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
CoStar Group Inc., economic profit calculation
US$ in thousands
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 – 15.47% × 8,182,919 = -944,275
The financial performance of CoStar Group Inc. from 2018 to 2022 is characterized by a consistent inability to generate positive economic profit, indicating that the operating returns have failed to exceed the cost of the capital employed. While net operating profit after taxes has shown some growth over the period, it has been significantly eclipsed by a rapid expansion in the invested capital base.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a volatile but generally upward trajectory, rising from 240,403 thousand US$ in 2018 to 321,495 thousand US$ in 2022. The peak occurred in 2021 at 362,411 thousand US$, following a dip in 2020. Despite these fluctuations, the growth in operating profit has not kept pace with the increase in capital investments.
- Invested Capital and Cost of Capital
- A substantial increase in invested capital is observed, growing from 3,312,194 thousand US$ in 2018 to 8,182,919 thousand US$ in 2022. A significant surge occurred between 2019 and 2020, where invested capital increased by approximately 79%. During this same period, the cost of capital remained relatively stable, fluctuating within a narrow range between 15.28% and 15.89%.
- Economic Profit Trends
- Economic profit remained negative throughout the entire five-year period, signaling a persistent destruction of shareholder value in economic terms. The deficit widened significantly from -283,084 thousand US$ in 2018 to -944,275 thousand US$ in 2022. The sharpest decline in economic profit coincided with the massive capital expansion in 2020, where the figure dropped to -782,869 thousand US$, suggesting that the additional capital deployed did not generate an immediate return sufficient to cover its associated cost.
Overall, the analysis reveals a widening gap between the actual operating returns and the required return on capital. The acceleration of invested capital growth, without a proportional increase in NOPAT, has led to a deteriorating economic profit position over the analyzed timeframe.
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Net Operating Profit after Taxes (NOPAT)
CoStar Group Inc., NOPAT calculation
US$ in thousands
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.
An analysis of the financial performance from 2018 to 2022 reveals a general upward trajectory in profitability, characterized by a notable period of volatility between 2020 and 2022. While both net income and net operating profit after taxes (NOPAT) exhibit growth over the five-year horizon, their trajectories diverged significantly in the final year of the period.
- Net Income Trends
- Net income demonstrated a consistent growth pattern, rising from 238,334 thousand US$ in 2018 to a peak of 369,453 thousand US$ in 2022. A temporary contraction occurred in 2020, where earnings fell to 227,128 thousand US$, representing the lowest point in the series. However, a strong recovery followed, with sequential increases in 2021 and 2022, indicating a robust capacity for bottom-line growth.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited greater volatility than net income. After an initial increase from 240,403 thousand US$ in 2018 to 333,240 thousand US$ in 2019, a decline to 250,569 thousand US$ was recorded in 2020. The metric reached its five-year peak in 2021 at 362,411 thousand US$ before retreating to 321,495 thousand US$ in 2022.
- Comparative Analysis of Net Income and NOPAT
- Between 2018 and 2021, NOPAT consistently remained higher than net income, suggesting that operating performance was a primary driver of value and that non-operating expenses or interest costs were impacting the final net income. However, a significant inversion occurred in 2022; during this period, net income reached its highest level (369,453 thousand US$) while NOPAT declined from its previous year's peak. This divergence indicates that the increase in 2022 net income was likely driven by non-operating gains, tax adjustments, or other financial items rather than an increase in core operating efficiency.
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Cash Operating Taxes
CoStar Group Inc., cash operating taxes calculation
US$ in thousands
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).
The financial data indicates a general upward trajectory in tax-related expenditures from 2018 to 2022, characterized by a significant increase in actual cash outflows relative to accounting provisions in the final year of the period.
- Provision for Income Taxes Trends
- The provision for income taxes exhibited substantial volatility between 2018 and 2022. After an initial increase from 45,681 thousand US$ in 2018 to 75,986 thousand US$ in 2019, a sharp decline occurred in 2020, reaching 43,852 thousand US$. This was followed by a rapid recovery and growth phase, with the provision peaking at 117,004 thousand US$ by December 31, 2022.
- Cash Operating Taxes Trends
- Cash operating taxes demonstrated a more consistent growth pattern than the accounting provisions. Starting at 39,802 thousand US$ in 2018, these payments grew steadily, reaching 142,190 thousand US$ by 2022. Notably, while the provision for taxes dropped significantly in 2020, cash operating taxes remained relatively stable during that period, declining only marginally to 60,078 thousand US$, suggesting a disconnect between recognized tax expenses and actual cash disbursements.
- Comparative Analysis and EVA Implications
- A critical divergence is observed in 2022, where cash operating taxes exceeded the provision for income taxes by 25,186 thousand US$. In contrast, for the majority of the period between 2018 and 2021, the provision generally remained higher than the cash tax payments. From the perspective of Economic Value Added (EVA), the steady and accelerating increase in cash operating taxes represents a growing cash drain that directly reduces the Net Operating Profit After Tax (NOPAT), potentially impacting the company's ability to generate economic value if not matched by proportional increases in operating profit.
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Invested Capital
CoStar Group Inc., invested capital calculation (financing approach)
US$ in thousands
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.
Invested capital exhibited substantial growth between 2018 and 2022, increasing from approximately 3.31 billion to 8.18 billion. This expansion reflects a significant scale-up in the capital base used to generate economic value, characterized by a strategic shift in leverage and consistent equity accumulation.
- Invested Capital Growth
- The total invested capital increased by approximately 147% over the five-year period. A pivotal expansion occurred in 2020, where invested capital grew by nearly 80% year-over-year, rising from 3.71 billion to 6.66 billion. Following this surge, the growth trajectory continued at a more moderate pace, reaching 8.18 billion by the end of 2022.
- Debt and Lease Obligations
- Financial leverage remained relatively low and stable during 2018 and 2019. A sharp increase is observed in 2020, with total reported debt and leases rising from 149.8 million to 1.12 billion. This spike indicates a significant acquisition of liabilities or a change in lease accounting/structure. From 2020 through 2022, these obligations plateaued, exhibiting a slight downward trend to 1.10 billion.
- Stockholders' Equity Trends
- Stockholders' equity demonstrated consistent upward momentum throughout the analyzed period. Equity grew from 3.02 billion in 2018 to 6.87 billion in 2022. The growth was most pronounced between 2019 and 2020, where equity increased by approximately 57%, contributing significantly to the overall rise in invested capital.
- Capital Structure Composition
- The composition of invested capital shifted notably in 2020. Prior to 2020, the capital base was overwhelmingly funded by equity. Post-2020, while equity remained the primary funding source, the introduction of over 1 billion in debt and lease obligations created a more diversified capital structure, though equity continued to be the dominant driver of the total invested capital increase through 2022.
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Cost of Capital
CoStar Group Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 29,340,495) | 29,340,495) | ÷ | 30,441,761) | = | 0.96 | 0.96 | × | 15.97% | = | 15.39% | ||
| 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 | 15.47% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 21,131,842) | 21,131,842) | ÷ | 22,245,424) | = | 0.95 | 0.95 | × | 15.97% | = | 15.17% | ||
| 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 | 15.28% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 32,955,011) | 32,955,011) | ÷ | 34,079,703) | = | 0.97 | 0.97 | × | 15.97% | = | 15.44% | ||
| 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 | 15.51% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 25,002,702) | 25,002,702) | ÷ | 25,152,525) | = | 0.99 | 0.99 | × | 15.97% | = | 15.87% | ||
| 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 | 15.89% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 16,676,712) | 16,676,712) | ÷ | 16,845,790) | = | 0.99 | 0.99 | × | 15.97% | = | 15.80% | ||
| 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 | 15.80% | ||||||||||
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 »
Economic Spread Ratio
CoStar Group Inc., economic spread ratio calculation
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 × -944,275 ÷ 8,182,919 = -11.54%
The financial analysis of the period between 2018 and 2022 reveals a persistent inability to generate positive economic value, characterized by negative economic profit and a consistently negative economic spread ratio. While the capital base expanded significantly, the returns generated did not keep pace with the cost of that capital.
- Economic Profit Trends
- Economic profit remained negative throughout the entire five-year observation period. A slight improvement was noted in 2019, where losses narrowed to -256,447 thousand US dollars. However, a sharp deterioration occurred in 2020, with losses expanding to -782,869 thousand US dollars. Although 2021 showed a marginal recovery, the trend culminated in the lowest economic profit of the period in 2022, reaching -944,275 thousand US dollars.
- Invested Capital Growth
- There is a clear and aggressive upward trend in invested capital. The capital base grew from 3,312,194 thousand US dollars in 2018 to 8,182,919 thousand US dollars by 2022. A particularly significant increase occurred between 2019 and 2020, where invested capital nearly doubled, suggesting a period of heavy investment or acquisition.
- Economic Spread Ratio Analysis
- The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, remained consistently negative, indicating a destruction of shareholder value. The ratio peaked at -6.91% in 2019 before dropping sharply to -11.75% in 2020. The ratio remained suppressed in the subsequent years, ending at -11.54% in 2022. The correlation between the spike in invested capital in 2020 and the simultaneous drop in the spread ratio suggests that the new capital deployments failed to generate immediate proportional returns.
Overall, the data indicates a trajectory where increasing investments in the business have led to deeper economic losses. The inability to move the economic spread ratio into positive territory suggests that the operational returns are insufficient to cover the implicit or explicit cost of the capital employed.
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Economic Profit Margin
CoStar Group Inc., economic profit margin calculation
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 × -944,275 ÷ 2,189,457 = -43.13%
The financial performance over the five-year period ending December 31, 2022, is characterized by consistent revenue expansion contrasted with persistent negative economic profit. Although top-line growth remained steady, the company failed to generate returns exceeding its cost of capital, resulting in negative economic value added throughout the entire duration.
- Adjusted Revenue Growth
- A continuous upward trajectory in adjusted revenues is observed, increasing from US$ 1,199,321 thousand in 2018 to US$ 2,189,457 thousand in 2022. This represents a steady growth in the scale of operations over the analyzed period.
- Economic Profit Trends
- Economic profit remained negative across all reported years, exhibiting significant volatility. Following a marginal improvement in 2019, a substantial decline occurred in 2020, where losses widened to US$ 782,869 thousand. Despite a moderate recovery in 2021, economic profit reached its lowest level in 2022, totaling negative US$ 944,275 thousand.
- Economic Profit Margin Analysis
- The economic profit margin reflects a failure to convert revenue growth into economic value. The margin improved from -23.60% in 2018 to -18.07% in 2019, but deteriorated sharply to -47.00% in 2020. The subsequent shift to -36.28% in 2021 and a further decline to -43.13% in 2022 indicates that capital charges or operational costs grew at a rate that outpaced revenue gains, deepening the economic loss relative to the size of the business.
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