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
Paycom Software 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
= 297,371 – 21.78% × 1,478,485 = -24,673
Between 2018 and 2022, a distinct divergence emerged between the growth of operational profits and the expansion of the capital base, leading to a transition from positive economic value creation to a state of economic loss.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited an overall upward trajectory, increasing from 172,096 thousand dollars in 2018 to 297,371 thousand dollars in 2022. While a temporary contraction occurred in 2020, operational profitability recovered strongly in 2021 and 2022.
- Invested Capital
- A consistent and aggressive expansion of invested capital is observed, rising from 522,609 thousand dollars in 2018 to 1,478,485 thousand dollars by the end of 2022. The pace of capital deployment significantly outstripped the growth rate of operational profits.
- Cost of Capital
- The cost of capital remained remarkably stable throughout the five-year period, maintaining a narrow range between 21.73% and 21.81%.
- Economic Profit
- Economic profit transitioned from a positive 58,521 thousand dollars in 2018 to a negative 24,673 thousand dollars in 2022. The shift into negative territory began in 2020 and has widened annually. This trend indicates that the return on invested capital has fallen below the cost of capital, meaning that despite increasing NOPAT, the company is not generating sufficient profit to cover the opportunity cost of the capital deployed.
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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
= 41,012 × 3.70% = 1,517
5 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 4,053 × 21.00% = 851
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 $214,806 thousand in 2019, the profit metric rebounded strongly in the following years, reaching the peak in 2022. The increases in NOPAT were more pronounced in magnitude compared to net income, indicating increasing operational efficiency or improved core business profitability.
Overall, the data suggests a company experiencing notable profit growth, with a momentary setback in 2020 likely due to specific operational or market challenges during that year. The recovery and growth in NOPAT and net income in 2021 and 2022 demonstrate improved performance and potentially effective strategic or operational adjustments.
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Cash Operating Taxes
Paycom Software Inc., cash operating taxes calculation
US$ 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.
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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.
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Cost of Capital
Paycom Software Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 17,792,735) | 17,792,735) | ÷ | 17,862,747) | = | 1.00 | 1.00 | × | 21.86% | = | 21.77% | ||
| Long-term debt3 | 29,000) | 29,000) | ÷ | 17,862,747) | = | 0.00 | 0.00 | × | 3.70% × (1 – 21.00%) | = | 0.00% | ||
| Operating lease liability4 | 41,012) | 41,012) | ÷ | 17,862,747) | = | 0.00 | 0.00 | × | 3.70% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 17,862,747) | 1.00 | 21.78% | ||||||||||
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 »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,012,528) | 19,012,528) | ÷ | 19,072,595) | = | 1.00 | 1.00 | × | 21.86% | = | 21.79% | ||
| Long-term debt3 | 29,155) | 29,155) | ÷ | 19,072,595) | = | 0.00 | 0.00 | × | 3.30% × (1 – 21.00%) | = | 0.00% | ||
| Operating lease liability4 | 30,912) | 30,912) | ÷ | 19,072,595) | = | 0.00 | 0.00 | × | 3.30% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 19,072,595) | 1.00 | 21.80% | ||||||||||
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 | 23,185,491) | 23,185,491) | ÷ | 23,244,281) | = | 1.00 | 1.00 | × | 21.86% | = | 21.80% | ||
| Long-term debt3 | 30,894) | 30,894) | ÷ | 23,244,281) | = | 0.00 | 0.00 | × | 3.30% × (1 – 21.00%) | = | 0.00% | ||
| Operating lease liability4 | 27,896) | 27,896) | ÷ | 23,244,281) | = | 0.00 | 0.00 | × | 3.30% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 23,244,281) | 1.00 | 21.81% | ||||||||||
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 | 17,488,062) | 17,488,062) | ÷ | 17,549,380) | = | 1.00 | 1.00 | × | 21.86% | = | 21.78% | ||
| Long-term debt3 | 32,633) | 32,633) | ÷ | 17,549,380) | = | 0.00 | 0.00 | × | 3.90% × (1 – 21.00%) | = | 0.01% | ||
| Operating lease liability4 | 28,685) | 28,685) | ÷ | 17,549,380) | = | 0.00 | 0.00 | × | 3.90% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 17,549,380) | 1.00 | 21.79% | ||||||||||
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 | 10,217,070) | 10,217,070) | ÷ | 10,278,658) | = | 0.99 | 0.99 | × | 21.86% | = | 21.73% | ||
| Long-term debt3 | 34,389) | 34,389) | ÷ | 10,278,658) | = | 0.00 | 0.00 | × | 1.50% × (1 – 21.00%) | = | 0.00% | ||
| Operating lease liability4 | 27,199) | 27,199) | ÷ | 10,278,658) | = | 0.00 | 0.00 | × | 1.50% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 10,278,658) | 1.00 | 21.73% | ||||||||||
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
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 × -24,673 ÷ 1,478,485 = -1.67%
A significant deterioration in value creation is observed over the five-year period ending December 31, 2022. The transition from positive to negative economic profit indicates that the returns generated on invested capital have fallen below the company's cost of capital, shifting the organization from a value-creating state to a value-destroying state.
- Economic Spread Ratio
- The economic spread ratio exhibits a sharp downward trajectory, beginning at 11.20% in 2018 and declining to -1.67% by 2022. A critical inflection point occurred between 2019 and 2020, where the ratio flipped from a positive 7.87% to a negative 1.32%. This trend suggests a diminishing ability to generate a return that exceeds the weighted average cost of capital.
- Economic Profit
- Economic profit transitioned from a peak of US$ 58.5 million in 2018 to a deficit of US$ 24.7 million in 2022. While 2018 and 2019 remained positive, the subsequent three years show a deepening loss in economic value. The acceleration of negative economic profit from 2020 through 2022 reflects an increasing gap between actual operating returns and the required return on invested capital.
- Invested Capital
- Invested capital shows a consistent and aggressive growth pattern, increasing from US$ 522.6 million in 2018 to US$ 1.48 billion in 2022. This represents nearly a threefold increase in the capital base over the analyzed period. The divergence between the rising capital base and the falling economic profit indicates that the additional capital deployments have not yielded proportional increases in economic returns.
The overall financial pattern reveals a period of heavy capital expansion that has coincided with a decline in capital efficiency. The combination of rapidly expanding invested capital and a negative economic spread ratio underscores a systemic failure to translate increased investment into economic value added during the latter half of the period.
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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 × -24,673 ÷ 1,391,208 = -1.77%
The financial performance between 2018 and 2022 is characterized by a significant divergence between top-line revenue growth and the generation of economic value. While adjusted revenues grew consistently over the five-year period, economic profit transitioned from a positive state to a deepening deficit.
- Economic Profit Trend
- A sharp reversal in economic value creation is evident. Positive economic profit was recorded in 2018 and 2019 at 58,521 thousand and 57,013 thousand US dollars, respectively. However, a transition to negative territory occurred in 2020, with losses expanding annually to reach -24,673 thousand US dollars by December 31, 2022.
- Economic Profit Margin Deterioration
- The economic profit margin reflects a consistent downward trajectory. Starting at 10.10% in 2018, the margin contracted to 7.61% in 2019 before falling into negative values. From 2020 to 2022, the margin shifted from -1.34% to -1.77%, indicating that the company failed to generate returns exceeding its cost of capital during this period.
- Revenue and Value Creation Correlation
- An inverse relationship is observed between adjusted revenues and economic profit. Adjusted revenues increased steadily from 579,363 thousand US dollars in 2018 to 1,391,208 thousand US dollars in 2022. Despite this substantial growth in scale, the increasing negative economic profit suggests that the investments required to drive this revenue growth did not produce sufficient returns to cover the implicit cost of the capital employed.
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