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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	18.85%	18.85%	19.17%	19.16%	19.13%
Invested capital³	4,282,000)	3,286,100)	2,218,800)	2,227,800)	1,886,300)

Economic profit⁴	1,015,491)	751,715)	540,986)	346,794)	193,233)

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 – 18.85% × 4,282,000 = 1,015,491

An analysis of the financial performance from 2018 to 2022 reveals a consistent and significant expansion in economic value creation. The organization has demonstrated a strong capacity to grow its operating profits at a rate that substantially exceeds the growth of its capital charges, resulting in an accelerating upward trend in economic profit.

Net Operating Profit After Taxes (NOPAT): A strong growth trajectory is observed in NOPAT, which increased from US$ 554,165 thousand in 2018 to US$ 1,822,720 thousand by the end of 2022. This represents a steady year-over-year climb, with the most significant absolute growth occurring between 2020 and 2022, indicating enhanced operational efficiency and scaling of profitable activities.
Invested Capital and Cost of Capital: Invested capital expanded from US$ 1,886,300 thousand in 2018 to US$ 4,282,000 thousand in 2022, reflecting an aggressive increase in the resource base to support growth. Concurrently, the cost of capital remained remarkably stable, fluctuating marginally between 19.17% and 18.85%. The slight decrease in the cost of capital starting in 2021 suggests a stable or marginally improving risk profile.
Economic Profit Generation: Economic profit exhibits the most pronounced growth of all analyzed metrics, rising from US$ 193,233 thousand in 2018 to US$ 1,015,491 thousand in 2022. Because the growth in NOPAT outpaced the growth in the capital charge (Invested Capital multiplied by Cost of Capital), the company has transitioned from generating modest economic value to exceeding the US$ 1 billion threshold in annual economic profit.

The overall trend indicates a highly efficient scaling process where the return on invested capital has consistently stayed well above the cost of capital, thereby creating substantial shareholder value over the five-year period.

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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	×	19.20%	=	18.82%
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					18.85%

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	×	19.20%	=	18.82%
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					18.85%

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	×	19.20%	=	19.16%
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					19.17%

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	×	19.20%	=	19.15%
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					19.16%

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	×	19.20%	=	19.13%
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					19.13%

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	1,015,491)	751,715)	540,986)	346,794)	193,233)
Invested capital²	4,282,000)	3,286,100)	2,218,800)	2,227,800)	1,886,300)
Performance Ratio
Economic spread ratio³	23.72%	22.88%	24.38%	15.57%	10.24%
Benchmarks
Economic Spread Ratio, Competitors⁴
Accenture PLC	3.89%	5.71%	6.31%	—	—
Adobe Inc.	6.46%	8.84%	1.12%	—	—
AppLovin Corp.	-26.78%	-30.15%	—	—	—
Cadence Design Systems Inc.	6.58%	6.80%	—	—	—
Datadog Inc.	-11.83%	-4.01%	—	—	—
International Business Machines Corp.	-11.28%	-6.14%	—	—	—
Intuit Inc.	-7.53%	0.10%	—	—	—
Microsoft Corp.	18.50%	27.54%	—	—	—
Oracle Corp.	-7.70%	0.51%	—	—	—
Palantir Technologies Inc.	-32.80%	-40.26%	—	—	—
Palo Alto Networks Inc.	3.50%	-5.19%	—	—	—
Salesforce Inc.	-14.64%	-12.49%	—	—	—
ServiceNow Inc.	0.73%	1.95%	—	—	—
Synopsys Inc.	-0.88%	-6.91%	-6.71%	—	—
Workday Inc.	-14.12%	-19.37%	—	—	—

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 × 1,015,491 ÷ 4,282,000 = 23.72%

⁴ Click competitor name to see calculations.

The analysis of economic value added between 2018 and 2022 reveals a period of significant expansion in profitability and capital efficiency. Economic profit exhibited a consistent upward trajectory, growing from 193,233 thousand US dollars in 2018 to 1,015,491 thousand US dollars in 2022, indicating a substantial increase in value creation above the cost of capital.

Economic Profit Growth: A continuous annual increase is observed in economic profit throughout the period. The absolute value grew steadily, eventually surpassing the 1 billion US dollar threshold by the end of 2022, which demonstrates an enhanced ability to generate returns that exceed the company's weighted average cost of capital.
Invested Capital Trends: Invested capital increased from 1,886,300 thousand US dollars in 2018 to 4,282,000 thousand US dollars in 2022. While the capital base remained relatively flat between 2019 and 2020, a significant acceleration in capital deployment occurred in 2021 and 2022, suggesting a strategic expansion of the asset base to support scaling operations.
Economic Spread Ratio Dynamics: The economic spread ratio experienced a sharp increase from 10.24% in 2018 to a peak of 24.38% in 2020. Following this peak, the ratio entered a stabilization phase, ending at 23.72% in 2022. This trend indicates that the efficiency of capital utilization improved rapidly in the early part of the period and has since been maintained at a high level, despite the increase in total invested 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	1,015,491)	751,715)	540,986)	346,794)	193,233)

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	18.12%	17.94%	17.50%	13.31%	8.98%
Benchmarks
Economic Profit Margin, Competitors³
Accenture PLC	1.87%	2.93%	3.21%	—	—
Adobe Inc.	7.53%	11.02%	1.61%	—	—
AppLovin Corp.	-50.15%	-60.37%	—	—	—
Cadence Design Systems Inc.	6.57%	6.90%	—	—	—
Datadog Inc.	-8.19%	-3.19%	—	—	—
International Business Machines Corp.	-19.53%	-11.67%	—	—	—
Intuit Inc.	-14.50%	0.13%	—	—	—
Microsoft Corp.	17.73%	22.86%	—	—	—
Oracle Corp.	-14.14%	1.01%	—	—	—
Palantir Technologies Inc.	-55.03%	-66.31%	—	—	—
Palo Alto Networks Inc.	4.08%	-6.99%	—	—	—
Salesforce Inc.	-40.63%	-28.65%	—	—	—
ServiceNow Inc.	0.59%	1.69%	—	—	—
Synopsys Inc.	-1.24%	-10.99%	-11.52%	—	—
Workday Inc.	-19.14%	-25.28%	—	—	—

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 × 1,015,491 ÷ 5,604,800 = 18.12%

³ Click competitor name to see calculations.

The financial performance from 2018 to 2022 reflects a period of consistent expansion in both operational scale and economic efficiency. A strong positive correlation is observed between the growth in adjusted revenue and the increase in economic profit, indicating that the organization successfully scaled its operations while simultaneously enhancing its ability to generate value above its cost of capital.

Economic Profit Growth: Economic profit demonstrated a continuous and significant upward trajectory, rising from 193,233 thousand US dollars in 2018 to 1,015,491 thousand US dollars by the end of 2022. This consistent increase indicates a substantial growth in absolute value creation over the five-year period.
Adjusted Revenue Trends: Adjusted revenue grew steadily from 2,151,700 thousand US dollars in 2018 to 5,604,800 thousand US dollars in 2022. The growth pattern signifies a strong expansion of the company's market presence and a robust increase in top-line performance.
Economic Profit Margin Evolution: The economic profit margin exhibited a marked improvement, increasing from 8.98% in 2018 to 18.12% in 2022. The most aggressive growth phase occurred between 2018 and 2020, during which the margin nearly doubled. Following 2020, the margin entered a period of stabilization, maintaining a range between 17.50% and 18.12%, which suggests that the company attained a high and sustainable level of capital efficiency.

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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