Alphabet Inc. (NASDAQ:GOOG)

The financial performance, as measured by economic profit, demonstrates a fluctuating yet generally positive trend over the five-year period. Net operating profit after taxes (NOPAT) experienced volatility, while the cost of capital remained relatively stable. Invested capital increased consistently throughout the period, influencing the overall economic profit calculation.

Net Operating Profit After Taxes (NOPAT)

NOPAT decreased significantly from 2021 to 2022, falling from US$77,747 million to US$52,578 million. A subsequent recovery was observed in 2023, reaching US$65,370 million, followed by substantial growth in 2024 and 2025, reaching US$93,781 million and US$140,506 million respectively. This indicates improving operational profitability in the latter years of the observed period.

Cost of Capital

The cost of capital exhibited minimal fluctuation, remaining consistently around 18.6% to 18.7% throughout the five-year period. This stability suggests a consistent risk profile and financing structure for the company.

Invested Capital

Invested capital increased from US$171,408 million in 2021 to US$310,780 million in 2025. The increase was not linear, with a slight decrease observed between 2022 and 2023, but overall demonstrates a growing capital base.

Economic Profit

Economic profit mirrored the trend in NOPAT, declining from US$45,690 million in 2021 to US$14,913 million in 2022. It then increased to US$29,904 million in 2023, and continued to rise substantially to US$51,046 million in 2024 and US$82,409 million in 2025. The increasing economic profit suggests the company is generating returns exceeding its cost of capital, particularly in the later years.

The correlation between NOPAT and economic profit is strong, indicating that changes in operational profitability are the primary driver of economic value creation. The consistent increase in invested capital, coupled with improving NOPAT, contributed to the overall positive trend in economic profit observed from 2022 to 2025.

Net income and net operating profit after taxes (NOPAT) experienced fluctuations over the five-year period. While both metrics moved in similar directions, the magnitude and timing of changes differed. A significant decrease in both net income and NOPAT was observed between 2021 and 2022, followed by periods of recovery and growth through 2025.

NOPAT Trend

NOPAT decreased substantially from US$77,747 million in 2021 to US$52,578 million in 2022, representing a decline of approximately 32.2%. A subsequent recovery occurred in 2023, with NOPAT reaching US$65,370 million. This upward trend continued into 2024, with NOPAT increasing to US$93,781 million, and accelerated further in 2025, reaching US$140,506 million. The 2025 value represents an increase of approximately 80.7% compared to 2023 and a 50.1% increase compared to 2024.

Relationship between Net Income and NOPAT

The values for net income and NOPAT are closely aligned throughout the period. The largest divergence occurred in 2022, where the decrease in NOPAT was more pronounced than the decrease in net income. This suggests potential changes in non-operating items or tax rates during that year. In 2024 and 2025, the growth rates of both metrics were similar, indicating a consistent relationship between core operating profitability and overall net earnings.

The substantial growth in both NOPAT and net income from 2022 to 2025 suggests improved operational efficiency, increased revenue, or a combination of both. The recovery from the 2022 decline indicates a successful response to whatever factors contributed to the initial downturn. Further investigation into the drivers of these changes would be beneficial for a more comprehensive understanding of the company’s financial performance.

The provision for income taxes and cash operating taxes exhibited distinct patterns over the five-year period. The provision for income taxes generally increased, while cash operating taxes demonstrated more volatility.

Provision for Income Taxes

The provision for income taxes increased from US$14,701 million in 2021 to US$26,656 million in 2025. A decrease was observed in 2022, falling to US$11,356 million, before recovering and steadily increasing through 2025. This suggests a growing tax burden as reported income increased, with a temporary dip in 2022.

Cash Operating Taxes

Cash operating taxes showed considerable fluctuation. Beginning at US$12,624 million in 2021, it rose significantly to US$19,532 million in 2022. It remained relatively stable at US$19,318 million in 2023, then increased to US$24,384 million in 2024, before decreasing substantially to US$17,726 million in 2025. This volatility indicates potential changes in tax payments related to timing differences between reported income and actual cash outflows, or changes in tax planning strategies.

The divergence between the provision for income taxes and cash operating taxes is notable. While the provision for income taxes consistently trended upward (excluding the 2022 dip), cash operating taxes experienced more pronounced swings. This difference could be attributed to deferred tax assets or liabilities, tax credits utilized, or changes in the effective tax rate impacting actual cash payments. Further investigation into the components of these figures would be necessary to fully understand the underlying drivers.

Relationship between Provision and Cash Taxes

In 2021, cash operating taxes were approximately 86% of the provision for income taxes. This percentage increased to 172% in 2022, then decreased to 102% in 2023, 124% in 2024, and finally to 66% in 2025. This fluctuating ratio highlights the increasing disconnect between accounting income and cash tax payments over the period, particularly in 2025.

The reported figures reveal evolving trends in the company’s capital structure between 2021 and 2025. Total reported debt & leases exhibited a generally increasing pattern, with a significant jump occurring in 2025. Stockholders’ equity demonstrated consistent growth throughout the period, accelerating in the later years. Invested capital fluctuated, showing an initial increase followed by a decrease, and then resumed growth.

Debt & Leases

Total reported debt & leases increased from US$28,508 million in 2021 to US$29,977 million in 2022, representing a modest rise. It remained relatively stable in 2023 at US$29,867 million before increasing to US$30,437 million in 2024. A substantial increase is observed in 2025, reaching US$66,996 million, indicating a significant reliance on debt financing during that year.

Stockholders’ Equity

Stockholders’ equity experienced steady growth over the five-year period. It rose from US$251,635 million in 2021 to US$256,144 million in 2022. The rate of increase accelerated in subsequent years, reaching US$283,379 million in 2023, US$325,084 million in 2024, and culminating in US$415,265 million in 2025. This suggests increasing retained earnings and/or equity issuances.

Invested Capital

Invested capital initially increased from US$171,408 million in 2021 to US$202,355 million in 2022. However, a decrease was noted in 2023, with invested capital falling to US$189,779 million. The trend reversed in 2024, with invested capital rising to US$227,952 million, and continued its upward trajectory in 2025, reaching US$310,780 million. The fluctuations suggest potential shifts in capital allocation strategies or asset management.

The combined trends indicate a growing company, particularly in terms of equity. The significant increase in debt in 2025, coupled with the rising invested capital, warrants further investigation to determine the purpose of the increased leverage and its potential impact on future financial performance.

The economic spread ratio demonstrates a fluctuating pattern over the five-year period. Initial values indicate a substantial spread, followed by a significant contraction, and then a recovery culminating in a return to levels comparable to the beginning of the period.

Economic Spread Ratio - Overall Trend

The economic spread ratio began at 26.66% in 2021. A marked decrease was observed in 2022, falling to 7.37%. Subsequent years show a recovery, with the ratio increasing to 15.76% in 2023, 22.39% in 2024, and reaching 26.52% in 2025. This suggests improving profitability relative to invested capital after the initial decline.

The economic spread ratio’s movement correlates with changes in economic profit. The substantial drop in the ratio in 2022 aligns with a significant reduction in economic profit for the same year. Conversely, the ratio’s increase from 2023 onwards mirrors the growth in economic profit.

Relationship to Invested Capital

While the economic spread ratio recovered, invested capital also increased throughout the period. The ratio’s ability to reach similar levels in 2025 as in 2021, despite a larger invested capital base, indicates an improved efficiency in generating returns from the increased investment.

The observed pattern suggests a period of reduced profitability in 2022, followed by a strong rebound and continued improvement in the subsequent years. The economic spread ratio’s trajectory indicates a strengthening of the relationship between economic profit and invested capital.

The economic profit margin demonstrates a fluctuating, yet ultimately positive, trend over the five-year period. Initial performance in 2021 was strong, followed by a significant decline in 2022, before recovering and exhibiting consistent growth through 2025. This suggests a dynamic relationship between profitability and revenue generation.

Economic Profit Margin (2021-2025)

In 2021, the economic profit margin stood at 17.68%. This represents a substantial level of economic value creation relative to adjusted revenues. A marked decrease was observed in 2022, with the margin falling to 5.26%, indicating a considerably lower level of economic profit generated per dollar of revenue.

The margin began a recovery in 2023, reaching 9.71%, signaling an improvement in economic profitability. This upward trajectory continued into 2024, with the margin increasing to 14.54%. The most significant growth occurred between 2024 and 2025, with the economic profit margin reaching 20.33%.

The consistent increase from 2022 through 2025 suggests improving operational efficiency, effective capital allocation, or a combination of both. The 2025 margin represents the highest level observed during the analyzed period, indicating a peak in economic value creation.

The economic profit itself mirrors the trend in the economic profit margin. While the absolute economic profit decreased substantially from 2021 to 2022, it has steadily increased since, culminating in a significant rise between 2024 and 2025. This reinforces the conclusion that the company’s ability to generate economic profit has improved over time, particularly in the latter part of the period.

Relationship between Adjusted Revenues and Economic Profit Margin

Adjusted revenues have consistently increased throughout the period, from US$258,436 million in 2021 to US$405,436 million in 2025. However, the economic profit margin’s fluctuations indicate that revenue growth alone does not fully explain the changes in economic profitability. The substantial margin improvement in the later years, despite continued revenue growth, suggests that the company has become more effective at converting revenue into economic profit.

Overall, the analysis reveals a period of initial strength, followed by a temporary setback, and then a sustained period of improvement in economic profit margin and economic profit. The company appears to have successfully addressed the factors contributing to the 2022 decline and has demonstrated an increasing ability to generate economic value.