Paycom Software Inc. (NYSE:PAYC)

Coverage Ratios

Paycom Software Inc., solvency ratios

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Debt Ratios
Debt to equity	0.02	0.03	0.05	0.06	0.10
Debt to equity (including operating lease liability)	0.06	0.07	0.09	0.12	0.10
Debt to capital	0.02	0.03	0.04	0.06	0.09
Debt to capital (including operating lease liability)	0.06	0.06	0.08	0.10	0.09
Debt to assets	0.01	0.01	0.01	0.01	0.02
Debt to assets (including operating lease liability)	0.02	0.02	0.02	0.02	0.02
Financial leverage	3.30	3.60	3.98	4.72	4.55
Coverage Ratios
Interest coverage	154.62	—	9,787.11	241.52	229.08
Fixed charge coverage	27.26	22.51	17.43	21.48	21.88

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).

The solvency profile demonstrates a consistent strengthening of the financial position from 2018 to 2022, characterized by a systematic reduction in leverage and an exceptional capacity to service financial obligations.

Debt Leverage Trends: A significant downward trend is observed in both debt-to-equity and debt-to-capital ratios. Debt to equity decreased from 0.10 in 2018 to 0.02 by 2022, while debt to capital followed a similar trajectory, falling from 0.09 to 0.02. These movements indicate a strategic shift toward a more equity-funded capital structure and a reduced reliance on external borrowing.
Impact of Operating Lease Liabilities: When operating lease liabilities are incorporated, solvency ratios remain low, although they are slightly higher than those excluding leases. Debt to equity including leases peaked at 0.12 in 2019 before declining to 0.06 in 2022. Debt to assets including leases remained constant at 0.02 throughout the five-year period, suggesting that lease obligations are stable relative to the total asset base.
Financial Leverage and Asset Coverage: Financial leverage peaked in 2019 at 4.72 before declining steadily to 3.30 by 2022, reflecting a reduction in the use of debt to finance assets. Debt to assets ratios excluding leases remained negligible, maintaining a constant level of 0.01 from 2019 through 2022.
Debt Service Capacity: The capacity to meet financial obligations is exceptionally high. Interest coverage ratios remained robust, with a significant spike in 2020 to 9,787.11, before settling at 154.62 in 2022. Similarly, fixed charge coverage demonstrated resilience, increasing from 17.43 in 2020 to 27.26 in 2022, confirming that operating earnings are more than sufficient to cover all fixed financial commitments.

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Paycom Software Inc., debt to equity 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)
Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Total debt	29,000)	29,155)	30,894)	32,633)	34,389)

Stockholders’ equity	1,182,607)	893,714)	655,643)	526,628)	334,753)
Solvency Ratio
Debt to equity¹	0.02	0.03	0.05	0.06	0.10
Benchmarks
Debt to Equity, Industry
Industrials	1.42	1.37	—	—	—

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 2022 Calculation
Debt to equity = Total debt ÷ Stockholders’ equity
= 29,000 ÷ 1,182,607 = 0.02

The solvency profile between 2018 and 2022 is characterized by a consistent reduction in financial leverage and a substantial expansion of the equity base. This dual trend indicates a strengthening financial position and a decreasing reliance on borrowed capital to fund operations and growth.

Total Debt Trend: Total debt has experienced a steady decline over the five-year period, decreasing from 34,389 thousand US dollars in 2018 to 29,000 thousand US dollars by the end of 2022. This downward trajectory suggests a disciplined approach to liability management and a minimal requirement for new debt issuance.
Stockholders' Equity Growth: Stockholders' equity has grown significantly, rising from 334,753 thousand US dollars in 2018 to 1,182,607 thousand US dollars in 2022. This substantial increase suggests strong internal capital generation and a significant accumulation of net assets over the observed period.
Debt to Equity Ratio Analysis: The debt to equity ratio has declined sharply from 0.10 in 2018 to 0.02 in 2022. This contraction is the mathematical result of the simultaneous decrease in total debt and the rapid increase in equity. The resulting ratio indicates an extremely low level of financial risk and a highly solvent balance sheet, where equity overwhelmingly outweighs total debt obligations.

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Paycom Software Inc., debt to equity (including operating lease liability) 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)
Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Total debt	29,000)	29,155)	30,894)	32,633)	34,389)
Operating lease liabilities (included in Accrued expenses and other current liabilities)	14,986)	10,853)	10,906)	10,265)	—)
Operating lease liabilities (included in Other long-term liabilities)	26,026)	20,059)	16,990)	18,420)	—)
Total debt (including operating lease liability)	70,012)	60,067)	58,790)	61,318)	34,389)

Stockholders’ equity	1,182,607)	893,714)	655,643)	526,628)	334,753)
Solvency Ratio
Debt to equity (including operating lease liability)¹	0.06	0.07	0.09	0.12	0.10
Benchmarks
Debt to Equity (including Operating Lease Liability), Industry
Industrials	1.59	1.54	—	—	—

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 2022 Calculation
Debt to equity (including operating lease liability) = Total debt (including operating lease liability) ÷ Stockholders’ equity
= 70,012 ÷ 1,182,607 = 0.06

The solvency profile of the company exhibits a strengthening trend characterized by a significant expansion of the equity base that outpaces the growth of liabilities. While total obligations have increased in absolute terms, the relative reliance on debt to finance assets has declined steadily over the observed five-year period.

Total Debt (including operating lease liability): A general upward trajectory is observed in total debt, which rose from 34,389 thousand US dollars in 2018 to 70,012 thousand US dollars by the end of 2022. The most pronounced increase occurred between 2018 and 2019, where liabilities nearly doubled. This was followed by a period of relative stability from 2019 through 2021, before a further increase in 2022.
Stockholders' Equity: Equity growth has been aggressive and consistent. Starting at 334,753 thousand US dollars in 2018, the equity base increased to 1,182,607 thousand US dollars by 2022. This substantial growth in the net asset base suggests a strong accumulation of retained earnings or capital, which significantly enhances the company's financial stability.
Debt to Equity Ratio: The debt to equity ratio demonstrates a sustained downward trend following a brief peak of 0.12 in 2019. From 2020 to 2022, the ratio decreased consistently from 0.09 to 0.06. This decline indicates a reduction in financial leverage and a shift toward a more conservative capital structure, as the growth in stockholders' equity far exceeded the growth in total debt.

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Paycom Software Inc., debt to capital 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)
Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Total debt	29,000)	29,155)	30,894)	32,633)	34,389)
Stockholders’ equity	1,182,607)	893,714)	655,643)	526,628)	334,753)
Total capital	1,211,607)	922,869)	686,537)	559,261)	369,142)
Solvency Ratio
Debt to capital¹	0.02	0.03	0.04	0.06	0.09
Benchmarks
Debt to Capital, Industry
Industrials	0.59	0.58	—	—	—

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 2022 Calculation
Debt to capital = Total debt ÷ Total capital
= 29,000 ÷ 1,211,607 = 0.02

The financial data from 2018 to 2022 indicates a significant strengthening of the company's solvency position. A consistent trend of decreasing leverage is evident, characterized by a simultaneous reduction in total debt and a substantial expansion of the total capital base.

Total Debt Trends: Total debt decreased steadily over the five-year period, falling from US$ 34,389 thousand in 2018 to US$ 29,000 thousand in 2022. This persistent decline suggests a systematic reduction of liabilities.
Total Capital Growth: Total capital experienced aggressive growth, increasing from US$ 369,142 thousand in 2018 to US$ 1,211,607 thousand in 2022. This represents a more than threefold increase in the total capital available to the organization.
Debt to Capital Ratio Analysis: The debt to capital ratio demonstrates a continuous downward trajectory, starting at 0.09 in 2018 and reaching 0.02 by the end of 2022. This compression of the ratio confirms a diminishing reliance on borrowed funds relative to total capital, indicating a highly conservative capital structure and an improved capacity to meet long-term obligations.

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Paycom Software Inc., debt to capital (including operating lease liability) 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)
Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Total debt	29,000)	29,155)	30,894)	32,633)	34,389)
Operating lease liabilities (included in Accrued expenses and other current liabilities)	14,986)	10,853)	10,906)	10,265)	—)
Operating lease liabilities (included in Other long-term liabilities)	26,026)	20,059)	16,990)	18,420)	—)
Total debt (including operating lease liability)	70,012)	60,067)	58,790)	61,318)	34,389)
Stockholders’ equity	1,182,607)	893,714)	655,643)	526,628)	334,753)
Total capital (including operating lease liability)	1,252,619)	953,781)	714,433)	587,946)	369,142)
Solvency Ratio
Debt to capital (including operating lease liability)¹	0.06	0.06	0.08	0.10	0.09
Benchmarks
Debt to Capital (including Operating Lease Liability), Industry
Industrials	0.61	0.61	—	—	—

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 2022 Calculation
Debt to capital (including operating lease liability) = Total debt (including operating lease liability) ÷ Total capital (including operating lease liability)
= 70,012 ÷ 1,252,619 = 0.06

The solvency profile between 2018 and 2022 reflects a strengthening capital structure characterized by significant growth in total capitalization relative to a modest increase in debt obligations.

Total Debt Trends: Absolute debt levels, including operating lease liabilities, experienced a notable increase from US$ 34,389 thousand in 2018 to US$ 61,318 thousand in 2019. Following a period of relative stability between 2019 and 2021, obligations rose again to reach US$ 70,012 thousand by the end of 2022.
Capitalization Expansion: Total capital demonstrated consistent and aggressive growth over the five-year period, ascending from US$ 369,142 thousand in 2018 to US$ 1,252,619 thousand in 2022. This steady increase indicates a substantial expansion of the company's overall financial base.
Debt to Capital Ratio Analysis: The debt to capital ratio exhibited a peak of 0.10 in 2019 before initiating a downward trend, stabilizing at 0.06 in both 2021 and 2022. The divergence between the rapid growth of total capital and the slower accumulation of debt indicates a decreasing reliance on leverage. This trajectory results in a more conservative financial risk profile and improved solvency as the proportion of debt within the total capital structure diminished over time.

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Paycom Software Inc., debt to assets 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)
Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Total debt	29,000)	29,155)	30,894)	32,633)	34,389)

Total assets	3,902,513)	3,215,145)	2,607,912)	2,486,917)	1,521,926)
Solvency Ratio
Debt to assets¹	0.01	0.01	0.01	0.01	0.02
Benchmarks
Debt to Assets, Industry
Industrials	0.31	0.30	—	—	—

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 2022 Calculation
Debt to assets = Total debt ÷ Total assets
= 29,000 ÷ 3,902,513 = 0.01

A comprehensive review of the solvency metrics indicates a consistently low reliance on borrowed capital relative to the asset base. The financial position is characterized by a steady reduction in absolute debt levels occurring simultaneously with a substantial expansion of total assets, resulting in a highly conservative capital structure.

Total Debt Trends: A consistent downward trajectory is observed in total debt, which decreased from US$ 34.39 million in 2018 to US$ 29.00 million by the end of 2022. This steady decline suggests a disciplined approach to liability management and a reduction in external borrowing.
Total Asset Growth: Total assets exhibited significant and continuous growth over the five-year period, rising from US$ 1.52 billion in 2018 to US$ 3.90 billion in 2022. This expansion reflects a substantial increase in the company's overall resource base.
Debt to Assets Ratio Analysis: The debt to assets ratio remained exceptionally low, moving from 0.02 in 2018 to a stable 0.01 from 2019 through 2022. This marginal ratio indicates that a negligible fraction of the assets is financed through debt, signifying an extremely strong solvency position and minimal financial risk regarding long-term obligations.

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Paycom Software Inc., debt to assets (including operating lease liability) 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)
Current portion of long-term debt	—)	1,775)	1,775)	1,775)	1,775)
Net long-term debt, less current portion	29,000)	27,380)	29,119)	30,858)	32,614)
Total debt	29,000)	29,155)	30,894)	32,633)	34,389)
Operating lease liabilities (included in Accrued expenses and other current liabilities)	14,986)	10,853)	10,906)	10,265)	—)
Operating lease liabilities (included in Other long-term liabilities)	26,026)	20,059)	16,990)	18,420)	—)
Total debt (including operating lease liability)	70,012)	60,067)	58,790)	61,318)	34,389)

Total assets	3,902,513)	3,215,145)	2,607,912)	2,486,917)	1,521,926)
Solvency Ratio
Debt to assets (including operating lease liability)¹	0.02	0.02	0.02	0.02	0.02
Benchmarks
Debt to Assets (including Operating Lease Liability), Industry
Industrials	0.34	0.34	—	—	—

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 2022 Calculation
Debt to assets (including operating lease liability) = Total debt (including operating lease liability) ÷ Total assets
= 70,012 ÷ 3,902,513 = 0.02

The solvency profile of the organization demonstrates a high level of stability and low leverage over the five-year period ending December 31, 2022. While both total debt and total assets experienced growth, the proportionality between the two remained constant, resulting in a consistent risk profile.

Total Debt Trends: Total debt, including operating lease liabilities, increased from 34,389 thousand US dollars in 2018 to 70,012 thousand US dollars in 2022. A significant increase occurred between 2018 and 2019, followed by a period of relative stabilization between 2019 and 2021, and a further increase by the end of 2022.
Total Asset Growth: A consistent upward trajectory in total assets is observed, expanding from 1,521,926 thousand US dollars in 2018 to 3,902,513 thousand US dollars in 2022. This represents a substantial and steady expansion of the asset base over the analyzed timeframe.
Debt to Assets Ratio Analysis: The debt to assets ratio remained unchanged at 0.02 throughout the entire five-year period. This stability indicates that the growth in liabilities was strictly proportional to the expansion of total assets. Such a consistently low ratio suggests that the entity relies minimally on borrowed funds to finance its operations, reflecting a conservative leverage strategy and a strong overall solvency position.

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Paycom Software Inc., financial leverage 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)
Total assets	3,902,513)	3,215,145)	2,607,912)	2,486,917)	1,521,926)
Stockholders’ equity	1,182,607)	893,714)	655,643)	526,628)	334,753)
Solvency Ratio
Financial leverage¹	3.30	3.60	3.98	4.72	4.55
Benchmarks
Financial Leverage, Industry
Industrials	4.65	4.52	—	—	—

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 2022 Calculation
Financial leverage = Total assets ÷ Stockholders’ equity
= 3,902,513 ÷ 1,182,607 = 3.30

An examination of the financial structure from 2018 to 2022 reveals a period of significant asset expansion accompanied by a strengthening equity base and a corresponding reduction in financial leverage.

Total Assets and Stockholders' Equity: Total assets exhibited a consistent upward trajectory, increasing from 1,521,926 thousand US dollars in 2018 to 3,902,513 thousand US dollars by the end of 2022. Parallel to this growth, stockholders' equity rose steadily from 334,753 thousand US dollars to 1,182,607 thousand US dollars over the same period. This simultaneous increase indicates a robust expansion of the balance sheet.
Financial Leverage Trend: The financial leverage ratio experienced an initial slight increase, peaking at 4.72 in 2019, before entering a sustained downward trend. From 2020 through 2022, the ratio declined consecutively from 3.98 to 3.30. This progression suggests that a larger proportion of the asset base is being financed through equity rather than liabilities.
Solvency Implications: The reduction in financial leverage from 4.55 in 2018 to 3.30 in 2022 denotes a decrease in financial risk. The observation that equity growth has outpaced asset growth relative to the initial leverage levels indicates a transition toward a more conservative capital structure and improved long-term solvency.

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Paycom Software Inc., interest coverage 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)
Net income	281,389)	195,960)	143,453)	180,576)	137,065)
Add: Income tax expense	108,189)	60,002)	42,483)	45,511)	37,646)
Add: Interest expense	2,536)	—)	19)	940)	766)
Earnings before interest and tax (EBIT)	392,114)	255,962)	185,955)	227,027)	175,477)
Solvency Ratio
Interest coverage¹	154.62	—	9,787.11	241.52	229.08
Benchmarks
Interest Coverage, Industry
Industrials	4.98	5.14	—	—	—

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 2022 Calculation
Interest coverage = EBIT ÷ Interest expense
= 392,114 ÷ 2,536 = 154.62

The solvency profile indicates a strong capacity to service interest obligations, characterized by substantial operational earnings and relatively low debt-servicing costs, although significant volatility is observed in the interest expense and the resulting coverage ratios.

Earnings Before Interest and Tax (EBIT) Trend: A sustained upward trajectory in EBIT is evident, with values increasing from US$ 175.5 million in 2018 to US$ 392.1 million by 2022. Aside from a marginal contraction in 2020, the growth in operational profitability has expanded the available funds for debt service, strengthening the company's fundamental solvency.
Interest Expense Patterns: Interest expenses demonstrated high variability over the period. A sharp decline was recorded in 2020, where expenses fell to US$ 19 thousand. Conversely, 2022 saw a significant increase in interest costs, rising to US$ 2.5 million, which represents the highest expenditure in the five-year window.
Interest Coverage Ratio Performance: The interest coverage ratio remained at exceptionally high levels throughout the analyzed period, indicating a minimal risk of default. An anomalous peak occurred in 2020, reaching a ratio of 9,787.11 as a direct result of the near-elimination of interest expenses. By 2022, the ratio moderated to 154.62; while this is a decline from previous years, it remains well above typical industry safety benchmarks, confirming that earnings continue to far exceed interest obligations.

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Paycom Software Inc., fixed charge coverage 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)
Net income	281,389)	195,960)	143,453)	180,576)	137,065)
Add: Income tax expense	108,189)	60,002)	42,483)	45,511)	37,646)
Add: Interest expense	2,536)	—)	19)	940)	766)
Earnings before interest and tax (EBIT)	392,114)	255,962)	185,955)	227,027)	175,477)
Add: Rent expense under operating leases	12,300)	11,900)	11,300)	10,100)	7,600)
Earnings before fixed charges and tax	404,414)	267,862)	197,255)	237,127)	183,077)

Interest expense	2,536)	—)	19)	940)	766)
Rent expense under operating leases	12,300)	11,900)	11,300)	10,100)	7,600)
Fixed charges	14,836)	11,900)	11,319)	11,040)	8,366)
Solvency Ratio
Fixed charge coverage¹	27.26	22.51	17.43	21.48	21.88
Benchmarks
Fixed Charge Coverage, Industry
Industrials	3.30	3.44	—	—	—

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 2022 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 404,414 ÷ 14,836 = 27.26

The analysis of the fixed charge coverage over the five-year period ending December 31, 2022, indicates a robust solvency position. The capacity to meet fixed financial obligations is consistently high, with earnings significantly exceeding fixed charges throughout the duration of the period.

Earnings before fixed charges and tax: A general upward trajectory is observed in earnings, which grew from US$ 183,077 thousand in 2018 to US$ 404,414 thousand in 2022. While a temporary contraction occurred in 2020, with earnings decreasing to US$ 197,255 thousand, the subsequent growth in 2021 and 2022 represents a substantial recovery and expansion of the earning base.
Fixed charges: Fixed obligations have experienced a steady and consistent increase, rising from US$ 8,366 thousand in 2018 to US$ 14,836 thousand in 2022. This upward trend indicates a gradual increase in fixed financial commitments over the five-year window.
Fixed charge coverage ratio: The coverage ratio demonstrates high solvency levels, remaining well above critical thresholds. After remaining relatively stable between 2018 and 2019, the ratio declined to a period low of 17.43 in 2020, coinciding with the dip in earnings. However, a strong recovery followed, with the ratio climbing to 22.51 in 2021 and reaching a peak of 27.26 in 2022. This suggests that the growth in operating earnings has significantly outpaced the growth in fixed charges, resulting in an enhanced margin of safety for the company's obligations.

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