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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

CoStar Group 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	321,495)	362,411)	250,569)	333,240)	240,403)
Cost of capital²	12.22%	12.07%	12.25%	12.54%	12.47%
Invested capital³	8,182,919)	7,034,732)	6,661,421)	3,711,336)	3,312,194)

Economic profit⁴	(678,238)	(486,939)	(565,584)	(132,004)	(172,480)

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
= 321,495 – 12.22% × 8,182,919 = -678,238

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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.	CoStar Group Inc. economic profit increased from 2020 to 2021 but then decreased significantly from 2021 to 2022.

CoStar Group 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	369,453)	292,564)	227,128)	314,963)	238,334)
Deferred income tax expense (benefit)¹	(31,203)	24,165)	(11,530)	8,220)	3,666)
Increase (decrease) in allowance for credit losses²	(1,179)	(1,736)	10,562)	(612)	(760)
Increase (decrease) in deferred revenue³	7,058)	19,361)	6,743)	19,161)	7,489)
Increase (decrease) in equity equivalents⁴	(25,324)	41,790)	5,775)	26,769)	10,395)
Interest expense	32,325)	32,316)	21,794)	2,615)	2,830)
Interest expense, operating lease liability⁵	3,474)	3,895)	4,967)	5,993)	—)
Adjusted interest expense	35,799)	36,211)	26,761)	8,608)	2,830)
Tax benefit of interest expense⁶	(7,518)	(7,604)	(5,620)	(1,808)	(594)
Adjusted interest expense, after taxes⁷	28,281)	28,607)	21,141)	6,800)	2,236)
Interest income	(64,450)	(695)	(4,399)	(19,357)	(13,369)
Investment income, before taxes	(64,450)	(695)	(4,399)	(19,357)	(13,369)
Tax expense (benefit) of investment income⁸	13,535)	146)	924)	4,065)	2,807)
Investment income, after taxes⁹	(50,916)	(549)	(3,475)	(15,292)	(10,562)
Net operating profit after taxes (NOPAT)	321,495)	362,411)	250,569)	333,240)	240,403)

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 deferred revenue.

⁴ Addition of increase (decrease) in equity equivalents to net income.

⁵ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 112,056 × 3.10% = 3,474

⁶ 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 35,799 × 21.00% = 7,518

⁷ Addition of after taxes interest expense to net income.

⁸ 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 64,450 × 21.00% = 13,535

⁹ Elimination of after taxes investment 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.	CoStar Group Inc. NOPAT increased from 2020 to 2021 but then slightly decreased from 2021 to 2022.

CoStar Group 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	117,004)	111,404)	43,852)	75,986)	45,681)
Less: Deferred income tax expense (benefit)	(31,203)	24,165)	(11,530)	8,220)	3,666)
Add: Tax savings from interest expense	7,518)	7,604)	5,620)	1,808)	594)
Less: Tax imposed on investment income	13,535)	146)	924)	4,065)	2,807)
Cash operating taxes	142,190)	94,697)	60,078)	65,509)	39,802)

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.	CoStar Group Inc. cash operating taxes increased from 2020 to 2021 and from 2021 to 2022.

CoStar Group Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Long-term debt, net	989,210)	987,944)	986,715)	—)	—)
Operating lease liability¹	112,056)	125,638)	137,977)	149,823)	169,078)
Total reported debt & leases	1,101,266)	1,113,582)	1,124,692)	149,823)	169,078)
Stockholders’ equity	6,870,121)	5,711,672)	5,375,359)	3,405,593)	3,021,942)
Net deferred tax (assets) liabilities²	66,480)	93,622)	68,008)	81,688)	62,388)
Allowance for credit losses³	12,195)	13,374)	15,110)	5,097)	5,709)
Deferred revenue⁴	103,782)	96,724)	77,363)	70,620)	51,459)
Equity equivalents⁵	182,457)	203,720)	160,481)	157,405)	119,556)
Accumulated other comprehensive (income) loss, net of tax⁶	29,075)	5,758)	889)	8,585)	11,688)
Adjusted stockholders’ equity	7,081,653)	5,921,150)	5,536,729)	3,571,583)	3,153,186)
Available-for-sale investments⁷	—)	—)	—)	(10,070)	(10,070)
Invested capital	8,182,919)	7,034,732)	6,661,421)	3,711,336)	3,312,194)

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 deferred revenue.

⁵ Addition of equity equivalents to stockholders’ equity.

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of available-for-sale investments.

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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.	CoStar Group Inc. invested capital increased from 2020 to 2021 and from 2021 to 2022.

CoStar Group Inc., cost of capital calculations

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	29,340,495)	29,340,495)	÷	30,441,761)	=	0.96	0.96	×	12.59%	=	12.14%
Long-term debt, net³	989,210)	989,210)	÷	30,441,761)	=	0.03	0.03	×	2.80% × (1 – 21.00%)	=	0.07%
Operating lease liability⁴	112,056)	112,056)	÷	30,441,761)	=	0.00	0.00	×	3.10% × (1 – 21.00%)	=	0.01%
Total:	30,441,761)					1.00					12.22%

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

¹ US$ in thousands

² Equity. See details »

³ Long-term debt, net. See details »

⁴ Operating lease liability. See details »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	21,131,842)	21,131,842)	÷	22,245,424)	=	0.95	0.95	×	12.59%	=	11.96%
Long-term debt, net³	987,944)	987,944)	÷	22,245,424)	=	0.04	0.04	×	2.80% × (1 – 21.00%)	=	0.10%
Operating lease liability⁴	125,638)	125,638)	÷	22,245,424)	=	0.01	0.01	×	3.10% × (1 – 21.00%)	=	0.01%
Total:	22,245,424)					1.00					12.07%

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

¹ US$ in thousands

² Equity. See details »

³ Long-term debt, net. See details »

⁴ Operating lease liability. See details »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	32,955,011)	32,955,011)	÷	34,079,703)	=	0.97	0.97	×	12.59%	=	12.18%
Long-term debt, net³	986,715)	986,715)	÷	34,079,703)	=	0.03	0.03	×	2.80% × (1 – 21.00%)	=	0.06%
Operating lease liability⁴	137,977)	137,977)	÷	34,079,703)	=	0.00	0.00	×	3.60% × (1 – 21.00%)	=	0.01%
Total:	34,079,703)					1.00					12.25%

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

¹ US$ in thousands

² Equity. See details »

³ Long-term debt, net. See details »

⁴ Operating lease liability. See details »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	25,002,702)	25,002,702)	÷	25,152,525)	=	0.99	0.99	×	12.59%	=	12.52%
Long-term debt, net³	—)	—)	÷	25,152,525)	=	0.00	0.00	×	0.00% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	149,823)	149,823)	÷	25,152,525)	=	0.01	0.01	×	4.00% × (1 – 21.00%)	=	0.02%
Total:	25,152,525)					1.00					12.54%

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

¹ US$ in thousands

² Equity. See details »

³ Long-term debt, net. See details »

⁴ Operating lease liability. See details »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	16,676,712)	16,676,712)	÷	16,845,790)	=	0.99	0.99	×	12.59%	=	12.47%
Long-term debt, net³	—)	—)	÷	16,845,790)	=	0.00	0.00	×	0.00% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	169,078)	169,078)	÷	16,845,790)	=	0.01	0.01	×	0.00% × (1 – 21.00%)	=	0.00%
Total:	16,845,790)					1.00					12.47%

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

¹ US$ in thousands

² Equity. See details »

³ Long-term debt, net. See details »

⁴ Operating lease liability. See details »

CoStar Group 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	(678,238)	(486,939)	(565,584)	(132,004)	(172,480)
Invested capital²	8,182,919)	7,034,732)	6,661,421)	3,711,336)	3,312,194)
Performance Ratio
Economic spread ratio³	-8.29%	-6.92%	-8.49%	-3.56%	-5.21%

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 × -678,238 ÷ 8,182,919 = -8.29%

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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.	CoStar Group Inc. economic spread ratio improved from 2020 to 2021 but then slightly deteriorated from 2021 to 2022 not reaching 2020 level.

CoStar Group 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	(678,238)	(486,939)	(565,584)	(132,004)	(172,480)

Revenues	2,182,399)	1,944,135)	1,659,019)	1,399,719)	1,191,832)
Add: Increase (decrease) in deferred revenue	7,058)	19,361)	6,743)	19,161)	7,489)
Adjusted revenues	2,189,457)	1,963,496)	1,665,762)	1,418,880)	1,199,321)
Performance Ratio
Economic profit margin²	-30.98%	-24.80%	-33.95%	-9.30%	-14.38%

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 × -678,238 ÷ 2,189,457 = -30.98%

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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.	CoStar Group Inc. economic profit margin improved from 2020 to 2021 but then slightly deteriorated from 2021 to 2022 not reaching 2020 level.

CoStar Group Inc. (NASDAQ:CSGP)

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