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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Fortinet 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	1,822,720)	1,371,124)	966,259)	773,545)	554,165)
Cost of capital²	18.78%	18.78%	19.10%	19.09%	19.06%
Invested capital³	4,282,000)	3,286,100)	2,218,800)	2,227,800)	1,886,300)

Economic profit⁴	1,018,436)	753,975)	542,539)	348,353)	194,551)

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
= 1,822,720 – 18.78% × 4,282,000 = 1,018,436

The financial trajectory from 2018 to 2022 demonstrates a consistent and substantial increase in the creation of economic value. The company has successfully scaled its operations while maintaining a positive economic profit, indicating that returns on invested capital have consistently exceeded the cost of capital over the five-year period.

Net Operating Profit After Taxes (NOPAT): A strong upward trend is observed in NOPAT, which grew from 554,165 thousand US$ in 2018 to 1,822,720 thousand US$ by 2022. This represents a significant expansion in operating profitability, with the most pronounced growth occurring between 2020 and 2022.
Invested Capital and Cost of Capital: Invested capital expanded from 1,886,300 thousand US$ in 2018 to 4,282,000 thousand US$ in 2022, reflecting increased investment in the business. Throughout this period, the cost of capital remained remarkably stable, fluctuating marginally between 18.78% and 19.10%, which suggests a consistent risk profile and funding cost structure.
Economic Profit Performance: Economic profit grew exponentially, rising from 194,551 thousand US$ in 2018 to 1,018,436 thousand US$ in 2022. The fact that economic profit increased more rapidly than invested capital indicates an improvement in the efficiency of capital utilization and a strengthening of the company's competitive advantage.

The overall analysis reveals a high-growth phase where the increase in operating profits has far outpaced the incremental cost of the capital employed. The acceleration of economic profit suggests a sustainable value-creation model where each additional unit of invested capital is yielding returns significantly above the required threshold.

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Fortinet Inc., NOPAT calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income attributable to Fortinet, Inc.	857,300)	606,800)	488,500)	326,500)	332,200)
Deferred income tax expense (benefit)¹	(225,600)	(92,400)	(7,100)	30,200)	(107,600)
Increase (decrease) in allowance for credit losses²	1,200)	(100)	1,300)	300)	—)
Increase (decrease) in deferred revenue³	1,187,400)	847,600)	496,200)	449,100)	350,500)
Increase (decrease) in equity equivalents⁴	963,000)	755,100)	490,400)	479,600)	242,900)
Interest expense	18,000)	14,900)	—)	—)	—)
Interest expense, operating lease liability⁵	3,350)	1,403)	1,699)	1,291)	—)
Adjusted interest expense	21,350)	16,303)	1,699)	1,291)	—)
Tax benefit of interest expense⁶	(4,483)	(3,424)	(357)	(271)	—)
Adjusted interest expense, after taxes⁷	16,866)	12,879)	1,342)	1,020)	—)
Interest income	(17,400)	(4,500)	(17,700)	(42,500)	(26,500)
Investment income, before taxes	(17,400)	(4,500)	(17,700)	(42,500)	(26,500)
Tax expense (benefit) of investment income⁸	3,654)	945)	3,717)	8,925)	5,565)
Investment income, after taxes⁹	(13,746)	(3,555)	(13,983)	(33,575)	(20,935)
Net income (loss) attributable to noncontrolling interest	(700)	(100)	—)	—)	—)
Net operating profit after taxes (NOPAT)	1,822,720)	1,371,124)	966,259)	773,545)	554,165)

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 attributable to Fortinet, Inc..

⁵ 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 95,700 × 3.50% = 3,350

⁶ 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 21,350 × 21.00% = 4,483

⁷ Addition of after taxes interest expense to net income attributable to Fortinet, Inc..

⁸ 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 17,400 × 21.00% = 3,654

⁹ Elimination of after taxes investment income.

Net Income Attributable to Fortinet, Inc.: The net income attributable to the company exhibited a positive growth trend over the five-year period. Starting at 332,200 thousand US dollars in 2018, the figure slightly decreased to 326,500 thousand in 2019. However, from 2019 onwards, a significant upward trajectory is evident, with net income rising to 488,500 thousand in 2020, 606,800 thousand in 2021, and reaching 857,300 thousand in 2022. This progression indicates strong profitability improvement, particularly after 2019.
Net Operating Profit After Taxes (NOPAT): NOPAT demonstrated a consistent and robust increase during the same timeframe. From 554,165 thousand US dollars in 2018, it climbed steadily each year: 773,545 thousand in 2019, 966,259 thousand in 2020, 1,371,124 thousand in 2021, and culminating at 1,822,720 thousand in 2022. The rate of growth accelerated notably after 2020, reflecting enhanced operating efficiency and/or expansion of core business operations.
Overall Trends and Insights: Both net income and NOPAT depict a healthy and improving financial performance over the five-year span. The initial slight dip in net income in 2019 contrasts with a continuous increase in NOPAT, suggesting operational resilience despite minor fluctuations in net profitability that year. The marked growth in both metrics post-2019 underscores successful strategic execution, greater operational leverage, or favorable market conditions contributing to substantially higher earnings and operating profits by 2022.

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Fortinet Inc., cash operating taxes calculation

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Provision for (benefit from) income taxes	30,800)	14,100)	53,200)	52,700)	(81,300)
Less: Deferred income tax expense (benefit)	(225,600)	(92,400)	(7,100)	30,200)	(107,600)
Add: Tax savings from interest expense	4,483)	3,424)	357)	271)	—)
Less: Tax imposed on investment income	3,654)	945)	3,717)	8,925)	5,565)
Cash operating taxes	257,229)	108,979)	56,940)	13,846)	20,735)

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 (benefit from) income taxes: The provision for income taxes displayed considerable volatility over the five-year period. Initially, there was a significant income tax benefit of -81,300 thousand US dollars in 2018, indicating a tax gain rather than an expense. This shifted dramatically in 2019, turning into a tax expense of 52,700 thousand US dollars, which then remained relatively stable through 2020 at 53,200 thousand US dollars. In the subsequent years, the provision showed a decreasing trend in magnitude to 14,100 thousand US dollars in 2021, followed by an increase to 30,800 thousand US dollars in 2022. Overall, the data suggests a transition from a tax benefit to consistent tax expenses, with some fluctuations in the expense levels in recent years.
Cash Operating Taxes: Cash operating taxes showed a pronounced upward trend throughout the period examined. Beginning at 20,735 thousand US dollars in 2018, the amount decreased to 13,846 thousand US dollars in 2019, representing a short-term decline. However, from 2019 onwards, cash operating taxes rose sharply every year, reaching 56,940 thousand US dollars in 2020, 108,979 thousand US dollars in 2021, and peaking at 257,229 thousand US dollars in 2022. This consistent increase may indicate growing taxable income, changes in tax strategy, or increased profitability subject to cash tax payments.

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Fortinet Inc., invested capital calculation (financing approach)

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Long-term debt	990,400)	988,400)	—)	—)	—)
Operating lease liability¹	95,700)	66,800)	53,100)	46,100)	50,100)
Total reported debt & leases	1,086,100)	1,055,200)	53,100)	46,100)	50,100)
Total Fortinet, Inc. stockholders’ equity (deficit)	(281,600)	781,700)	856,000)	1,321,900)	1,010,200)
Net deferred tax (assets) liabilities²	(561,300)	(334,300)	(237,200)	(227,600)	(246,000)
Allowance for credit losses³	3,600)	2,400)	2,500)	1,200)	900)
Deferred revenue⁴	4,640,300)	3,452,900)	2,605,300)	2,135,900)	1,686,800)
Equity equivalents⁵	4,082,600)	3,121,000)	2,370,600)	1,909,500)	1,441,700)
Accumulated other comprehensive (income) loss, net of tax⁶	20,200)	4,800)	(700)	(1,100)	800)
Non-controlling interests	—)	16,700)	—)	—)	—)
Adjusted total Fortinet, Inc. stockholders’ equity (deficit)	3,821,200)	3,924,200)	3,225,900)	3,230,300)	2,452,700)
Construction-in-progress⁷	(51,700)	(19,900)	(166,400)	(61,200)	(12,300)
Marketable securities⁸	(573,600)	(1,673,400)	(893,800)	(987,400)	(604,200)
Invested capital	4,282,000)	3,286,100)	2,218,800)	2,227,800)	1,886,300)

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 total Fortinet, Inc. stockholders’ equity (deficit).

⁶ Removal of accumulated other comprehensive income.

⁷ Subtraction of construction-in-progress.

⁸ Subtraction of marketable securities.

Total Reported Debt & Leases: The total reported debt and leases remained relatively stable from 2018 to 2020, fluctuating between 46,100 and 53,100 thousand US dollars. However, there was a significant increase in 2021, with the value rising sharply to 1,055,200 thousand US dollars. This upward trend continued into 2022, with a slight further increase to 1,086,100 thousand US dollars, indicating a large increase in debt and lease obligations in the most recent two years.
Total Stockholders’ Equity (Deficit): Stockholders’ equity exhibited a rising trend from 2018 through 2019, increasing from 1,010,200 thousand US dollars to 1,321,900 thousand US dollars. In 2020, equity declined sharply to 856,000 thousand US dollars and continued to decrease in 2021 to 781,700 thousand US dollars. The trend culminated in 2022 with a negative equity position of -281,600 thousand US dollars, reflecting a shift from equity surplus to deficit over the five-year period.
Invested Capital: Invested capital increased steadily over the observed period. It rose from 1,886,300 thousand US dollars in 2018 to 2,227,800 thousand US dollars in 2019 and remained close to that level in 2020 at 2,218,800 thousand US dollars. A notable increase occurred in 2021 when invested capital surged to 3,286,100 thousand US dollars, followed by continued growth in 2022 reaching 4,282,000 thousand US dollars. This indicates an expanding capital base, particularly pronounced in the most recent two years.

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Fortinet Inc., cost of capital calculations

Dec 31, 2022

	Capital (fair value)¹	Weights					Cost of capital
Equity²	46,150,142)	46,150,142)	÷	47,075,342)	=	0.98	0.98	×	19.13%	=	18.75%
Long-term debt³	829,500)	829,500)	÷	47,075,342)	=	0.02	0.02	×	1.80% × (1 – 21.00%)	=	0.03%
Operating lease liability⁴	95,700)	95,700)	÷	47,075,342)	=	0.00	0.00	×	3.50% × (1 – 21.00%)	=	0.01%
Total:	47,075,342)					1.00					18.78%

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 »

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	52,256,979)	52,256,979)	÷	53,304,279)	=	0.98	0.98	×	19.13%	=	18.75%
Long-term debt³	980,500)	980,500)	÷	53,304,279)	=	0.02	0.02	×	1.80% × (1 – 21.00%)	=	0.03%
Operating lease liability⁴	66,800)	66,800)	÷	53,304,279)	=	0.00	0.00	×	2.10% × (1 – 21.00%)	=	0.00%
Total:	53,304,279)					1.00					18.78%

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 »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	28,060,679)	28,060,679)	÷	28,113,779)	=	1.00	1.00	×	19.13%	=	19.09%
Long-term debt³	—)	—)	÷	28,113,779)	=	0.00	0.00	×	0.00% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	53,100)	53,100)	÷	28,113,779)	=	0.00	0.00	×	3.20% × (1 – 21.00%)	=	0.00%
Total:	28,113,779)					1.00					19.10%

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 »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	18,329,689)	18,329,689)	÷	18,375,789)	=	1.00	1.00	×	19.13%	=	19.08%
Long-term debt³	—)	—)	÷	18,375,789)	=	0.00	0.00	×	0.00% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	46,100)	46,100)	÷	18,375,789)	=	0.00	0.00	×	2.80% × (1 – 21.00%)	=	0.01%
Total:	18,375,789)					1.00					19.09%

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 »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	14,998,700)	14,998,700)	÷	15,048,800)	=	1.00	1.00	×	19.13%	=	19.06%
Long-term debt³	—)	—)	÷	15,048,800)	=	0.00	0.00	×	0.00% × (1 – 21.00%)	=	0.00%
Operating lease liability⁴	50,100)	50,100)	÷	15,048,800)	=	0.00	0.00	×	0.00% × (1 – 21.00%)	=	0.00%
Total:	15,048,800)					1.00					19.06%

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 »

Fortinet Inc., economic spread ratio calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	1,018,436)	753,975)	542,539)	348,353)	194,551)
Invested capital²	4,282,000)	3,286,100)	2,218,800)	2,227,800)	1,886,300)
Performance Ratio
Economic spread ratio³	23.78%	22.94%	24.45%	15.64%	10.31%
Benchmarks
Economic Spread Ratio, Competitors⁴
Accenture PLC	3.94%	5.76%	6.36%	—	—
Adobe Inc.	6.51%	8.89%	1.17%	—	—
AppLovin Corp.	-26.87%	-30.28%	—	—	—
Cadence Design Systems Inc.	6.67%	6.88%	—	—	—
CrowdStrike Holdings Inc.	-7.90%	-10.16%	—	—	—
Datadog Inc.	-11.79%	-3.97%	—	—	—
International Business Machines Corp.	-11.18%	-6.05%	—	—	—
Intuit Inc.	-9.75%	-2.22%	1.23%	—	—
Microsoft Corp.	20.63%	29.66%	27.74%	—	—
Oracle Corp.	-4.60%	3.54%	-1.99%	—	—
Palantir Technologies Inc.	-32.82%	-40.27%	—	—	—
Palo Alto Networks Inc.	3.37%	-5.32%	-6.16%	—	—
Salesforce Inc.	-14.60%	-12.45%	—	—	—
ServiceNow Inc.	0.82%	2.04%	—	—	—
Synopsys Inc.	-0.81%	-6.83%	-6.63%	—	—
Workday Inc.	-14.09%	-19.34%	—	—	—

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 × 1,018,436 ÷ 4,282,000 = 23.78%

⁴ Click competitor name to see calculations.

A consistent upward trajectory in value creation is evident over the five-year period ending December 31, 2022. The company demonstrated a strong capacity to increase its economic profit while expanding its capital base, resulting in a significant improvement in the spread between the return on invested capital and the cost of capital.

Economic Profit: Economic profit exhibited continuous and accelerating growth, rising from 194,551 thousand US dollars in 2018 to 1,018,436 thousand US dollars by 2022. This represents a more than fivefold increase, indicating a substantial expansion in the absolute value generated above the required return on capital.
Invested Capital: The invested capital base expanded from 1,886,300 thousand US dollars in 2018 to 4,282,000 thousand US dollars in 2022. Growth remained relatively stable through 2020 before accelerating significantly between 2021 and 2022, suggesting a strategic increase in resource allocation to support scaling operations.
Economic Spread Ratio: The economic spread ratio experienced a sharp ascent from 10.31% in 2018 to a peak of 24.45% in 2020. Following this peak, the ratio stabilized, recording 22.94% in 2021 and 23.78% in 2022. This trend reflects a dramatic improvement in capital efficiency and a sustained ability to maintain high excess returns relative to the cost of capital.

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Fortinet Inc., economic profit margin calculation, comparison to benchmarks

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Economic profit¹	1,018,436)	753,975)	542,539)	348,353)	194,551)

Revenue	4,417,400)	3,342,200)	2,594,400)	2,156,200)	1,801,200)
Add: Increase (decrease) in deferred revenue	1,187,400)	847,600)	496,200)	449,100)	350,500)
Adjusted revenue	5,604,800)	4,189,800)	3,090,600)	2,605,300)	2,151,700)
Performance Ratio
Economic profit margin²	18.17%	18.00%	17.55%	13.37%	9.04%
Benchmarks
Economic Profit Margin, Competitors³
Accenture PLC	1.90%	2.95%	3.24%	—	—
Adobe Inc.	7.58%	11.08%	1.68%	—	—
AppLovin Corp.	-50.32%	-60.62%	—	—	—
Cadence Design Systems Inc.	6.65%	6.99%	—	—	—
CrowdStrike Holdings Inc.	-12.37%	-21.10%	—	—	—
Datadog Inc.	-8.16%	-3.15%	—	—	—
International Business Machines Corp.	-19.37%	-11.51%	—	—	—
Intuit Inc.	-18.77%	-2.82%	1.39%	—	—
Microsoft Corp.	19.77%	24.62%	20.59%	—	—
Oracle Corp.	-8.44%	7.01%	-4.52%	—	—
Palantir Technologies Inc.	-55.05%	-66.34%	—	—	—
Palo Alto Networks Inc.	3.93%	-7.16%	-10.00%	—	—
Salesforce Inc.	-40.53%	-28.55%	—	—	—
ServiceNow Inc.	0.66%	1.77%	—	—	—
Synopsys Inc.	-1.13%	-10.87%	-11.39%	—	—
Workday Inc.	-19.09%	-25.23%	—	—	—

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 revenue
= 100 × 1,018,436 ÷ 5,604,800 = 18.17%

³ Click competitor name to see calculations.

The financial performance from 2018 to 2022 is characterized by a substantial and consistent increase in both absolute value creation and operational scale. The synchronized growth of revenue and economic profit indicates a period of aggressive expansion accompanied by improving capital efficiency.

Economic Profit Evolution: A consistent upward trend is observed in economic profit, which rose from 194,551 thousand US dollars in 2018 to 1,018,436 thousand US dollars in 2022. This represents a significant increase in the total amount of wealth generated over the cost of capital over the five-year duration.
Adjusted Revenue Growth: Adjusted revenue grew steadily from 2,151,700 thousand US dollars in 2018 to 5,604,800 thousand US dollars in 2022. The growth remained positive year-over-year, with a notable acceleration in volume between 2020 and 2022.
Economic Profit Margin Analysis: The economic profit margin showed a rapid ascent in the initial three years, climbing from 9.04% in 2018 to 17.55% in 2020. From 2020 to 2022, the margin transitioned into a phase of stability, ending the period at 18.17%. This pattern suggests that after an initial phase of significant efficiency gains, a sustainable level of economic profitability relative to revenue scale was achieved.

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Fortinet Inc. (NASDAQ:FTNT)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin