Applied Materials Inc. (NASDAQ:AMAT)

The period demonstrates a generally positive trajectory in economic profit, though with some fluctuations. Net operating profit after taxes (NOPAT) increased significantly from 2020 to 2021, continued to grow through 2022, experienced a slight decline in 2023, and then stabilized before increasing again in 2025. Invested capital also exhibited a consistent upward trend throughout the observed timeframe. The cost of capital remained relatively stable, fluctuating within a narrow range.

Economic Profit Trend

Economic profit increased substantially from US$1,317 million in 2020 to US$3,209 million in 2021, representing a significant improvement in value creation. This growth continued to US$3,916 million in 2022, establishing a peak. A decrease to US$2,913 million occurred in 2023, followed by a further decline to US$2,530 million in 2024. However, economic profit rebounded strongly in 2025, reaching US$4,086 million, surpassing the previous high.

NOPAT Performance

NOPAT showed strong growth initially, increasing from US$3,885 million in 2020 to US$6,175 million in 2021, and further to US$6,900 million in 2022. A modest decrease to US$6,533 million was observed in 2023, followed by a slight further reduction to US$6,363 million in 2024. The final year presented a substantial increase, with NOPAT reaching US$8,205 million in 2025.

Cost of Capital Stability

The cost of capital remained relatively consistent across the period, ranging from 19.62% to 20.47%. The fluctuations were minimal, indicating a stable financing environment. The cost of capital increased from 19.62% in 2020 to 20.15% in 2021, then decreased slightly to 20.04% in 2022, before increasing again to 20.37% in 2023 and 20.27% in 2024, and finally to 20.47% in 2025.

Invested Capital Growth

Invested capital demonstrated a consistent upward trend, increasing from US$13,090 million in 2020 to US$14,717 million in 2021, US$14,890 million in 2022, US$17,777 million in 2023, US$18,913 million in 2024, and reaching US$20,121 million in 2025. This indicates a continuous reinvestment of capital into the business.

The observed fluctuations in economic profit appear to be influenced by the interplay between NOPAT and invested capital, while the cost of capital remained a relatively constant factor. The strong finish in 2025 suggests improved efficiency in capital allocation or increased profitability from the expanded capital base.

Net Income

Net income exhibited a generally strong upward trajectory from 2020 to 2024, increasing from 3,619 million US dollars in 2020 to a peak of 7,177 million US dollars in 2024. This represents a significant growth, more than doubling the net income over this four-year span. However, in 2025, a slight decline is observed where net income decreased to 6,998 million US dollars, indicating a minor contraction after consistent annual gains.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrates a positive trend overall but with more variability compared to net income. It rose steadily from 3,885 million US dollars in 2020 to 6,900 million US dollars in 2022. Subsequently, there was a decrease in 2023 and 2024, with values of 6,533 million and 6,363 million US dollars respectively, suggesting some operational challenges or increased tax impacts during these years. In 2025, NOPAT sharply increased to 8,205 million US dollars, reaching the highest level in the examined period.

Comparative Insights

While both net income and NOPAT have grown over the long term, net income showed more consistent annual increases up to 2024 followed by a slight decrease, whereas NOPAT showed a dip in the middle years before a strong rebound in 2025. The sharp increase in NOPAT in the final year could indicate improved operational efficiency or tax benefits not reflected to the same degree in net income. The divergence in 2025 suggests potential differences in non-operating items, interest, or tax treatment affecting net income and operating profitability differently.

Overall Summary

Both profitability measures underscore an expanding profit base over the analyzed period, with net income nearly doubling and NOPAT more than doubling from 2020 to 2025. The trends reveal robust performance growth with a temporary moderation in operational profitability mid-period, followed by a strong operational recovery. The slight net income decline in the final year compared to NOPAT's peak requires further qualitative investigation but does not overshadow the overall positive performance trajectory.

The financial data reveals substantial fluctuations in the provision for income taxes and cash operating taxes over the six-year period. Both metrics exhibit upward trends overall, albeit with certain inconsistencies in year-to-year changes.

Provision for Income Taxes

The provision for income taxes amounts to $547 million in 2020 and increases significantly to $883 million in 2021, representing a rise of approximately 61%. This upward trend continues into 2022, reaching $1074 million. However, the value decreases to $860 million in 2023, indicating a notable reduction of around 20%. Subsequently, it rises again to $975 million in 2024 and peaks sharply at $2273 million in 2025, more than doubling from the previous year. This dramatic increase in 2025 suggests either substantially higher taxable income or changes in tax policies or accounting estimates affecting the tax provision.

Cash Operating Taxes

Cash operating taxes also show a general upward trajectory, starting at $530 million in 2020 and increasing steadily to $868 million in 2021 and $920 million in 2022. There is a pronounced increase to $1215 million in 2023, followed by a sharp rise to $1606 million in 2024. However, this trend reverses in 2025, with cash operating taxes decreasing to $1095 million. The decline in 2025 contrasts with the sharp increase in the provision for income taxes, which may imply timing differences, changes in tax payments structure, or adjustments related to deferred tax assets or liabilities.

Overall, the data points to increasing tax expenses and cash tax outflows over the analyzed period, with a notable divergence in the final year where the provision for income taxes rises substantially while cash operating taxes decline. This pattern may warrant further examination to understand underlying causes such as tax strategy changes, income fluctuations, or regulatory impacts.

The financial data reveals key trends in the company's capital structure and financial position over the examined periods. The analysis focuses on total reported debt and leases, stockholders’ equity, and invested capital, all expressed in millions of US dollars.

Total reported debt & leases

This metric has exhibited a steady upward trend across all periods. Beginning at 5,707 million in late 2020, it gradually increased each year, reaching 7,050 million by late 2025. The rate of increase suggests a consistent reliance on debt and lease obligations as part of financing, with a noticeable acceleration in the later years, especially between 2023 and 2025.

Stockholders’ equity

Stockholders’ equity has generally shown significant growth over the timeline. From 10,578 million in 2020, it increased modestly by 15.8% to 12,247 million in 2021 but slightly declined in 2022 to 12,194 million. After this dip, equity surged considerably to 16,349 million in 2023 and continued to rise, reaching 20,415 million by 2025. The sharp growth following 2022 may indicate increased profitability, retained earnings, or equity financing activities during that period.

Invested capital

Invested capital also shows a progressive increase, starting at 13,090 million in 2020 and growing to 20,121 million by 2025. The progression is generally smooth with the largest increments occurring in later years. This pattern aligns with the increases in both debt and equity, reflecting the overall expansion in the company’s capital base used for operations and growth.

Overall, the company demonstrates a pattern of expanding financial resources, both through increasing debt and growing equity. The balance between these components indicates a strategy of leveraging alongside strengthened equity, contributing to a larger invested capital base. The prominent rise in equity in recent years, paired with a steady increase in debt, points toward an improving financial position and potentially enhanced capability to fund strategic initiatives.

The economic spread ratio demonstrates a fluctuating pattern over the observed period. Initially, the ratio experienced substantial growth, followed by a period of decline, and then a resurgence. This suggests evolving profitability relative to invested capital.

Economic Spread Ratio Trend

In fiscal year 2020, the economic spread ratio stood at 10.06%. A significant increase was observed in 2021, reaching 21.80%, indicating improved returns on invested capital. This positive trend continued into 2022, with the ratio peaking at 26.30%. However, a notable decrease occurred in 2023, with the ratio falling to 16.38%. This downward movement persisted into 2024, with a further decline to 13.38%. The ratio then exhibited a recovery in 2025, rising to 20.31%.

The economic spread ratio’s movement appears to correlate with changes in economic profit. While invested capital generally increased throughout the period, the ratio’s fluctuations suggest that the growth in economic profit did not consistently keep pace with the growth in invested capital. The largest decline in the economic spread ratio coincided with a decrease in economic profit in 2023, while the recovery in 2025 aligns with an increase in economic profit.

Invested Capital and Economic Profit Relationship

Invested capital consistently increased from US$13,090 million in 2020 to US$20,121 million in 2025. Economic profit, however, was more volatile, moving from US$1,317 million in 2020 to US$3,209 million in 2021, US$3,916 million in 2022, US$2,913 million in 2023, US$2,530 million in 2024, and finally US$4,086 million in 2025. This disparity indicates that the efficiency with which capital was deployed to generate economic profit varied across the years.

The economic spread ratio’s recent upward trend in 2025 suggests a potential improvement in the company’s ability to generate returns from its invested capital. However, continued monitoring is necessary to determine if this represents a sustained shift or a temporary fluctuation.

The economic profit margin exhibited a generally increasing trend from 2020 to 2022, followed by a decline in 2023, a further decrease in 2024, and a subsequent recovery in 2025. This pattern mirrors fluctuations in economic profit and net revenue over the same period.

Economic Profit Margin Trend

In 2020, the economic profit margin stood at 7.65%. This figure increased substantially to 13.91% in 2021 and continued to rise, reaching a peak of 15.19% in 2022. A noticeable decrease occurred in 2023, with the margin falling to 10.98%. This downward trend persisted in 2024, with the margin declining further to 9.31%. However, the margin rebounded in 2025, increasing to 14.40%, indicating a return to levels comparable to those observed in 2021 and 2022.

Relationship to Economic Profit

The economic profit margin’s fluctuations correlate with changes in economic profit. The highest margins in 2022 coincided with the highest economic profit of US$3,916 million. Conversely, the lowest margin in 2024 corresponded with a lower economic profit of US$2,530 million. The increase in margin in 2025 aligns with the increase in economic profit to US$4,086 million.

Relationship to Net Revenue

Net revenue consistently increased from 2020 to 2025. However, the economic profit margin did not increase proportionally with revenue growth, particularly evident in 2023 and 2024. While net revenue increased from US$25,785 million in 2022 to US$26,517 million in 2023, the economic profit margin decreased. This suggests that increases in revenue did not translate into equivalent increases in economic profit during those years. The margin’s recovery in 2025, alongside continued revenue growth, indicates improved efficiency in generating economic profit from increased sales.

Overall, the economic profit margin demonstrates sensitivity to both economic profit and net revenue. The observed fluctuations suggest a dynamic relationship between revenue generation, profitability, and the cost of capital.