Micron Technology Inc. (NASDAQ:MU)

The period under review demonstrates significant fluctuations in economic profit. Initial observations reveal a pattern of improving, then sharply declining, financial performance, followed by a potential recovery. Net operating profit after taxes (NOPAT) initially increased substantially before experiencing a substantial loss, and then a partial rebound.

Overall Economic Profit Trend

Economic profit exhibited a negative trend from 2020 through 2023, culminating in a substantial loss in 2023. While economic profit remained negative in 2024, the magnitude of the loss decreased compared to 2023. Projections for 2025 indicate a continued, though incomplete, recovery, with economic profit remaining negative but lessening in magnitude.

NOPAT Analysis

NOPAT increased from US$2,891 million in 2020 to US$5,967 million in 2021, and further to US$9,071 million in 2022. A dramatic shift occurred in 2023, with NOPAT falling to a loss of US$5,885 million. A partial recovery is observed in 2024, with NOPAT reaching US$857 million, and a further increase to US$8,713 million is projected for 2025.

Cost of Capital

The cost of capital remained relatively stable between 2020 and 2023, fluctuating between 18.76% and 19.61%. A slight increase to 19.42% is projected for 2024, followed by a more pronounced increase to 20.15% in 2025. This increasing cost of capital may present a challenge to future profitability.

Invested Capital

Invested capital generally increased over the period, rising from US$42,291 million in 2020 to US$52,741 million in 2022. It remained relatively stable in 2023 and 2024, at US$53,467 million and US$53,327 million respectively. A significant increase to US$61,173 million is projected for 2025, suggesting potential expansion or investment activities.

The substantial decline in NOPAT in 2023 appears to be the primary driver of the significant negative economic profit observed in that year. While NOPAT is projected to recover, the increasing cost of capital and rising invested capital in later periods will require continued strong operational performance to generate positive economic profit.

Net Income (Loss) Attributable to Micron

The net income exhibited significant fluctuations over the observed periods. Starting from a positive value of 2,687 million USD in 2020, there was a substantial increase to 5,861 million USD in 2021, followed by a further rise to 8,687 million USD in 2022. However, the year 2023 saw a marked reversal with a net loss of 5,833 million USD. Subsequently, the net income rebounded in 2024 to a positive 778 million USD and further increased to 8,539 million USD in 2025. This pattern highlights considerable volatility in profitability, with a notable dip in 2023 amidst an overall upward trajectory in net income.

Net Operating Profit After Taxes (NOPAT)

NOPAT reflected a trend similar to net income, indicating a strong correlation between operating profitability and net earnings. The figure rose steadily from 2,891 million USD in 2020 to 5,967 million USD in 2021 and reached a peak of 9,071 million USD in 2022. A sharp decline occurred in 2023, with NOPAT turning negative at -5,885 million USD. Recovery ensued in 2024 with a modest positive value of 857 million USD and a significant improvement to 8,713 million USD in 2025. This indicates that operating efficiency and after-tax operating profits experienced a disruption in 2023 but resumed a positive and robust recovery in the subsequent years.

Overall Trends and Insights

Both net income and NOPAT demonstrated robust growth through 2022, followed by a critical downturn in 2023. The sharp declines in 2023 suggest an extraordinary or challenging event impacting profitability and operational effectiveness during that year. The recovery in 2024 and strong performance in 2025 reflect resilience and an effective restoration of earnings capacity. The data suggests that despite volatility, the company managed to return to a growth trajectory in profitability in the most recent period.

Income Tax Provision

Over the examined periods, the income tax provision exhibits considerable volatility. Starting at 280 million USD in 2020, it rose significantly to 394 million USD in 2021. The figure then more than doubled to 888 million USD in 2022, indicating a substantial increase in tax expenses or taxable income during that year. However, in 2023, the income tax provision sharply declined to 177 million USD, the lowest in the observed timeframe. It then rebounded to 451 million USD in 2024 and reached a peak of 1,124 million USD in 2025, marking the highest level recorded. This pattern suggests fluctuations in profitability or changes in tax strategy, with a notable upward trend towards the latter periods.

Cash Operating Taxes

Cash operating taxes demonstrate a parallel yet slightly less volatile pattern compared to the income tax provision. Beginning at 189 million USD in 2020, the amount increased to 446 million USD in 2021 and further rose to 618 million USD in 2022. A significant decline occurred in 2023, where the cash operating taxes dropped to 172 million USD, closely mirroring the income tax provision trend. Following this low point, there was a recovery to 428 million USD in 2024, and a substantial increase to 963 million USD in 2025. The overall trajectory shows growth in cash taxes paid, with a notable dip in 2023, suggesting changes in operating income or tax payments timing.

Comparative Analysis

Both income tax provision and cash operating taxes reveal correlated fluctuations across the years, with peaks in 2022 and 2025 and a pronounced trough in 2023. The income tax provision consistently exceeds cash operating taxes, indicating differences likely due to deferred tax adjustments or non-cash tax expenses. The sharp variations imply that fiscal results and tax obligations experienced significant shifts over the period, possibly impacted by changes in earnings, tax legislation, or accounting practices.

Total Reported Debt & Leases

The total reported debt and leases demonstrate a fluctuating upward trend over the analyzed periods. Initially, the amount increased slightly from 7,230 million USD in 2020 to 7,576 million USD in 2022. A significant rise occurred between 2022 and 2023, with the value nearly doubling to 13,999 million USD. This elevated level of debt and leases was sustained through 2024 and increased further to 15,352 million USD in 2025, indicating an increasing reliance on debt financing in recent years.

Shareholders’ Equity

Shareholders’ equity generally exhibited growth over the reported timeframe, rising from 38,996 million USD in 2020 to a peak of 49,907 million USD in 2022. However, in 2023, equity declined to 44,120 million USD before resuming an upward trend, reaching 54,165 million USD in 2025. This pattern suggests some volatility, but a longer-term positive increase in equity base is evident by the end of the period.

Invested Capital

Invested capital shows an overall growth trend, moving from 42,291 million USD in 2020 to 61,173 million USD in 2025. The increase appears steady, with minor fluctuations around 2023 and 2024 when the invested capital plateaued near 53,000 million USD before rising again. This reflects a consistent expansion in the company's total capital commitment over the examined years.

General Insights

The data indicates that the company has been increasing its use of debt and leases substantially since 2022, which has contributed to rising invested capital. Despite some fluctuations in shareholders’ equity, the overall capital structure suggests growth and increased financial leverage. The simultaneous growth in both equity and debt levels points to an expansion strategy that involves utilizing both internal funds and external borrowings.

The economic spread ratio demonstrates a volatile pattern over the observed period. Initially, the ratio exhibited a decreasing negative value, suggesting improving economic profitability relative to invested capital, but this trend reversed sharply in recent years.

Economic Spread Ratio Trend

In fiscal year 2020, the economic spread ratio was -12.18%. This figure improved to -6.74% in 2021 and further to -2.13% in 2022, indicating a narrowing gap between the return on invested capital and the cost of capital. However, a substantial deterioration occurred in 2023, with the ratio plummeting to -29.76%. This negative trend continued, though at a lessened rate, into 2024, reaching -17.82%. A further improvement is projected for 2025, with the ratio expected to be -5.91%.

The economic spread ratio’s movement closely mirrors the fluctuations in economic profit. The largest decline in the economic spread ratio coincides with the most significant decrease in economic profit observed in 2023. While economic profit remained negative throughout the period, the magnitude of the loss varied considerably, directly impacting the economic spread ratio.

Relationship to Invested Capital

Invested capital generally increased over the period, rising from US$42,291 million in 2020 to US$61,173 million in 2025. Despite this increase in capital employed, the economic spread ratio’s decline, particularly in 2023, suggests that the returns generated from this capital were insufficient to cover the cost of that capital. The projected improvement in the ratio for 2025, alongside continued growth in invested capital, indicates a potential for improved capital allocation or increased profitability.

The substantial negative economic spread ratio in 2023 warrants further investigation. The significant decline suggests a considerable underperformance relative to the cost of capital, potentially indicating operational inefficiencies, unfavorable market conditions, or poor investment decisions. The projected improvement in 2025, while positive, still leaves the ratio in negative territory, signifying continued value destruction, albeit at a reduced rate.

The economic profit margin demonstrates significant volatility over the observed period. Initially, the margin exhibited improvement, followed by a substantial decline and subsequent partial recovery. A review of the figures reveals a pattern of negative economic profit throughout the entire period, indicating that the company’s returns are not exceeding its cost of capital.

Economic Profit Margin Trend

In fiscal year 2020, the economic profit margin stood at -24.02%. This figure improved to -11.27% in 2021, and further to -3.65% in 2022. However, a dramatic deterioration occurred in 2023, with the margin plummeting to -102.41%. A partial recovery is then observed in 2024, with the margin increasing to -37.83%, and continuing into 2025 at -9.67%.

The substantial decline in the economic profit margin in 2023 is particularly noteworthy. This coincided with a decrease in revenue, but the economic profit itself experienced a much larger negative swing, suggesting a significant increase in the cost of capital or a substantial decline in operational efficiency relative to that cost. The subsequent improvements in 2024 and 2025, while positive, do not fully offset the losses experienced in 2023, and the margin remains negative.

Relationship to Revenue

Revenue increased from 2020 to 2022, but decreased significantly in 2023 before recovering in 2024 and projecting further growth in 2025. Despite the revenue growth in the earlier years, the economic profit margin remained negative, indicating that revenue increases alone were insufficient to generate positive economic profit. The sharp revenue decline in 2023 exacerbated the negative economic profit margin, and the subsequent revenue recovery in 2024 and 2025 was not enough to return the margin to positive territory.

The consistent negative economic profit suggests the company is destroying value for its investors. While the trend shows some improvement in the later years, sustained positive economic profit will be necessary to demonstrate value creation.