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
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Capital Asset Pricing Model (CAPM)
- Price to Earnings (P/E) since 2014
- Price to Operating Profit (P/OP) since 2014
- Analysis of Revenues
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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 financial data reveals several notable trends for the company over the five-year period ending December 31, 2022.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT showed fluctuation across the years with an overall upward trend. Starting at $172.1 million in 2018, it increased to $214.8 million in 2019, followed by a decline to $176.2 million in 2020. Subsequently, there was a strong recovery and growth, reaching $244.3 million in 2021, and further rising to $297.4 million in 2022. This indicates that operational profitability, after accounting for taxes, improved significantly in the latter years.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, hovering consistently around 18.5%. This stability suggests that the company’s financing risk profile or market conditions impacting its cost of funds did not experience significant changes during these years.
- Invested Capital
- Invested capital increased steadily year over year, rising from $522.6 million in 2018 to $1.48 billion in 2022. This reflects a substantial expansion in the company’s asset base and resources allocated for operations and growth. The more than doubling of invested capital indicates aggressive investment or acquisition activities over the timeframe.
- Economic Profit
- Economic profit, representing value creation beyond the cost of capital, started high at $75.6 million in 2018 and remained similar at approximately $80.7 million in 2019. However, there was a sharp decline in 2020 to $16.8 million, reflecting a reduced ability to generate returns above capital costs. Modest improvements followed in 2021 and 2022, with economic profits of $23.9 million and $23.7 million respectively, but these levels were considerably lower than those at the beginning of the period.
In summary, while profitability as measured by NOPAT exhibited robust growth particularly after 2020, economic profit trends highlight challenges in consistently achieving returns above the cost of capital in recent years. The stable cost of capital and significant increases in invested capital suggest that although the company invested heavily, the returns on this invested capital have diminished relative to earlier years. This could indicate a need to focus on optimizing asset utilization and improving returns on new investments to enhance value creation.
Net Operating Profit after Taxes (NOPAT)
Paycom Software Inc., NOPAT calculation
US$ 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 experienced a significant decline from 75,569 thousand USD in 2018 to 16,760 thousand USD in 2020. Following this drop, it saw a modest recovery, rising to 23,950 thousand USD in 2021 before slightly decreasing to 23,656 thousand USD in 2022. Overall, the trend indicates a sharp reduction in economic profit over the analyzed period with limited recovery in recent years.
- Invested Capital
- Invested capital showed a steady and substantial increase year over year. Starting at 522,609 thousand USD in 2018, it grew consistently to reach 1,478,485 thousand USD by the end of 2022. This upward trend reflects considerable expansion in the capital base over the given timeframe.
- Economic Spread Ratio
- The economic spread ratio, which measures the return on invested capital relative to the cost of capital, declined markedly from 14.46% in 2018 to 1.95% in 2020. It remained low with slight fluctuations in subsequent years, finishing at 1.6% in 2022. This indicates a significant drop in the efficiency of invested capital in generating excess returns after 2018, with marginal improvement afterward.
In summary, while the company substantially increased its invested capital over the period, the economic profit and the economic spread ratio both declined sharply after 2018 and have not returned to their previous high levels. This suggests a reduction in profitability and capital efficiency despite growing capital investments.
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 × ÷ =
- Revenue Trends
- The adjusted revenues exhibited a consistent upward trajectory over the five-year period. Starting from approximately $579 million at the end of 2018, revenues rose steadily each year, reaching about $1.39 billion by the end of 2022. This represents a substantial increase in revenue, more than doubling in value, indicating sustained growth in the company's operations and market presence.
- Economic Profit Trends
- Economic profit showed a different pattern. Initially, it was strong at about $75.6 million in 2018, increasing slightly in 2019 to roughly $80.7 million. However, from 2020 onward, economic profit significantly declined, falling to approximately $16.8 million in 2020, then modestly recovering to $23.9 million in 2021, and holding fairly steady at $23.7 million in 2022. This suggests increasing challenges in converting revenue growth directly into economic profit during the last three years.
- Economic Profit Margin Analysis
- The economic profit margin also reflected a downward trend. The margin started at a robust 13.04% in 2018, slightly decreasing to 10.77% in 2019. A notable decline occurred in 2020, with the margin dropping to 1.97%, followed by a marginal increase to 2.24% in 2021, and a slight decrease to 1.7% in 2022. This decline in profit margin alongside rising revenues suggests increased costs or capital charges impacting profitability despite growing sales.
- Overall Financial Performance Insight
- While top-line growth is strong and consistent, the diminished economic profit and margin indicate pressure on profitability and capital efficiency. The data implies an environment of rising expenses, investments, or competitive pressures that have constrained economic profit generation relative to revenue gains. Continuous monitoring of cost structures and capital deployment appears critical to improve financial outcomes.