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 – 15.26% × 8,182,919 = -927,439
The financial performance, as measured by economic profit, demonstrates a consistent negative trend over the five-year period. While net operating profit after taxes (NOPAT) fluctuates, it does not offset the increasing invested capital and relatively stable cost of capital, resulting in ongoing economic losses.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT increased from US$240.403 million in 2018 to US$333.240 million in 2019, representing a substantial gain. However, this was followed by a decrease to US$250.569 million in 2020. A recovery was observed in 2021, with NOPAT reaching US$362.411 million, but it declined again to US$321.495 million in 2022. Despite the fluctuations, NOPAT did not demonstrate sustained growth sufficient to generate positive economic profit.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, ranging between 15.08% and 15.68%. A slight decrease was observed from 2019 to 2021, followed by a minor increase in 2022. The consistency in the cost of capital suggests that the company’s risk profile and market conditions remained largely unchanged during this time.
- Invested Capital
- Invested capital exhibited a significant upward trend. It increased from US$3,312.194 million in 2018 to US$3,711.336 million in 2019. A substantial jump occurred in 2020, reaching US$6,661.421 million, and continued to rise to US$7,034.732 million in 2021 and US$8,182.919 million in 2022. This consistent increase in invested capital is a primary driver of the negative economic profit.
- Economic Profit
- Economic profit was negative in each year of the analyzed period. The losses widened over time, moving from -US$276.085 million in 2018 to -US$248.572 million in 2019. A significant deterioration occurred in 2020, with economic profit reaching -US$769.119 million, and remained substantial in 2021 at -US$698.088 million. The largest loss was recorded in 2022, at -US$927.439 million. This indicates that the company’s returns on invested capital are consistently below its cost of capital.
The increasing invested capital, coupled with a consistent cost of capital and fluctuating NOPAT, has resulted in a worsening economic profit position. The company is consistently destroying economic value, as its investments are not generating returns exceeding the cost of those investments.
Net Operating Profit after Taxes (NOPAT)
CoStar Group Inc., NOPAT calculation
US$ 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.
The financial data over the five-year period presents a mixed but generally positive trend in key profitability metrics.
- Net Income
-
Net income showed a generally upward trajectory, starting at $238.3 million in 2018 and increasing to $369.5 million by 2022. A peak was observed in 2019 at nearly $315 million, followed by a decline in 2020 down to approximately $227 million, which may indicate the impact of adverse conditions during that year. The figure rebounded in 2021 with a substantial increase to nearly $293 million and further grew in 2022, reaching the highest level in the period analyzed.
- Net Operating Profit After Taxes (NOPAT)
-
NOPAT also exhibited variability throughout the period but maintained an overall upward trend. It began at $240.4 million in 2018 and rose sharply to $333.2 million in 2019. Similar to net income, there was a decline in 2020 to $250.6 million. However, NOPAT increased markedly to $362.4 million in 2021, representing the highest value in the time series, before slightly decreasing to $321.5 million in 2022.
In summary, both net income and NOPAT demonstrate strong performance despite some volatility, particularly in 2020. The decline in 2020 could reflect external challenges faced during that time. The recovery and growth in subsequent years suggest resilience and improved operational efficiency, with net income reaching new highs by 2022, while NOPAT remains elevated above the initial years, indicating sustained profitability from core operations.
Cash Operating Taxes
CoStar Group Inc., cash operating taxes calculation
US$ 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).
- Provision for income taxes
- The provision for income taxes shows a fluctuating trend over the five-year period. It increased significantly from 45,681 thousand USD in 2018 to 75,986 thousand USD in 2019. The amount then decreased to 43,852 thousand USD in 2020, followed by a sharp rise to 111,404 thousand USD in 2021. In 2022, it slightly increased further to 117,004 thousand USD. This pattern indicates volatility in the company's tax provisioning, with notable peaks in 2019, 2021, and 2022.
- Cash operating taxes
- Cash operating taxes also experienced considerable variability over the analyzed period. Starting at 39,802 thousand USD in 2018, there was a large increase to 65,509 thousand USD in 2019. The figure slightly declined to 60,078 thousand USD in 2020, then increased substantially to 94,697 thousand USD in 2021, and further to 142,190 thousand USD in 2022. This upward trajectory in recent years suggests growing cash outflows related to operating tax obligations.
- Comparative insights
- Both provision for income taxes and cash operating taxes exhibit a generally increasing trend from 2018 through 2022, despite short-term decreases in 2020. Notably, cash operating taxes have increased by approximately 257% over the five years, outpacing the increase in provision for income taxes, which rose by about 156% over the same period. The divergence, especially in 2022 where cash operating taxes exceed the provision by a substantial margin, may indicate timing differences, changes in tax payment schedules, or adjustments related to deferred taxes. This pattern warrants attention for cash flow planning and tax management.
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.
Over the five-year period ending December 31, 2022, several notable trends are evident in the financial structure related to debt, equity, and invested capital.
- Total reported debt & leases
- This category initially decreased from 2018 to 2019, dropping from approximately $169 million to $150 million. However, it experienced a substantial increase in 2020, rising sharply to over $1.1 billion. Following this spike, the debt level remained relatively stable through 2021 and 2022, with minor decreases each year, concluding near $1.1 billion in 2022. This suggests a significant increase in leverage occurred in 2020, which then plateaued in subsequent years.
- Stockholders’ equity
- This component demonstrated consistent growth throughout the entire period. Beginning at around $3 billion in 2018, equity increased steadily each year, reaching approximately $3.4 billion in 2019, then accelerating to $5.4 billion in 2020. Growth continued in 2021 and 2022, ending at roughly $6.9 billion. This sustained increase indicates ongoing value creation for shareholders and a strengthening balance sheet in terms of equity financing.
- Invested capital
- Invested capital also exhibited a robust upward trend. Starting at about $3.3 billion in 2018, it rose gradually to $3.7 billion in 2019 before experiencing a sharp increase to over $6.6 billion in 2020. This growth persisted through 2021 and 2022, peaking at over $8.1 billion. The pattern mirrors the increases seen in both debt and equity, reflecting higher total capitalization and investment in company assets or operations.
In summary, the data reflect a strategic expansion in capital structure beginning in 2020, marked by a significant rise in both debt and equity, alongside a growing invested capital base. The escalation in reported debt and leases coincided with heightened equity levels, suggesting balanced financing efforts rather than reliance on debt alone. The steady increase in stockholders’ equity and invested capital signals stronger capitalization and potentially enhanced investment in growth initiatives during the analyzed period.
Cost of Capital
CoStar Group Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 29,340,495) | 29,340,495) | ÷ | 30,441,761) | = | 0.96 | 0.96 | × | 15.75% | = | 15.18% | ||
| Long-term debt, net3 | 989,210) | 989,210) | ÷ | 30,441,761) | = | 0.03 | 0.03 | × | 2.80% × (1 – 21.00%) | = | 0.07% | ||
| Operating lease liability4 | 112,056) | 112,056) | ÷ | 30,441,761) | = | 0.00 | 0.00 | × | 3.10% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 30,441,761) | 1.00 | 15.26% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ 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 | × | 15.75% | = | 14.96% | ||
| 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 | 15.08% | ||||||||||
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 | × | 15.75% | = | 15.23% | ||
| 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 | 15.31% | ||||||||||
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 | × | 15.75% | = | 15.66% | ||
| 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 | 15.68% | ||||||||||
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 | × | 15.75% | = | 15.59% | ||
| 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 | 15.59% | ||||||||||
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 × -927,439 ÷ 8,182,919 = -11.33%
The economic spread ratio demonstrates a consistent pattern of negative values over the five-year period, indicating that the company’s returns on invested capital are consistently below its cost of capital. The magnitude of the negative spread has generally increased over time, suggesting a widening gap between returns and capital costs.
- Economic Spread Ratio
- The economic spread ratio declined from -8.34% in 2018 to -11.33% in 2022. This represents a deterioration in the company’s ability to generate returns exceeding its cost of capital. The most significant single-year decline occurred between 2020 and 2022, moving from -11.55% to -11.33%.
Invested capital increased steadily throughout the period, rising from US$3,312,194 thousand in 2018 to US$8,182,919 thousand in 2022. This growth in invested capital occurred alongside consistently negative economic profit, which worsened over the same timeframe.
- Economic Profit
- Economic profit is negative for each year presented, starting at -US$276,085 thousand in 2018 and reaching -US$927,439 thousand in 2022. The absolute value of economic profit increased each year, indicating a growing shortfall between the company’s operating profit and its cost of capital. The largest year-over-year increase in the magnitude of the loss occurred between 2020 and 2021.
The combination of increasing invested capital and a declining economic spread ratio suggests that the company is deploying more capital into ventures that are generating returns below the required rate. This trend warrants further investigation to understand the underlying drivers of the negative economic profit and the efficiency of capital allocation.
- Relationship between Invested Capital and Economic Spread
- While invested capital increased substantially, the economic spread ratio did not improve, and in fact, worsened. This suggests that the increased capital deployment did not translate into proportionally higher returns. The negative correlation between these two metrics is a key observation.
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 × -927,439 ÷ 2,189,457 = -42.36%
The economic profit margin demonstrates a consistently negative trend over the five-year period. While negative economic profit is observed each year, the magnitude of the loss increases significantly between 2018 and 2022.
- Economic Profit Margin Trend
- The economic profit margin begins at -23.02% in 2018. It improves slightly to -17.52% in 2019, indicating a reduced loss. However, a substantial decline is then observed, with the margin reaching -46.17% in 2020. A partial recovery occurs in 2021, with the margin at -35.55%, but this is followed by a further deterioration to -42.36% in 2022. This indicates a worsening ability to generate returns exceeding the cost of capital.
Adjusted revenues show a consistent upward trend throughout the period. Despite this revenue growth, the economic profit margin continues to decline, suggesting that revenue increases are not translating into improved profitability when considering the cost of capital. The increasing negative economic profit, alongside rising revenues, suggests that the cost of capital may be increasing at a faster rate than revenue growth, or that operational inefficiencies are impacting profitability.
- Relationship between Revenue and Economic Profit Margin
- Adjusted revenues increased from US$1,199,321 thousand in 2018 to US$2,189,457 thousand in 2022. However, the economic profit margin moved from -23.02% to -42.36% over the same period. This inverse relationship highlights that revenue growth alone does not guarantee economic profitability. The company’s ability to generate economic profit is declining despite substantial revenue increases.
The most significant decline in economic profit margin occurred between 2019 and 2020, and again between 2021 and 2022. These periods warrant further investigation to understand the underlying drivers of the decreased economic profitability.