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.
Economic Profit
Fortinet Inc., economic profit 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 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 – 18.84% × 4,282,000 = 1,016,089
The financial performance from 2018 to 2022 demonstrates a consistent and significant expansion in value creation, characterized by a substantial increase in economic profit and operating efficiency.
- Net Operating Profit After Taxes (NOPAT)
- A strong upward trajectory is observed in NOPAT, which grew from 554,165 thousand US$ in 2018 to 1,822,720 thousand US$ by 2022. This steady year-over-year increase indicates a robust expansion in core operational profitability and efficient management of operating expenses relative to revenue growth.
- Cost of Capital
- The cost of capital remained remarkably stable throughout the analyzed period, maintaining a range between 19.12% and 18.84%. The slight decrease observed in 2021 and 2022 suggests a marginal optimization in the weighted average cost of funding or a minor shift in the risk profile.
- Invested Capital
- Invested capital experienced an overall increase, rising from 1,886,300 thousand US$ in 2018 to 4,282,000 thousand US$ in 2022. While a slight contraction occurred in 2020, there was a sharp acceleration in capital investment between 2021 and 2022, reflecting an aggressive expansion of the asset base to support growth.
- Economic Profit
- Economic profit grew exponentially, increasing from 193,501 thousand US$ in 2018 to 1,016,089 thousand US$ in 2022. This trend confirms that the growth in operating profit significantly exceeded the capital charge required to sustain the business, indicating a high rate of value creation for shareholders.
The convergence of these trends reveals a highly scalable business model where the returns generated from invested capital consistently outpace the cost of that capital. The ability to more than quintuple economic profit while maintaining a stable cost of capital highlights strong operational leverage and efficient capital allocation.
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Net Operating Profit after Taxes (NOPAT)
Fortinet 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 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.
A consistent upward trajectory in profitability is evident between 2018 and 2022, characterized by strong growth in both net income and Net Operating Profit After Taxes (NOPAT).
- Net Operating Profit After Taxes (NOPAT) Growth
- NOPAT demonstrated uninterrupted annual growth throughout the analyzed period. Starting at 554,165 thousand US$ in 2018, the figure increased to 1,822,720 thousand US$ by 2022. This represents a total increase of approximately 229%, reflecting a significant expansion in the operational profitability of the core business activities independent of capital structure.
- Net Income Performance
- Net income attributable to the company exhibited a general growth pattern, although a slight contraction occurred between 2018 and 2019, where the value decreased from 332,200 thousand US$ to 326,500 thousand US$. Following this period, a sharp acceleration occurred, with the figure rising to 857,300 thousand US$ by the end of 2022, marking an overall five-year increase of approximately 158%.
- Comparative Analysis of NOPAT and Net Income
- A widening divergence is observed between NOPAT and net income over the five-year span. While both metrics grew, NOPAT expanded at a significantly faster rate than net income. By 2022, NOPAT was more than double the net income, suggesting that the operating performance of the company grew more aggressively than the final bottom-line profit, potentially due to the influence of non-operating items or financing costs that are excluded from the NOPAT calculation.
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Cash Operating Taxes
Fortinet 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).
An analysis of the tax components reveals a significant divergence between accrual-based tax provisions and actual cash tax outflows between 2018 and 2022.
- Provision for Income Taxes
- The provision for income taxes exhibited substantial volatility over the five-year period. A tax benefit of US$ 81.3 million was recorded in 2018, which transitioned into tax expenses of US$ 52.7 million in 2019 and US$ 53.2 million in 2020. A notable decrease to US$ 14.1 million occurred in 2021, followed by a moderate increase to US$ 30.8 million in 2022.
- Cash Operating Taxes
- Cash operating taxes demonstrated an accelerating upward trajectory. After a slight decline from US$ 20.7 million in 2018 to US$ 13.8 million in 2019, payments rose sharply to US$ 56.9 million in 2020, US$ 108.9 million in 2021, and reached US$ 257.2 million in 2022. This represents a more than tenfold increase in cash tax outflows from 2019 to 2022.
- Impact on Economic Value Added (EVA)
- A widening gap is observed between the accounting tax provision and the actual cash taxes paid. By 2022, cash operating taxes exceeded the provision for income taxes by US$ 226.4 million. Because EVA calculations prioritize cash-based metrics to determine the true economic profit, the surge in cash operating taxes serves to reduce the Net Operating Profit After Tax (NOPAT), thereby exerting downward pressure on the resulting Economic Value Added.
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Invested Capital
Fortinet 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 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.
Invested capital exhibits a sustained growth trend over the five-year period, rising from US$ 1,886,300 thousand in 2018 to US$ 4,282,000 thousand by the end of 2022. This expansion indicates a significant increase in the total capital deployed to generate economic value, although the composition of the financing for this capital has undergone a fundamental shift.
- Debt and Lease Obligations
- A substantial increase in total reported debt and leases is observed between 2020 and 2021, where obligations surged from US$ 53,100 thousand to US$ 1,055,200 thousand. This abrupt shift indicates a strategic transition toward leveraged financing, with the debt level remaining elevated at US$ 1,086,100 thousand through 2022.
- Stockholders' Equity Trends
- A consistent downward trajectory in stockholders' equity is evident following a peak of US$ 1,321,900 thousand in 2019. Equity levels diminished steadily over the subsequent three years, culminating in a deficit of US$ 281,600 thousand by December 31, 2022. This transition from a positive equity position to a deficit suggests that capital returns or accumulated losses have exceeded the retained earnings and contributed capital.
- Capital Structure Evolution
- The correlation between the growth in invested capital and the decline in equity reveals a structural pivot in the balance sheet. While invested capital more than doubled over the analysis period, the financing mechanism shifted from being primarily equity-driven in 2018 to being heavily dependent on debt by 2022. This results in a highly leveraged capital structure where the total invested capital is supported by significant debt obligations in the presence of a stockholders' deficit.
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Cost of Capital
Fortinet Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 46,150,142) | 46,150,142) | ÷ | 47,075,342) | = | 0.98 | 0.98 | × | 19.18% | = | 18.81% | ||
| 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 | 18.84% | ||||||||||
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 | 52,256,979) | 52,256,979) | ÷ | 53,304,279) | = | 0.98 | 0.98 | × | 19.18% | = | 18.81% | ||
| 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 | 18.84% | ||||||||||
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 | 28,060,679) | 28,060,679) | ÷ | 28,113,779) | = | 1.00 | 1.00 | × | 19.18% | = | 19.15% | ||
| 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 | 19.15% | ||||||||||
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 | 18,329,689) | 18,329,689) | ÷ | 18,375,789) | = | 1.00 | 1.00 | × | 19.18% | = | 19.14% | ||
| 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 | 19.14% | ||||||||||
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 | 14,998,700) | 14,998,700) | ÷ | 15,048,800) | = | 1.00 | 1.00 | × | 19.18% | = | 19.12% | ||
| 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 | 19.12% | ||||||||||
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
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 | 1,016,089) | 752,175) | 541,301) | 347,111) | 193,501) | |
| Invested capital2 | 4,282,000) | 3,286,100) | 2,218,800) | 2,227,800) | 1,886,300) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 23.73% | 22.89% | 24.40% | 15.58% | 10.26% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | 4.78% | 6.61% | — | — | — | |
| Adobe Inc. | 6.49% | 8.87% | 1.15% | — | — | |
| AppLovin Corp. | -26.69% | -30.02% | — | — | — | |
| Cadence Design Systems Inc. | 6.58% | 6.80% | — | — | — | |
| Datadog Inc. | -11.80% | -3.98% | — | — | — | |
| International Business Machines Corp. | -11.30% | -6.16% | — | — | — | |
| Intuit Inc. | -7.53% | 0.10% | — | — | — | |
| Microsoft Corp. | 18.51% | 27.55% | — | — | — | |
| Oracle Corp. | -7.67% | 0.54% | — | — | — | |
| Palantir Technologies Inc. | -32.73% | -40.19% | — | — | — | |
| Palo Alto Networks Inc. | 3.51% | -5.19% | — | — | — | |
| Salesforce Inc. | -14.61% | -12.46% | — | — | — | |
| ServiceNow Inc. | 0.73% | 1.95% | — | — | — | |
| Synopsys Inc. | -0.87% | -6.90% | -6.70% | — | — | |
| 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 × 1,016,089 ÷ 4,282,000 = 23.73%
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 indicates a period of substantial value creation, characterized by an accelerating growth in economic profit and a significant expansion of the economic spread ratio.
- Economic Profit Trends
- Economic profit exhibited consistent and rapid growth over the five-year period, increasing from 193,501 thousand US dollars in 2018 to 1,016,089 thousand US dollars in 2022. This represents a more than five-fold increase, demonstrating a strengthened ability to generate returns that exceed the company's cost of capital.
- Invested Capital Dynamics
- Invested capital followed a generally upward trajectory, rising from 1,886,300 thousand US dollars in 2018 to 4,282,000 thousand US dollars by 2022. While capital levels remained relatively stable between 2019 and 2020, there was a marked acceleration in capital deployment during 2021 and 2022, reflecting increased investment to support operational scaling.
- Economic Spread Ratio Analysis
- The economic spread ratio reflects a significant improvement in capital efficiency. The ratio climbed from 10.26% in 2018 to a peak of 24.40% in 2020. Following a slight moderation to 22.89% in 2021, the ratio ended the period at 23.73% in 2022. This trend indicates that the return on invested capital has expanded significantly relative to the cost of capital, moving from a modest spread to a highly robust value-generation profile.
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Economic Profit Margin
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 | 1,016,089) | 752,175) | 541,301) | 347,111) | 193,501) | |
| 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 | 18.13% | 17.95% | 17.51% | 13.32% | 8.99% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Accenture PLC | 2.30% | 3.39% | — | — | — | |
| Adobe Inc. | 7.56% | 11.05% | 1.65% | — | — | |
| AppLovin Corp. | -49.97% | -60.11% | — | — | — | |
| Cadence Design Systems Inc. | 6.57% | 6.90% | — | — | — | |
| Datadog Inc. | -8.16% | -3.16% | — | — | — | |
| International Business Machines Corp. | -19.56% | -11.71% | — | — | — | |
| Intuit Inc. | -14.49% | 0.13% | — | — | — | |
| Microsoft Corp. | 17.74% | 22.86% | — | — | — | |
| Oracle Corp. | -14.08% | 1.07% | — | — | — | |
| Palantir Technologies Inc. | -54.91% | -66.20% | — | — | — | |
| Palo Alto Networks Inc. | 4.09% | -6.98% | — | — | — | |
| Salesforce Inc. | -40.55% | -28.58% | — | — | — | |
| ServiceNow Inc. | 0.59% | 1.68% | — | — | — | |
| Synopsys Inc. | -1.23% | -10.97% | -11.50% | — | — | |
| Workday Inc. | -19.10% | -25.24% | — | — | — | |
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 × 1,016,089 ÷ 5,604,800 = 18.13%
3 Click competitor name to see calculations.
An analysis of the financial performance from 2018 to 2022 reveals a consistent and significant increase in economic value creation. Both absolute economic profit and the economic profit margin exhibited strong upward trajectories, suggesting that the growth in revenue was accompanied by an increase in operational efficiency and a superior ability to generate returns above the cost of capital.
- Economic Profit Growth
- A substantial increase in economic profit is observed, rising from 193,501 thousand US dollars in 2018 to 1,016,089 thousand US dollars by 2022. This represents a steady year-over-year expansion, with the most significant nominal gains occurring between 2020 and 2022, culminating in a fivefold increase over the five-year period.
- Adjusted Revenue Expansion
- Adjusted revenue grew consistently throughout the period, moving from 2,151,700 thousand US dollars in 2018 to 5,604,800 thousand US dollars in 2022. The steady climb in revenue provided the necessary scale to support the simultaneous growth in economic profit.
- Economic Profit Margin Trends
- The economic profit margin demonstrated a strong positive trend, increasing from 8.99% in 2018 to 18.13% in 2022. The most rapid improvement occurred between 2018 and 2020, where the margin nearly doubled from 8.99% to 17.51%. Following 2020, the margin entered a phase of stabilization, maintaining a high plateau with marginal increases to 17.95% in 2021 and 18.13% in 2022.
The correlation between the rising adjusted revenue and the expanding economic profit margin indicates that the company did not merely grow in size, but improved its quality of earnings. The stabilization of the margin above 17% in the final three years of the period suggests a matured level of efficiency in converting revenue into economic value.
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