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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

Paycom Software Inc., 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	297,371)	244,272)	176,158)	214,806)	172,096)
Cost of capital²	16.86%	16.87%	16.88%	16.87%	16.82%
Invested capital³	1,478,485)	1,189,369)	860,024)	724,133)	522,609)

Economic profit⁴	48,082)	43,614)	30,988)	92,662)	84,185)

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
= 297,371 – 16.86% × 1,478,485 = 48,082

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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.	Paycom Software Inc. economic profit increased from 2020 to 2021 and from 2021 to 2022.

Paycom Software Inc., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income	281,389)	195,960)	143,453)	180,576)	137,065)
Deferred income tax expense (benefit)¹	(3,210)	32,906)	21,381)	21,011)	21,077)
Increase (decrease) in deferred revenue²	15,990)	14,600)	10,582)	11,593)	13,027)
Increase (decrease) in equity equivalents³	12,780)	47,506)	31,963)	32,604)	34,104)
Interest expense	2,536)	—)	19)	940)	766)
Interest expense, operating lease liability⁴	1,517)	1,020)	921)	1,119)	408)
Adjusted interest expense	4,053)	1,020)	940)	2,059)	1,174)
Tax benefit of interest expense⁵	(851)	(214)	(197)	(432)	(247)
Adjusted interest expense, after taxes⁶	3,202)	806)	742)	1,626)	927)
Net operating profit after taxes (NOPAT)	297,371)	244,272)	176,158)	214,806)	172,096)

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 deferred revenue.

³ Addition of increase (decrease) in equity equivalents to net income.

⁴ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 41,012 × 3.70% = 1,517

⁵ 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 4,053 × 21.00% = 851

⁶ Addition of after taxes interest expense to net income.

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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.	Paycom Software Inc. NOPAT increased from 2020 to 2021 and from 2021 to 2022.

Paycom Software Inc., 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
Provision for income taxes	108,189)	60,002)	42,483)	45,511)	37,646)
Less: Deferred income tax expense (benefit)	(3,210)	32,906)	21,381)	21,011)	21,077)
Add: Tax savings from interest expense	851)	214)	197)	432)	247)
Cash operating taxes	112,250)	27,310)	21,299)	24,932)	16,816)

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.	Paycom Software Inc. cash operating taxes increased from 2020 to 2021 and from 2021 to 2022.

Paycom Software Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Operating lease liability¹	41,012)	30,912)	27,896)	28,685)	27,199)
Total reported debt & leases	70,012)	60,067)	58,790)	61,318)	61,588)
Stockholders’ equity	1,182,607)	893,714)	655,643)	526,628)	334,753)
Net deferred tax (assets) liabilities²	141,033)	145,504)	112,598)	91,217)	70,206)
Deferred revenue³	117,416)	101,426)	86,826)	76,244)	64,651)
Equity equivalents⁴	258,449)	246,930)	199,424)	167,461)	134,857)
Accumulated other comprehensive (income) loss, net of tax⁵	3,703)	—)	—)	—)	—)
Adjusted stockholders’ equity	1,444,759)	1,140,644)	855,067)	694,089)	469,610)
Construction in progress⁶	(36,286)	(11,342)	(53,833)	(31,274)	(8,589)
Invested capital	1,478,485)	1,189,369)	860,024)	724,133)	522,609)

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 deferred revenue.

⁴ Addition of equity equivalents to stockholders’ equity.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of construction in progress.

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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.	Paycom Software Inc. invested capital increased from 2020 to 2021 and from 2021 to 2022.

Paycom Software Inc., cost of capital calculations

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	17,792,735)	17,792,735)	÷	17,862,747)	=	1.00	1.00	×	16.92%	=	16.85%
Long-term debt³	29,000)	29,000)	÷	17,862,747)	=	0.00	0.00	×	3.70% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	41,012)	41,012)	÷	17,862,747)	=	0.00	0.00	×	3.70% × (1 – 21.00%)	=	0.01%
Total:	17,862,747)					1.00					16.86%

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	19,012,528)	19,012,528)	÷	19,072,595)	=	1.00	1.00	×	16.92%	=	16.86%
Long-term debt³	29,155)	29,155)	÷	19,072,595)	=	0.00	0.00	×	3.30% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	30,912)	30,912)	÷	19,072,595)	=	0.00	0.00	×	3.30% × (1 – 21.00%)	=	0.00%
Total:	19,072,595)					1.00					16.87%

Based on: 10-K (reporting date: 2021-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	23,185,491)	23,185,491)	÷	23,244,281)	=	1.00	1.00	×	16.92%	=	16.87%
Long-term debt³	30,894)	30,894)	÷	23,244,281)	=	0.00	0.00	×	3.30% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	27,896)	27,896)	÷	23,244,281)	=	0.00	0.00	×	3.30% × (1 – 21.00%)	=	0.00%
Total:	23,244,281)					1.00					16.88%

Based on: 10-K (reporting date: 2020-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	17,488,062)	17,488,062)	÷	17,549,380)	=	1.00	1.00	×	16.92%	=	16.86%
Long-term debt³	32,633)	32,633)	÷	17,549,380)	=	0.00	0.00	×	3.90% × (1 – 21.00%)	=	0.01%
Operating lease liability⁴	28,685)	28,685)	÷	17,549,380)	=	0.00	0.00	×	3.90% × (1 – 21.00%)	=	0.01%
Total:	17,549,380)					1.00					16.87%

Based on: 10-K (reporting date: 2019-12-31).

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	10,217,070)	10,217,070)	÷	10,278,658)	=	0.99	0.99	×	16.92%	=	16.81%
Long-term debt³	34,389)	34,389)	÷	10,278,658)	=	0.00	0.00	×	1.50% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	27,199)	27,199)	÷	10,278,658)	=	0.00	0.00	×	1.50% × (1 – 21.00%)	=	0.00%
Total:	10,278,658)					1.00					16.82%

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

¹ US$ in thousands

² Equity. See details »

³ Long-term debt. See details »

⁴ Operating lease liability. See details »

Paycom Software Inc., economic spread ratio calculation

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	48,082)	43,614)	30,988)	92,662)	84,185)
Invested capital²	1,478,485)	1,189,369)	860,024)	724,133)	522,609)
Performance Ratio
Economic spread ratio³	3.25%	3.67%	3.60%	12.80%	16.11%

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 × 48,082 ÷ 1,478,485 = 3.25%

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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.	Paycom Software Inc. economic spread ratio improved from 2020 to 2021 but then deteriorated significantly from 2021 to 2022.

Paycom Software Inc., economic profit margin calculation

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	48,082)	43,614)	30,988)	92,662)	84,185)

Revenues	1,375,218)	1,055,524)	841,434)	737,671)	566,336)
Add: Increase (decrease) in deferred revenue	15,990)	14,600)	10,582)	11,593)	13,027)
Adjusted revenues	1,391,208)	1,070,124)	852,016)	749,264)	579,363)
Performance Ratio
Economic profit margin²	3.46%	4.08%	3.64%	12.37%	14.53%

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 revenues
= 100 × 48,082 ÷ 1,391,208 = 3.46%

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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.	Paycom Software Inc. economic profit margin improved from 2020 to 2021 but then deteriorated significantly from 2021 to 2022.

Paycom Software Inc. (NYSE:PAYC)

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