Lam Research Corp. (NASDAQ:LRCX)

The financial performance, as measured by economic profit, exhibits considerable fluctuation over the observed period. Net operating profit after taxes (NOPAT) generally increased from 2020 to 2022, followed by a decline in 2023 and a further decrease in 2024, before a substantial recovery in 2025. Simultaneously, the cost of capital demonstrated a consistent, albeit gradual, upward trend throughout the entire period. Invested capital also generally increased, peaking in 2023 before experiencing a slight decrease in 2024 and then a significant rise in 2025.

Economic Profit Trend

Economic profit began at a negative value in 2020, indicating the company’s returns were insufficient to cover its cost of capital. A significant positive shift occurred in 2021 and continued into 2022, demonstrating substantial value creation. However, economic profit decreased notably in 2023, and turned negative again in 2024, suggesting a weakening of value creation. The most recent year, 2025, shows a strong rebound, with economic profit reaching its highest point in the observed period.

NOPAT and Cost of Capital Relationship

While NOPAT increased from 2020 to 2022, the concurrent rise in the cost of capital partially offset these gains in terms of economic profit. The decline in NOPAT in 2023 and 2024, coupled with a continuing increase in the cost of capital, contributed to the reduction in economic profit during those years. The substantial increase in NOPAT in 2025, despite a further increase in the cost of capital, resulted in a significant improvement in economic profit.

Invested Capital and Economic Profit

The increase in invested capital from 2020 to 2023 did not consistently translate into proportional increases in economic profit. While invested capital grew, the ability to generate returns exceeding the cost of that capital varied. The slight decrease in invested capital in 2024 did not prevent economic profit from becoming negative, and the substantial increase in 2025 coincided with a strong recovery in economic profit, suggesting improved capital efficiency in the latter year.

Overall, the period demonstrates a dynamic relationship between NOPAT, cost of capital, and invested capital. The company’s ability to generate economic profit is sensitive to changes in these factors, with 2025 representing a period of particularly strong value creation after a period of fluctuating performance.

Net Income

The net income demonstrated a generally positive trend over the analyzed period, with some fluctuations. Starting at approximately 2.25 billion USD in 2020, it almost doubled in 2021 to 3.91 billion USD and increased further to about 4.61 billion USD in 2022. A slight decrease occurred in 2023, falling to 4.51 billion USD, followed by a more pronounced decline in 2024 to 3.83 billion USD. However, in 2025, net income surged significantly to approximately 5.36 billion USD, marking the highest point in the time frame.

Net Operating Profit After Taxes (NOPAT)

The NOPAT showed a generally upward trajectory until 2022, beginning at about 2.40 billion USD in 2020 and increasing substantially to approximately 5.63 billion USD by 2022. However, there was a notable reduction in the following years; NOPAT dropped to 4.06 billion USD in 2023 and further declined to 3.26 billion USD in 2024. A strong recovery is observed in 2025, with NOPAT rising sharply to around 6.11 billion USD, the highest value recorded in the examined periods.

General Observations

Both net income and NOPAT largely followed similar trends, with growth peaking in 2022, followed by declines in 2023 and 2024, prior to significant recoveries in 2025. The reductions in 2023 and 2024 suggest temporary challenges affecting profitability and operational efficiency. The considerable rebound in 2025 indicates successful measures to restore profitability and operational performance. Overall, the company appears to maintain strong profit-generating capabilities with cyclical variability.

Provision for Income Taxes

The provision for income taxes exhibits a generally increasing trend from 2020 through 2023, rising from approximately 323 million US dollars in 2020 to nearly 598 million US dollars in 2023. However, in the subsequent year (2024), there is a noticeable decline to about 532 million US dollars, before rising again significantly in 2025 to approximately 600 million US dollars. This pattern suggests some fluctuation in estimated tax liabilities despite an overall upward movement.

Cash Operating Taxes

Cash operating taxes show a consistent and marked upward trajectory over the entire period analyzed. Starting at approximately 361 million US dollars in 2020, cash taxes almost double to around 654 million US dollars in 2021. The upward momentum continues sharply into 2022 with cash taxes reaching about 883 million US dollars. Although there is a downward adjustment in 2023 and 2024—declining to roughly 782 million and 718 million US dollars respectively—the value increases again considerably in 2025 to approximately 954 million US dollars. This indicates variability in actual cash outflows for taxes, with a generally increasing trend over the six-year period.

Comparative Insights

When comparing provision for income taxes with cash operating taxes, cash taxes have consistently been higher than provisions throughout all years. The gap between these two metrics widens substantially from 2020 to 2022, implying that actual tax payments in cash increasingly exceeded estimated provisions in these years. Although provisions increase steadily, the fluctuations and higher amounts in cash operating taxes may reflect timing differences, changes in tax planning strategies, or variations in tax payments versus accrual estimates.

Total Reported Debt & Leases

The total debt and leases demonstrate a declining trend over the reported periods. Starting from approximately 5.98 billion in mid-2020, the amount decreases to around 4.76 billion by mid-2025. This suggests a possible strategy of reducing leverage or paying down debt over the years, particularly notable from mid-2024 to mid-2025.

Stockholders’ Equity

Stockholders’ equity shows a consistent upward trend across all periods. It grows from about 5.17 billion in 2020 to nearly 9.86 billion in 2025. This significant increase indicates enhanced company value or accumulated earnings, suggesting strengthened financial health and increased net assets over time.

Invested Capital

Invested capital rises steadily from approximately 11.79 billion in 2020 to around 16.36 billion in 2025, with a minor dip observed between mid-2023 and mid-2024. This overall upward movement reflects continued investment in operations or assets, supporting growth initiatives or expansion efforts.

The economic spread ratio demonstrates significant fluctuation over the observed period. Initially negative in June 2020, it experienced substantial growth through June 2022 before declining and then recovering. Invested capital consistently increased throughout the period, with a slight decrease observed between June 2023 and June 2024.

Economic Spread Ratio - Trend Analysis

The economic spread ratio began at -0.92% in June 2020, indicating that the company’s return on invested capital was less than its cost of capital. A dramatic increase followed, reaching 14.77% in June 2021 and peaking at 19.42% in June 2022. This suggests a period of strong value creation. A considerable decline to 4.44% occurred by June 2023, followed by a further decrease to -0.90% in June 2024, returning the ratio to a negative value. The ratio then rebounded sharply to 14.25% in June 2025.

Economic Profit - Relationship to Spread Ratio

The negative economic spread ratios in June 2020 and June 2024 correspond with periods of negative economic profit. Conversely, the positive and increasing economic spread ratios in June 2021 and June 2022 align with substantial positive economic profit. The decline in the economic spread ratio in June 2023 and June 2024 is mirrored by a decrease in economic profit, although it remained positive in June 2023. The recovery in the spread ratio in June 2025 is associated with a return to significant economic profit.

Invested Capital - Trend Analysis

Invested capital exhibited a consistent upward trend from June 2020 through June 2024, increasing from US$11,789,502 thousand to US$14,985,787 thousand. A minor decrease was observed between June 2023 and June 2024, falling to US$14,840,667 thousand. A further increase is then seen in June 2025, reaching US$16,358,579 thousand. This suggests ongoing investment in the business, with a slight adjustment in capital allocation between 2023 and 2024.

The fluctuations in the economic spread ratio suggest sensitivity to underlying economic conditions or company-specific factors impacting profitability relative to capital costs. The correlation between the economic spread ratio and economic profit indicates that the company’s ability to generate returns exceeding its cost of capital is a key driver of its financial performance.

The economic profit margin exhibited significant fluctuations over the observed period. Initial observations reveal a substantial shift from a negative economic profit in 2020 to positive values in subsequent years, followed by another decline and subsequent recovery.

Economic Profit Margin Trend

In 2020, the economic profit margin was negative at -1.08%. A dramatic increase occurred in 2021, reaching 11.91%. This positive trend continued into 2022, with the margin peaking at 14.34%. A considerable decrease was then noted in 2023, falling to 3.90%. The margin experienced a further decline in 2024, becoming negative again at -0.91%. Finally, the margin rebounded strongly in 2025, returning to 11.91%, mirroring the level observed in 2021.

The economic profit margin’s movement closely follows the trend in economic profit. The negative margins in 2020 and 2024 correspond with periods of negative economic profit, indicating that the company’s returns were insufficient to cover its cost of capital during those years. Conversely, the positive margins in 2021, 2022, and 2025 align with periods of positive economic profit, suggesting value creation for shareholders during those times.

Relationship to Adjusted Revenue

While adjusted revenue generally increased from 2020 to 2022, it decreased in 2023 and 2024 before increasing again in 2025. The economic profit margin’s fluctuations were not solely driven by revenue changes. The largest margin increase occurred between 2020 and 2021 despite a substantial revenue increase, suggesting improved operational efficiency or cost management. The decline in margin in 2023 occurred alongside a decrease in adjusted revenue, but the subsequent decline in 2024 occurred with a smaller revenue decrease, indicating that factors beyond revenue were influencing profitability.

The cyclical nature of the economic profit margin suggests sensitivity to underlying economic conditions or company-specific factors impacting profitability. The return to a margin of 11.91% in 2025 indicates a potential stabilization or recovery in value creation following the downturn experienced in 2023 and 2024.