suggests ongoing investment in business operations or assets.
In summary, the company has reduced its debt substantially over the initial period and has steadily increased its equity base, resulting in an overall rise in invested capital despite some short-term fluctuations. This pattern reflects a potential shift towards a more equity-oriented capital structure with possibly enhanced financial stability and investment capacity over time.
Cost of Capital
Williams-Sonoma Inc., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2024-01-28).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2023-01-29).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2022-01-30).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-01-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2020-02-02).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Long-term debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2019-02-03).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | Feb 2, 2020 | Feb 3, 2019 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in thousands) | |||||||
Economic profit1 | |||||||
Invested capital2 | |||||||
Performance Ratio | |||||||
Economic spread ratio3 | |||||||
Benchmarks | |||||||
Economic Spread Ratio, Competitors4 | |||||||
Amazon.com Inc. | |||||||
Home Depot Inc. | |||||||
Lowe’s Cos. Inc. | |||||||
TJX Cos. Inc. |
Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-02-02), 10-K (reporting date: 2019-02-03).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit demonstrated a significant improvement from fiscal year 2019 through 2021, turning from a negative value of approximately -$107.6 million to a positive figure of $139.7 million. This positive trend peaked in 2022 at $616.3 million, followed by a decline in the subsequent years, with values of $550.5 million in 2023 and a sharper decrease to $276.9 million in 2024. Despite the decline after 2022, the economic profit remains substantially higher than in the initial years, indicating an overall positive shift in profitability over the period.
- Invested Capital
- Invested capital showed fluctuations but generally trended upward across the years observed. Starting at $3.19 billion in 2019, the figure slightly decreased in 2020 but rose again to $3.5 billion in 2021. A minor dip was observed in 2022, followed by incremental increases to $3.5 billion in 2023 and $3.9 billion in 2024. The increase in invested capital overall suggests ongoing investment or asset accumulation despite the variations in profitability metrics.
- Economic Spread Ratio
- The economic spread ratio transitioned from negative values in 2019 and 2020 (-3.37% and -1.86%, respectively) to positive territory starting in 2021 at 3.99%. It peaked impressively to 18.49% in 2022, indicating a strong return on invested capital relative to cost. However, this ratio declined in the following years to 15.74% in 2023 and further down to 7.09% in 2024, suggesting a reduction in economic value generated per dollar of capital invested, albeit remaining above initial negative levels.
Economic Profit Margin
Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | Jan 31, 2021 | Feb 2, 2020 | Feb 3, 2019 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in thousands) | |||||||
Economic profit1 | |||||||
Net revenues | |||||||
Add: Increase (decrease) in gift card and other deferred revenue | |||||||
Adjusted net revenues | |||||||
Performance Ratio | |||||||
Economic profit margin2 | |||||||
Benchmarks | |||||||
Economic Profit Margin, Competitors3 | |||||||
Amazon.com Inc. | |||||||
Home Depot Inc. | |||||||
Lowe’s Cos. Inc. | |||||||
TJX Cos. Inc. |
Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-02-02), 10-K (reporting date: 2019-02-03).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenues
= 100 × ÷ =
3 Click competitor name to see calculations.
- Economic Profit
- The economic profit exhibited significant variation over the six-year period. Starting from a substantial negative value of -107,589 thousand US dollars in 2019, it improved to -57,836 thousand US dollars in 2020, indicating a reduction in losses. A marked turnaround occurred in 2021, with economic profit turning positive at 139,708 thousand US dollars, followed by a peak of 616,330 thousand US dollars in 2022. Subsequently, there was a decline in 2023 to 550,506 thousand US dollars, and a further decrease in 2024 to 276,900 thousand US dollars. This suggests a recovery phase culminating in a peak, then a downward adjustment in more recent years.
- Adjusted Net Revenues
- Adjusted net revenues demonstrated a consistent upward trajectory from 5,661,431 thousand US dollars in 2019 to a high of 8,705,876 thousand US dollars in 2023. However, in 2024, there was a noticeable decline to 7,845,327 thousand US dollars. The growth from 2019 through 2023 was strong and steady, but the reduction in 2024 may indicate challenges affecting revenue generation or strategic shifts impacting sales.
- Economic Profit Margin
- The economic profit margin followed a trend aligned with the economic profit figures. Initially negative at -1.9% in 2019 and improving to -0.98% in 2020, it turned positive in 2021 at 2.03%. The margin increased substantially to 7.41% in 2022, indicating heightened profitability relative to revenues, then declined to 6.32% in 2023 and further to 3.53% in 2024. This pattern reflects increasing efficiency or profitability up to 2022, followed by a weakening margin which aligns with both the reduction in economic profit and the decline in revenues in the latter years.
- Overall Trends and Insights
- The data reveals an initial period of economic profit losses that were reversed starting in 2021, culminating in peak profitability and profit margins in 2022. Both economic profit and profit margins demonstrate a downward trend after this peak, with a similarly timed drop in adjusted net revenues. This combination suggests that while revenues grew consistently through 2023, recent volatility and decreased economic profit indicate potential operational or market challenges beginning in 2023 and continuing into 2024. The decline in economic profit margin further supports a reduction in profitability efficiency in the recent period.