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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- Statement of Comprehensive Income
- Common-Size Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Selected Financial Data since 2014
- Debt to Equity 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
= – × =
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT exhibited an overall increasing trend from 2018 through 2022, starting at 172,096 thousand USD in 2018 and rising to 297,371 thousand USD by 2022. Notably, there was a dip in 2020 to 176,158 thousand USD compared to the previous year, followed by a significant recovery and growth in the subsequent years, reaching the highest reported value in 2022.
- Cost of Capital
- The cost of capital remained relatively stable throughout the analyzed period, fluctuating marginally between 18.42% and 18.49%. This suggests a consistent risk profile and capital expense framework over the five years under review.
- Invested Capital
- Invested capital demonstrated a steady and substantial increase year-over-year, growing from 522,609 thousand USD in 2018 to 1,478,485 thousand USD in 2022. This indicates a significant expansion of the capital base supporting the business operations.
- Economic Profit
- Economic profit showed variability with a peak in 2019 at 81,035 thousand USD, a marked decline in 2020 to 17,166 thousand USD, and then stabilization at around 24,000 thousand USD in 2021 and 2022. The sharp drop in 2020 corresponds with the decline in NOPAT during the same period while invested capital continued to rise, impacting the economic profit adversely. The recovery in economic profit post-2020 suggests improved operational efficiency or profitability relative to the capital cost.
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 × ÷ =
- Economic Profit
- The economic profit exhibited a fluctuating trend over the five-year period. It increased from 75,815 thousand US dollars in 2018 to a peak of 81,035 thousand in 2019. Subsequently, it experienced a significant decline in 2020 to 17,166 thousand US dollars. Thereafter, the economic profit showed an upward movement, reaching 24,511 thousand in 2021 and slightly decreasing to 24,353 thousand in 2022. Despite the recovery after 2020, the economic profit in 2022 remained considerably lower than the levels seen in 2018 and 2019.
- Invested Capital
- Invested capital demonstrated a consistent and strong upward trajectory throughout the period under review. Starting at 522,609 thousand US dollars in 2018, the invested capital increased substantially every year, culminating at 1,478,485 thousand US dollars in 2022. This reflects a substantial increase in capital investment, nearly tripling over the five years, indicating aggressive expansion or increased resource allocation.
- Economic Spread Ratio
- The economic spread ratio showed a marked declining trend. It started at 14.51% in 2018 and decreased steadily to 11.19% in 2019, then dropped sharply to around 2% in 2020 and remained at a similar low level through 2021 and 2022, ending at 1.65%. This indicates a significant reduction in the return on invested capital above the cost of capital, suggesting diminishing efficiency in generating economic profits relative to the invested capital.
- Summary Insights
- The analysis reveals that while invested capital expanded significantly, economic profit did not follow a similar growth pattern and instead declined after 2019, stabilizing at a much lower level by 2022. The declining economic spread ratio further suggests that the additional capital invested was not yielding proportionate returns. This points to a possible increase in costs, reduced profitability, or other operational challenges affecting the company's ability to generate value from its capital investments during the latter part of the period.
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 × ÷ =
- Adjusted Revenues
- Adjusted revenues exhibited a consistent upward trend over the analyzed five-year period. Starting from approximately $579 million at the end of 2018, revenues increased steadily each year, reaching approximately $1.39 billion by the end of 2022. This represents more than a twofold increase, indicating robust top-line growth and successful revenue generation strategies.
- Economic Profit
- The economic profit figures show a different trend compared to revenues. The profit initially rose from about $75.8 million in 2018 to $81 million in 2019. However, in 2020, there was a significant drop to around $17.2 million. From 2020 onwards, economic profit showed a moderate recovery, increasing to approximately $24.5 million in 2021 and slightly decreasing to $24.4 million in 2022. Despite the recovery, economic profit remains considerably below the peak levels of 2018 and 2019.
- Economic Profit Margin
- The economic profit margin followed a declining trend throughout the period under review. Starting at 13.09% in 2018, the margin decreased to 10.82% in 2019, then sharply fell to 2.01% in 2020. It showed a minor increase in 2021 to 2.29% but declined again to 1.75% in 2022. This pattern indicates that despite growth in revenues, the company’s efficiency in converting revenue into economic profit has diminished significantly.
- Overall Analysis
- While the company has experienced strong revenue growth, this has not translated proportionally into economic profit growth. The considerable drop and continued low levels in economic profit and profit margin suggest increased costs, reduced operational efficiency, or other factors impacting profitability. The divergence between revenue growth and economic profit margin merits further investigation into cost structure and operational effectiveness to understand the underlying causes and to improve profit generation going forward.