Adobe Inc. (NASDAQ:ADBE)

The period demonstrates fluctuating economic profit alongside changes in net operating profit after taxes, cost of capital, and invested capital. Initial positive economic profit increased substantially before declining and then recovering strongly in the most recent period.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$4,082 million in 2020 to US$6,201 million in 2021, representing significant growth. A subsequent decrease to US$5,690 million occurred in 2022, followed by a further decline to US$5,413 million in 2023. NOPAT experienced a slight decrease to US$5,235 million in 2024 before a substantial increase to US$7,363 million in 2025.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating between 20.41% and 20.74%. A slight decrease was observed in the final period, falling to 20.11% in 2025. These values suggest a consistent risk profile and financing structure over the analyzed timeframe.

Invested Capital

Invested capital increased from US$18,837 million in 2020 to US$21,065 million in 2021 and continued to rise to US$21,130 million in 2022. A more substantial increase occurred between 2022 and 2023, reaching US$24,970 million. Invested capital decreased slightly to US$24,709 million in 2024 and then decreased more significantly to US$22,203 million in 2025.

Economic Profit

Economic profit was US$207 million in 2020, increasing dramatically to US$1,857 million in 2021. It then decreased to US$1,360 million in 2022 and further to US$235 million in 2023. Economic profit remained low at US$191 million in 2024 before experiencing a substantial increase to US$2,899 million in 2025. The trend in economic profit closely follows the trend in NOPAT, but is also influenced by the cost of capital and invested capital.

The most recent period (2025) shows a strong recovery in economic profit, driven by a significant increase in NOPAT and a slight decrease in the cost of capital, despite a decrease in invested capital. The earlier periods (2022-2024) demonstrate a decline in economic profit despite relatively stable cost of capital, indicating that NOPAT was not sufficient to cover the cost of the invested capital during those years.

Net operating profit after taxes (NOPAT) exhibited considerable fluctuation over the observed period. While net income generally increased, NOPAT presented a more complex trajectory, indicating shifts in operational efficiency and cost structures relative to tax obligations.

Overall Trend

From 2020 to 2025, NOPAT demonstrated an initial increase, followed by a period of relative stability, and then a substantial rise. The period began with a NOPAT of US$4,082 million in 2020, peaking at US$6,201 million in 2021 before declining to US$5,690 million in 2022. A further decrease to US$5,413 million was noted in 2023, followed by US$5,235 million in 2024. A significant increase to US$7,363 million was observed in 2025.

Comparison to Net Income

A consistent difference between net income and NOPAT is apparent throughout the period. NOPAT consistently reports a lower value than net income, reflecting the impact of items such as depreciation, amortization, and other non-cash charges, as well as the effects of accounting for operating leases. The gap between net income and NOPAT varied annually, suggesting changes in the composition of earnings.

Year-over-Year Changes

The largest year-over-year increase in NOPAT occurred between 2020 and 2021, with an increase of US$2,119 million. The most substantial decline was observed between 2021 and 2022, decreasing by US$511 million. The period from 2023 to 2024 showed a modest decrease of US$78 million, while the final period from 2024 to 2025 demonstrated a substantial increase of US$2,128 million.

Recent Performance

The most recent two years, 2024 and 2025, show a notable shift. After a slight decrease in 2024, NOPAT experienced a significant increase in 2025, exceeding the previous peak observed in 2021. This suggests potential improvements in operational performance or changes in the tax environment during that period.

The fluctuations in NOPAT warrant further investigation to determine the underlying drivers. Analyzing changes in operating expenses, revenue growth, and tax rates would provide a more comprehensive understanding of these trends.

The provision for (benefit from) income taxes exhibited considerable fluctuation over the observed period. Beginning with a significant benefit of approximately negative $1.084 billion in 2020, the provision shifted to a positive value of $883 million in 2021, and continued to increase to $1.252 billion in 2022 and $1.371 billion in 2023. This trend persisted into 2024, remaining stable at $1.371 billion, before increasing further to $1.604 billion in 2025.

Cash operating taxes demonstrated a consistent upward trend throughout the period. Starting at $435 million in 2020, these taxes increased to $710 million in 2021, $943 million in 2022, and a substantial rise to $1.761 billion in 2023. The growth continued, albeit at a slightly moderated pace, reaching $1.795 billion in 2024 and $2.112 billion in 2025.

Provision for Income Taxes Trend

The initial benefit in 2020 likely reflects tax loss carryforwards or other tax planning strategies. The subsequent shift to positive provisions indicates increasing profitability and a reduced reliance on such strategies. The consistent increases from 2021 through 2025 suggest sustained and growing taxable income.

Cash Operating Taxes Trend

The steady increase in cash operating taxes directly correlates with the increasing provision for income taxes, but also suggests a growing tax burden as a percentage of pre-tax income. The magnitude of the increase in cash taxes is greater than the increase in the provision, potentially indicating changes in deferred tax assets or liabilities.

Relationship between Provision and Cash Taxes

A divergence exists between the provision for income taxes and cash operating taxes. While both generally trend upwards, the cash taxes consistently represent a smaller proportion of the total tax expense recognized in the income statement. This difference is typical, as the provision includes both current and deferred tax components, while cash taxes represent actual cash outflows.

The observed trends suggest a strengthening financial position with increasing taxable income. However, the growing cash tax burden warrants continued monitoring to assess its impact on future cash flows and overall financial performance.

The invested capital of the company demonstrates an overall increasing trend between 2020 and 2023, followed by a slight decrease in the most recent two periods. A closer examination of the components reveals fluctuations in both total reported debt & leases and stockholders’ equity, which contribute to the observed patterns in invested capital.

Invested Capital Trend

Invested capital increased from US$18,837 million in 2020 to US$24,970 million in 2023, representing a cumulative growth of approximately 32.5%. This indicates an expansion of the company’s asset base funded by both debt and equity. However, in 2024, invested capital decreased slightly to US$24,709 million, and further decreased to US$22,203 million in 2025. This recent decline suggests a potential shift in capital allocation strategy or a reduction in investment activities.

Debt & Leases

Total reported debt & leases exhibited a relatively stable pattern between 2020 and 2023, decreasing from US$4,708 million to US$4,080 million. This suggests a focus on debt reduction during this period. However, a significant increase is observed in 2024, rising to US$6,056 million, and continuing to US$6,648 million in 2025. This substantial increase in debt could be attributed to financing new investments, acquisitions, or share repurchases.

Stockholders’ Equity

Stockholders’ equity generally increased from US$13,264 million in 2020 to US$16,518 million in 2023, reflecting retained earnings and potentially new equity issuances. However, a decrease is noted in 2024, falling to US$14,105 million, and a more pronounced decrease in 2025 to US$11,623 million. This decline in stockholders’ equity could be due to share repurchases, dividend payments, or unrealized losses.

The interplay between debt and equity significantly influences the overall invested capital. While debt decreased initially, the recent increase, coupled with the decline in stockholders’ equity, contributes to the observed stabilization and subsequent decrease in invested capital in the latest reporting periods. Further investigation into the specific uses of the increased debt and the reasons for the equity decline would be necessary for a more comprehensive understanding.

The economic spread ratio demonstrates significant fluctuation over the observed period. Initially, the ratio increased substantially before declining and then experiencing a marked resurgence. This pattern mirrors the volatility observed in economic profit, though the scale of change differs due to the influence of invested capital.

Economic Spread Ratio - Trend Analysis

The economic spread ratio began at 1.10% in Nov 2020, increasing dramatically to 8.82% in Dec 2021. This substantial rise indicates a significant improvement in the return generated relative to the cost of capital. A subsequent decline was observed, with the ratio falling to 6.44% in Dec 2022 and further to 0.94% in Dec 2023. This downward trend suggests diminishing returns on invested capital or an increase in the cost of that capital. However, the ratio rebounded sharply to 13.06% in Nov 2025, indicating a renewed capacity to generate returns exceeding the cost of capital. The ratio decreased to 0.77% in Nov 2024 before the substantial increase.

The relationship between economic profit and the economic spread ratio is evident. The peak in economic spread ratio in Dec 2021 corresponds with the highest reported economic profit during the period. Similarly, the lowest ratio in Dec 2023 aligns with a relatively low economic profit. The substantial increase in the economic spread ratio in Nov 2025 is directly linked to the significant increase in economic profit reported for that period.

Invested Capital Consideration

Invested capital generally increased from 2020 to 2023, rising from US$18,837 million to US$24,970 million. A slight decrease was observed in Nov 2025, falling to US$22,203 million. While economic profit and the economic spread ratio were impacted by changes in invested capital, the fluctuations in economic profit appear to be the primary driver of the observed changes in the economic spread ratio.

Overall, the economic spread ratio exhibits considerable variability. The recent increase to 13.06% suggests a positive shift in the company’s ability to generate value for its investors, but the prior decline warrants continued monitoring to understand the underlying factors influencing this metric.

The economic profit margin exhibited significant fluctuation over the observed period. Initial values demonstrated a substantial increase followed by a decline, and then a marked recovery. A detailed examination of the trends is presented below.

Economic Profit Margin Trend

In November 2020, the economic profit margin stood at 1.57%. This figure increased dramatically to 10.99% in December 2021, indicating a considerable improvement in profitability relative to adjusted revenue. A subsequent decrease was observed in December 2022, with the margin falling to 7.50%. This downward trend continued into December 2023, reaching a low of 1.18%. However, a strong recovery began in November 2024, with the margin declining slightly to 0.88%, before experiencing a substantial increase to 11.81% in November 2025.

Relationship to Economic Profit

The economic profit margin’s movements correlate with the absolute values of economic profit. The peak in economic profit margin in 2021 aligns with the highest reported economic profit of US$1,857 million. Similarly, the lowest margin in 2023 corresponds with the lowest economic profit of US$235 million. The significant increase in the margin in 2025 is directly linked to the substantial rise in economic profit to US$2,899 million.

Adjusted Revenue Context

Adjusted revenue consistently increased throughout the period, moving from US$13,126 million in 2020 to US$24,540 million in 2025. While revenue growth was consistent, the economic profit margin did not follow a similar trajectory, indicating that revenue increases alone did not guarantee proportional increases in economic profitability. The margin’s fluctuations suggest that changes in costs, capital employed, or other factors influencing economic profit played a significant role.

Overall, the economic profit margin demonstrates a volatile pattern, heavily influenced by the absolute level of economic profit. The substantial increase in the margin in the final period suggests a positive shift in the company’s ability to generate economic profit from its adjusted revenue.