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.
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- Balance Sheet: Assets
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Liquidity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Selected Financial Data since 2014
- Operating Profit Margin since 2014
- Current Ratio since 2014
- Price to Earnings (P/E) since 2014
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Economic Profit
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 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The period under review demonstrates fluctuating performance in economic profit generation. Net operating profit after taxes (NOPAT) exhibited an initial increase followed by a decline and subsequent recovery, while invested capital consistently rose throughout the period. The cost of capital remained relatively stable. These factors combined to produce a varied economic profit trajectory.
- NOPAT Trend
- Net operating profit after taxes increased from US$172,096 thousand in 2018 to US$214,806 thousand in 2019, representing a growth of approximately 24.7%. A decrease was then observed in 2020, with NOPAT falling to US$176,158 thousand. However, NOPAT rebounded strongly in 2021 to US$244,272 thousand and continued to grow in 2022, reaching US$297,371 thousand. This indicates a recovery and strengthening of operational profitability.
- Cost of Capital Stability
- The cost of capital remained remarkably consistent across the five-year period, fluctuating between 18.47% and 18.53%. This suggests a stable risk profile and financing structure for the company. The minimal variation indicates that external factors influencing the cost of funds did not significantly impact the organization during this time.
- Invested Capital Growth
- Invested capital experienced consistent growth throughout the period, increasing from US$522,609 thousand in 2018 to US$1,478,485 thousand in 2022. This represents a substantial increase, indicating significant investment in the business and its operations. The growth rate accelerated over time, particularly between 2020 and 2022.
- Economic Profit Analysis
- Economic profit peaked in 2019 at US$80,718 thousand, following an initial value of US$75,586 thousand in 2018. A significant decline occurred in 2020, with economic profit falling to US$16,789 thousand. Subsequent years saw modest recovery, with economic profit reaching US$23,990 thousand in 2021 and US$23,706 thousand in 2022. While NOPAT increased substantially in 2021 and 2022, the corresponding increase in invested capital limited the growth in economic profit. The economic profit figures suggest that while the company generates accounting profits, the returns generated are not consistently exceeding the cost of capital, particularly in 2020.
In summary, the organization demonstrated growth in both operational profitability and invested capital. However, the economic profit trend indicates that the returns on invested capital have not consistently outpaced the cost of capital, suggesting a need for continued focus on capital allocation efficiency.
Net Operating Profit after Taxes (NOPAT)
Paycom Software Inc., NOPAT calculation
US$ 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 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
= × =
5 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
6 Addition of after taxes interest expense to net income.
The financial data reveals notable fluctuations and overall growth in key profitability metrics over the five-year period ending December 31, 2022.
- Net Income
-
Net income exhibited an upward trend, increasing significantly from $137,065 thousand in 2018 to $281,389 thousand in 2022. Despite a dip in 2020, when net income fell to $143,453 thousand from $180,576 thousand in 2019, the subsequent years showed robust recovery and growth, particularly with a substantial rise in 2022 to a new high.
- Net Operating Profit After Taxes (NOPAT)
-
NOPAT followed a similar trajectory to net income but on a generally higher scale. It rose from $172,096 thousand in 2018 to $297,371 thousand in 2022. Although there was a decline in 2020, dropping to $176,158 thousand from $214,806 thousand in 2019, the profit metric rebounded strongly in the following years, reaching the peak in 2022. The increases in NOPAT were more pronounced in magnitude compared to net income, indicating increasing operational efficiency or improved core business profitability.
Overall, the data suggests a company experiencing notable profit growth, with a momentary setback in 2020 likely due to specific operational or market challenges during that year. The recovery and growth in NOPAT and net income in 2021 and 2022 demonstrate improved performance and potentially effective strategic or operational adjustments.
Cash Operating Taxes
Paycom Software Inc., cash operating taxes calculation
US$ 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 showed a general increasing trend from 2018 to 2022. Starting at 37,646 thousand USD in 2018, it increased moderately to 45,511 thousand USD in 2019, then slightly declined to 42,483 thousand USD in 2020. Following this, there was a significant increase to 60,002 thousand USD in 2021, which was further amplified by a substantial rise to 108,189 thousand USD in 2022. This pattern indicates growing income tax obligations over the five-year period, with the most notable escalation occurring in the last two years.
- Cash operating taxes
- Cash operating taxes also exhibited an overall upward trajectory throughout the years analyzed. Initially, it stood at 16,816 thousand USD in 2018 and increased sharply to 24,932 thousand USD in 2019. There was a slight dip in 2020 to 21,299 thousand USD, followed by a recovery to 27,310 thousand USD in 2021. The year 2022 saw a dramatic increase to 112,250 thousand USD, which mirrors the substantial rise observed in the provision for income taxes. This suggests that cash outflows related to operating taxes have grown significantly, particularly in the most recent year.
Invested Capital
Paycom Software 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 deferred revenue.
4 Addition of equity equivalents to stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of construction in progress.
- Total Reported Debt & Leases
- The total reported debt and leases exhibited a relatively stable trend from 2018 through 2021, decreasing slightly from 61,588 thousand USD in 2018 to 58,790 thousand USD in 2020, followed by a marginal increase to 60,067 thousand USD in 2021. In 2022, however, there was a noticeable increase to 70,012 thousand USD, marking a significant rise compared to previous years.
- Stockholders’ Equity
- Stockholders’ equity demonstrated a strong upward progression over the five-year period. Beginning at 334,753 thousand USD in 2018, equity more than doubled to 526,628 thousand USD in 2019 and continued to climb to 655,643 thousand USD in 2020. The growth accelerated thereafter, reaching 893,714 thousand USD in 2021 and further increasing to 1,182,607 thousand USD in 2022. This consistent increase indicates substantial equity growth and strengthening of the company’s financial position.
- Invested Capital
- Invested capital showed a continuous and significant rise throughout the entire period. Starting at 522,609 thousand USD in 2018, the invested capital increased by approximately 38.6% to 724,133 thousand USD in 2019 and then continued to expand sharply to 860,024 thousand USD in 2020. The momentum persisted with a considerable jump to 1,189,369 thousand USD in 2021, followed by another substantial increase to 1,478,485 thousand USD in 2022. This trend reflects ongoing investment and expansion activities within the company.
Cost of Capital
Paycom Software 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: 2022-12-31).
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: 2021-12-31).
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: 2020-12-31).
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: 2019-12-31).
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: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Long-term debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
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 × ÷ =
The economic spread ratio exhibited a declining trend over the observed period. Initially strong, the ratio decreased significantly from 2018 to 2022, indicating a diminishing advantage in generating returns above the cost of capital. While economic profit fluctuated, the substantial growth in invested capital appears to be the primary driver of this decline.
- Economic Spread Ratio
- In 2018, the economic spread ratio stood at 14.46%. This represents a substantial margin, suggesting a strong ability to generate value exceeding the cost of invested capital. A decrease to 11.15% was observed in 2019, signaling a moderate reduction in this advantage. The ratio experienced a more pronounced decline in 2020, falling to 1.95%, and remained low at 2.02% in 2021. Further reduction occurred in 2022, with the ratio reaching 1.60%. This consistent downward trajectory suggests increasing competitive pressures or less efficient capital allocation.
Economic profit demonstrated variability. It increased from $75.586 million in 2018 to $80.718 million in 2019, before experiencing a significant decrease to $16.789 million in 2020. A recovery was noted in 2021, with economic profit reaching $23.990 million, and remained relatively stable at $23.706 million in 2022. Despite these fluctuations, the growth in economic profit was outpaced by the growth in invested capital.
- Invested Capital
- Invested capital increased consistently throughout the period. From $522.609 million in 2018, it rose to $724.133 million in 2019, $860.024 million in 2020, $1,189.369 million in 2021, and finally reached $1,478.485 million in 2022. This substantial growth in invested capital, coupled with the relatively stagnant economic profit in later years, contributed significantly to the decline in the economic spread ratio.
The combination of a decreasing economic spread ratio and increasing invested capital suggests that while the entity continues to generate economic profit, its efficiency in utilizing capital to generate those profits is diminishing. Continued monitoring of these trends is warranted to assess the long-term sustainability of value creation.
Economic Profit Margin
Paycom Software 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 × ÷ =
The economic profit exhibited fluctuations over the five-year period, while adjusted revenues consistently increased. However, the economic profit margin demonstrated a clear downward trend, despite some interim recoveries.
- Economic Profit
- Economic profit increased from $75.586 million in 2018 to $80.718 million in 2019, representing a modest gain. A significant decline was then observed in 2020, with economic profit falling to $16.789 million. Subsequent years saw recoveries, reaching $23.990 million in 2021 and $23.706 million in 2022, but did not return to the levels seen in 2018 and 2019.
- Adjusted Revenues
- Adjusted revenues showed consistent year-over-year growth throughout the period. Revenues increased from $579.363 million in 2018 to $1.391.208 million in 2022. The rate of revenue growth accelerated over time, with the largest absolute increase occurring between 2021 and 2022.
- Economic Profit Margin
- The economic profit margin decreased substantially from 13.05% in 2018 to 1.70% in 2022. The most pronounced decrease occurred between 2019 (10.77%) and 2020 (1.97%). While the margin experienced slight improvements in 2021 (2.24%), it continued its overall downward trajectory, reaching a low of 1.70% in 2022. This indicates that, despite increasing revenues, the company’s ability to generate economic profit relative to those revenues diminished over the observed period.
The divergence between revenue growth and the declining economic profit margin suggests increasing costs or a reduction in the profitability of revenue generation. Further investigation into the components of economic profit, such as cost of capital and operating expenses, would be necessary to understand the underlying drivers of this trend.