Stock Analysis on Net

ServiceNow Inc. (NYSE:NOW)

Economic Value Added (EVA)

Microsoft Excel

Economic Profit

ServiceNow Inc., economic profit calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Net operating profit after taxes (NOPAT)1 1,814 1,148 1,108 886 582
Cost of capital2 13.40% 13.32% 13.29% 13.29% 13.25%
Invested capital3 8,131 6,490 5,871 4,325 2,928
 
Economic profit4 725 284 328 312 194

Based on: 10-K (reporting date: 2023-12-31), 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).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,81413.40% × 8,131 = 725

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. ServiceNow Inc. economic profit decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Net Operating Profit after Taxes (NOPAT)

ServiceNow Inc., NOPAT calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Net income 1,731 325 230 119 627
Deferred income tax expense (benefit)1 (857) 15 (34) (23) (576)
Increase (decrease) in deferred revenue2 1,136 831 891 782 536
Increase (decrease) in equity equivalents3 279 846 857 759 (40)
Interest expense 24 27 28 33 33
Interest expense, operating lease liability4 30 26 19 17 16
Adjusted interest expense 54 53 47 50 49
Tax benefit of interest expense5 (11) (11) (10) (11) (10)
Adjusted interest expense, after taxes6 43 42 37 40 39
Interest income (302) (82) (20) (39) (55)
Investment income, before taxes (302) (82) (20) (39) (55)
Tax expense (benefit) of investment income7 63 17 4 8 12
Investment income, after taxes8 (239) (65) (16) (31) (44)
Net operating profit after taxes (NOPAT) 1,814 1,148 1,108 886 582

Based on: 10-K (reporting date: 2023-12-31), 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).

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 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 796 × 3.80% = 30

5 2023 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 54 × 21.00% = 11

6 Addition of after taxes interest expense to net income.

7 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 302 × 21.00% = 63

8 Elimination of after taxes investment income.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. ServiceNow Inc. NOPAT increased from 2021 to 2022 and from 2022 to 2023.

Cash Operating Taxes

ServiceNow Inc., cash operating taxes calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Provision for (benefit from) income taxes (723) 74 19 31 (560)
Less: Deferred income tax expense (benefit) (857) 15 (34) (23) (576)
Add: Tax savings from interest expense 11 11 10 11 10
Less: Tax imposed on investment income 63 17 4 8 12
Cash operating taxes 82 53 59 56 15

Based on: 10-K (reporting date: 2023-12-31), 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).

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. ServiceNow Inc. cash operating taxes decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Invested Capital

ServiceNow Inc., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Current debt, net 92
Long-term debt, net, less current portion 1,488 1,486 1,484 1,640 695
Operating lease liability1 796 746 638 495 436
Total reported debt & leases 2,284 2,232 2,214 2,135 1,131
Stockholders’ equity 7,628 5,032 3,695 2,834 2,128
Net deferred tax (assets) liabilities2 (1,468) (626) (683) (666) (595)
Deferred revenue3 5,866 4,730 3,899 3,008 2,226
Equity equivalents4 4,398 4,104 3,216 2,342 1,630
Accumulated other comprehensive (income) loss, net of tax5 37 102 (34) (94) (25)
Adjusted stockholders’ equity 12,063 9,238 6,877 5,082 3,733
Construction in progress6 (33) (53) (14) (9) (7)
Available-for-sale securities7 (6,183) (4,927) (3,206) (2,883) (1,929)
Invested capital 8,131 6,490 5,871 4,325 2,928

Based on: 10-K (reporting date: 2023-12-31), 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).

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.

7 Subtraction of available-for-sale securities.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. ServiceNow Inc. invested capital increased from 2021 to 2022 and from 2022 to 2023.

Cost of Capital

ServiceNow Inc., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 157,171 157,171 ÷ 159,203 = 0.99 0.99 × 13.55% = 13.38%
Long-term debt3 1,236 1,236 ÷ 159,203 = 0.01 0.01 × 1.53% × (1 – 21.00%) = 0.01%
Operating lease liability4 796 796 ÷ 159,203 = 0.00 0.00 × 3.80% × (1 – 21.00%) = 0.02%
Total: 159,203 1.00 13.40%

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

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 92,391 92,391 ÷ 94,281 = 0.98 0.98 × 13.55% = 13.28%
Long-term debt3 1,144 1,144 ÷ 94,281 = 0.01 0.01 × 1.53% × (1 – 21.00%) = 0.01%
Operating lease liability4 746 746 ÷ 94,281 = 0.01 0.01 × 3.50% × (1 – 21.00%) = 0.02%
Total: 94,281 1.00 13.32%

Based on: 10-K (reporting date: 2022-12-31).

1 US$ in millions

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 112,170 112,170 ÷ 114,648 = 0.98 0.98 × 13.55% = 13.26%
Long-term debt3 1,840 1,840 ÷ 114,648 = 0.02 0.02 × 1.72% × (1 – 21.00%) = 0.02%
Operating lease liability4 638 638 ÷ 114,648 = 0.01 0.01 × 3.00% × (1 – 21.00%) = 0.01%
Total: 114,648 1.00 13.29%

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in millions

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 115,952 115,952 ÷ 118,598 = 0.98 0.98 × 13.55% = 13.25%
Long-term debt3 2,151 2,151 ÷ 118,598 = 0.02 0.02 × 1.84% × (1 – 21.00%) = 0.03%
Operating lease liability4 495 495 ÷ 118,598 = 0.00 0.00 × 3.50% × (1 – 21.00%) = 0.01%
Total: 118,598 1.00 13.29%

Based on: 10-K (reporting date: 2020-12-31).

1 US$ in millions

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 66,988 66,988 ÷ 69,070 = 0.97 0.97 × 13.55% = 13.14%
Long-term debt3 1,646 1,646 ÷ 69,070 = 0.02 0.02 × 4.75% × (1 – 21.00%) = 0.09%
Operating lease liability4 436 436 ÷ 69,070 = 0.01 0.01 × 3.70% × (1 – 21.00%) = 0.02%
Total: 69,070 1.00 13.25%

Based on: 10-K (reporting date: 2019-12-31).

1 US$ in millions

2 Equity. See details »

3 Long-term debt. See details »

4 Operating lease liability. See details »


Economic Spread Ratio

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

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit1 725 284 328 312 194
Invested capital2 8,131 6,490 5,871 4,325 2,928
Performance Ratio
Economic spread ratio3 8.91% 4.38% 5.59% 7.21% 6.62%
Benchmarks
Economic Spread Ratio, Competitors4
Accenture PLC 5.85% 8.69% 10.54% 11.10% 9.83%
Adobe Inc. 5.37% 10.81% 13.22% 5.49% 3.60%
International Business Machines Corp. -1.43% -9.30% -4.31% -4.05% -0.32%
Intuit Inc. -6.20% -5.14% 2.61% 5.94% 19.61%
Microsoft Corp. 16.00% 23.95% 32.96% 30.98% 26.10%
Oracle Corp. -1.21% -0.91% 7.15% 1.45% 4.16%
Palo Alto Networks Inc. 14.81% 6.66% -2.03% -3.05% 0.18%
Salesforce Inc. -12.16% -9.73% -7.42% -10.46% -6.44%
Synopsys Inc. -3.70% 2.88% -3.14% -2.97% -5.96%

Based on: 10-K (reporting date: 2023-12-31), 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).

1 Economic profit. See details »

2 Invested capital. See details »

3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 725 ÷ 8,131 = 8.91%

4 Click competitor name to see calculations.

Performance ratio Description The company
Economic spread ratio The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. ServiceNow Inc. economic spread ratio deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

Economic Profit Margin

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

Microsoft Excel
Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Economic profit1 725 284 328 312 194
 
Revenues 8,971 7,245 5,896 4,519 3,460
Add: Increase (decrease) in deferred revenue 1,136 831 891 782 536
Adjusted revenues 10,107 8,076 6,787 5,302 3,996
Performance Ratio
Economic profit margin2 7.17% 3.52% 4.83% 5.88% 4.85%
Benchmarks
Economic Profit Margin, Competitors3
Accenture PLC 3.01% 4.19% 5.40% 5.65% 4.54%
Adobe Inc. 6.73% 12.59% 16.48% 7.88% 5.41%
International Business Machines Corp. -2.56% -16.14% -8.22% -7.04% -0.54%
Intuit Inc. -10.15% -9.89% 3.30% 6.69% 13.06%
Microsoft Corp. 18.22% 22.95% 27.36% 23.00% 19.31%
Oracle Corp. -2.34% -1.68% 14.13% 3.31% 7.58%
Palo Alto Networks Inc. 14.70% 7.76% -2.73% -4.96% 0.20%
Salesforce Inc. -30.96% -27.01% -17.01% -25.74% -12.69%
Synopsys Inc. -5.22% 4.05% -5.00% -5.10% -10.30%

Based on: 10-K (reporting date: 2023-12-31), 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).

1 Economic profit. See details »

2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × 725 ÷ 10,107 = 7.17%

3 Click competitor name to see calculations.

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. ServiceNow Inc. economic profit margin deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.