Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Microsoft Corp., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2026 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 153,695 – 17.67% × 571,487 = 52,721
The financial trajectory from June 30, 2021, through June 30, 2026, is characterized by aggressive capital expansion and a subsequent surge in operating profitability. While operating profits grew consistently, the rapid increase in the capital base initially exerted downward pressure on the total economic profit created, before a significant recovery in the final period.
- Net Operating Profit After Taxes (NOPAT)
- A sustained upward trend is observed, with NOPAT increasing from US$ 65,443 million in 2021 to US$ 153,695 million by 2026. Growth was steady between 2021 and 2023, followed by a more pronounced acceleration from 2024 onward, culminating in a substantial gain of approximately 50% between 2025 and 2026.
- Invested Capital Expansion
- The capital base grew aggressively, rising from US$ 143,637 million in 2021 to US$ 571,487 million in 2026. This significant increase indicates a period of intensive investment in assets or acquisitions, with the invested capital nearly quadrupling over the six-year span.
- Cost of Capital Stability
- The cost of capital remained relatively constant, oscillating within a narrow range between 17.64% and 17.86%. This stability suggests that the company's risk profile and the weighted average cost of its funding sources remained steady despite the massive scale of capital deployment.
- Economic Profit Dynamics
- Economic profit exhibited a declining trend from 2021 to 2025, falling from US$ 40,112 million to US$ 25,743 million. This contraction is attributed to the fact that the growth in the capital charge—the product of invested capital and the cost of capital—outpaced the growth in NOPAT during this interval. A sharp reversal occurred in 2026, where economic profit increased to US$ 52,721 million, signaling that the returns on the expanded capital base have finally begun to significantly exceed the cost of that capital.
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Net Operating Profit after Taxes (NOPAT)
Microsoft Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in unearned revenue.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2026 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 21,925 × 3.70% = 811
6 2026 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 3,862 × 21.00% = 811
7 Addition of after taxes interest expense to net income.
8 2026 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 7,686 × 21.00% = 1,614
9 Elimination of after taxes investment income.
An analysis of the financial performance from June 30, 2021, to June 30, 2026, reveals a consistent and accelerating upward trend in both profitability metrics. While both net income and net operating profit after taxes (NOPAT) exhibit strong growth, NOPAT demonstrates a more aggressive expansion, particularly in the latter stages of the period.
- Net Income Growth Trends
- Net income grew from 61,271 million US$ in 2021 to 133,749 million US$ by 2026. This trajectory is characterized by a period of moderate growth between 2021 and 2023, followed by a significant acceleration. A notable milestone occurs between 2024 and 2025, where net income surpasses the 100 billion US$ threshold, culminating in a sharp increase of approximately 31.6% in the final year of the analyzed period.
- NOPAT Performance and Volatility
- NOPAT reflects a similar growth pattern, rising from 65,443 million US$ in 2021 to 153,695 million US$ in 2026. A period of stagnation is observed between June 30, 2022, and June 30, 2023, where the value remained nearly flat at approximately 71 billion US$. However, this plateau was followed by rapid growth, with NOPAT increasing by roughly 70% between 2023 and 2026, indicating a substantial improvement in core operating efficiency.
- Comparative Analysis of NOPAT and Net Income
- NOPAT consistently exceeds net income throughout the entire period, suggesting that operating performance is stronger than the final bottom-line result after considering non-operating items. The variance between these two metrics widens significantly over time. In 2021, the difference was 4,200 million US$; by 2026, this gap expands to 19,946 million US$. This widening spread indicates that the company's operating profit is growing at a faster rate than its net income, highlighting an increase in the scale of operational value creation relative to overall accounting profit.
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Cash Operating Taxes
Microsoft Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
The financial data reveals a divergent relationship between the provision for income taxes and actual cash operating taxes over the observed six-year period. While the provision for income taxes demonstrates a consistent and accelerating upward trajectory, cash operating taxes exhibit a period of growth followed by a significant contraction in the final year.
- Provision for Income Taxes Trend
- A steady increase in tax provisions is observed from June 30, 2021, through June 30, 2025, with the value rising from 9,831 million US$ to 21,795 million US$. This growth culminates in a sharp spike in June 2026, where the provision reaches 32,185 million US$, representing a total increase of approximately 227% over the analyzed period.
- Cash Operating Taxes Dynamics
- Cash tax outflows grew aggressively between 2021 and 2025, increasing from 9,821 million US$ to a peak of 29,037 million US$. However, this trend reverses abruptly in June 2026, with cash operating taxes falling to 16,958 million US$, a decrease of approximately 41.6% from the previous year's peak.
- Variance Between Accrual and Cash Outflows
- For the majority of the period between 2022 and 2025, cash operating taxes exceeded the provision for income taxes, suggesting that actual cash payments for taxes were higher than the expenses recognized on the income statement. This gap peaked in 2023 and 2025. Conversely, in June 2026, a significant inversion occurs where the provision for income taxes is nearly double the cash operating taxes, indicating a substantial increase in deferred tax liabilities or other non-cash tax adjustments.
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Invested Capital
Microsoft Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of unearned revenue.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of investments.
The analyzed period demonstrates a consistent and accelerating expansion in the company's capital base. Invested capital shows a strong upward trajectory, growing from US$ 143,637 million in 2021 to a projected US$ 571,487 million by 2026. This represents a substantial increase in the total resources deployed to generate operational returns.
- Invested Capital Growth
- Invested capital exhibits a compounded growth pattern, with the most significant absolute increases occurring between 2023 and 2026. The transition from 2023 (US$ 247,490 million) to 2024 (US$ 351,567 million) marks a notable step-up in capital intensity, which continues through the forecast period.
- Stockholders' Equity Trends
- Equity serves as the primary driver of the overall increase in invested capital. Stockholders' equity grew steadily from US$ 141,988 million in 2021 to US$ 442,387 million in 2026. The acceleration in equity accumulation suggests strong retained earnings or capital injections, significantly outweighing the growth rate of liabilities.
- Debt and Lease Obligations
- Total reported debt and leases remained relatively stable between 2021 and 2023, with a slight decrease observed in 2022 to US$ 78,400 million. However, a distinct shift occurred in 2024, where debt rose to US$ 97,852 million and continued to climb to US$ 128,813 million by 2026, indicating an increased utilization of leverage to support expansion.
The relationship between equity and debt indicates a capital structure that remains heavily equity-weighted despite the rising absolute levels of debt. The rapid scaling of invested capital implies a strategic commitment to growth, which necessitates a corresponding increase in Net Operating Profit After Tax (NOPAT) to sustain or improve Economic Value Added (EVA) against the rising cost of a larger capital base.
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Cost of Capital
Microsoft Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,899,973) | 2,899,973) | ÷ | 3,024,992) | = | 0.96 | 0.96 | × | 18.28% | = | 17.53% | ||
| Debt and finance lease liabilities3 | 103,094) | 103,094) | ÷ | 3,024,992) | = | 0.03 | 0.03 | × | 4.52% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 21,925) | 21,925) | ÷ | 3,024,992) | = | 0.01 | 0.01 | × | 3.70% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 3,024,992) | 1.00 | 17.67% | ||||||||||
Based on: 10-K (reporting date: 2026-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 3,814,998) | 3,814,998) | ÷ | 3,924,431) | = | 0.97 | 0.97 | × | 18.28% | = | 17.77% | ||
| Debt and finance lease liabilities3 | 86,572) | 86,572) | ÷ | 3,924,431) | = | 0.02 | 0.02 | × | 4.39% × (1 – 21.00%) | = | 0.08% | ||
| Operating lease liability4 | 22,861) | 22,861) | ÷ | 3,924,431) | = | 0.01 | 0.01 | × | 3.50% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 3,924,431) | 1.00 | 17.86% | ||||||||||
Based on: 10-K (reporting date: 2025-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 3,143,581) | 3,143,581) | ÷ | 3,238,796) | = | 0.97 | 0.97 | × | 18.28% | = | 17.74% | ||
| Debt and finance lease liabilities3 | 76,138) | 76,138) | ÷ | 3,238,796) | = | 0.02 | 0.02 | × | 4.43% × (1 – 21.00%) | = | 0.08% | ||
| Operating lease liability4 | 19,077) | 19,077) | ÷ | 3,238,796) | = | 0.01 | 0.01 | × | 3.30% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 3,238,796) | 1.00 | 17.84% | ||||||||||
Based on: 10-K (reporting date: 2024-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,457,171) | 2,457,171) | ÷ | 2,535,575) | = | 0.97 | 0.97 | × | 18.28% | = | 17.72% | ||
| Debt and finance lease liabilities3 | 63,267) | 63,267) | ÷ | 2,535,575) | = | 0.02 | 0.02 | × | 3.75% × (1 – 21.00%) | = | 0.07% | ||
| Operating lease liability4 | 15,137) | 15,137) | ÷ | 2,535,575) | = | 0.01 | 0.01 | × | 2.90% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 2,535,575) | 1.00 | 17.80% | ||||||||||
Based on: 10-K (reporting date: 2023-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,061,436) | 2,061,436) | ÷ | 2,140,955) | = | 0.96 | 0.96 | × | 18.28% | = | 17.60% | ||
| Debt and finance lease liabilities3 | 65,802) | 65,802) | ÷ | 2,140,955) | = | 0.03 | 0.03 | × | 3.73% × (1 – 21.00%) | = | 0.09% | ||
| Operating lease liability4 | 13,717) | 13,717) | ÷ | 2,140,955) | = | 0.01 | 0.01 | × | 2.10% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 2,140,955) | 1.00 | 17.70% | ||||||||||
Based on: 10-K (reporting date: 2022-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,153,016) | 2,153,016) | ÷ | 2,247,148) | = | 0.96 | 0.96 | × | 18.28% | = | 17.52% | ||
| Debt and finance lease liabilities3 | 82,541) | 82,541) | ÷ | 2,247,148) | = | 0.04 | 0.04 | × | 3.83% × (1 – 21.00%) | = | 0.11% | ||
| Operating lease liability4 | 11,591) | 11,591) | ÷ | 2,247,148) | = | 0.01 | 0.01 | × | 2.20% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 2,247,148) | 1.00 | 17.64% | ||||||||||
Based on: 10-K (reporting date: 2021-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Microsoft Corp., economic spread ratio calculation, comparison to benchmarks
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 52,721) | 25,743) | 27,639) | 26,992) | 36,662) | 40,112) | |
| Invested capital2 | 571,487) | 430,631) | 351,567) | 247,490) | 194,094) | 143,637) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 9.23% | 5.98% | 7.86% | 10.91% | 18.89% | 27.93% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Accenture PLC | — | 0.45% | 0.09% | 0.87% | 3.74% | 5.56% | |
| Adobe Inc. | — | 12.92% | 0.63% | 0.80% | 6.29% | 8.67% | |
| AppLovin Corp. | — | 27.63% | -0.08% | -21.14% | -27.18% | -30.70% | |
| Cadence Design Systems Inc. | — | -1.35% | -2.95% | 7.10% | 6.51% | 6.73% | |
| CrowdStrike Holdings Inc. | -12.95% | -13.49% | -8.55% | -4.81% | -8.11% | -10.36% | |
| Datadog Inc. | — | -9.04% | -9.73% | -6.26% | -12.01% | -4.19% | |
| International Business Machines Corp. | — | -0.70% | -7.54% | -3.50% | -11.25% | -6.11% | |
| Intuit Inc. | — | -5.39% | -9.06% | -11.10% | -9.95% | -2.42% | |
| Oracle Corp. | -3.30% | -7.36% | -7.24% | -8.07% | -7.11% | 1.09% | |
| Palantir Technologies Inc. | — | 41.25% | -12.66% | -9.39% | -33.12% | -40.58% | |
| Palo Alto Networks Inc. | — | -4.17% | 5.03% | 11.17% | 3.22% | -5.48% | |
| Salesforce Inc. | -7.25% | -12.69% | -14.50% | -17.93% | -14.81% | -12.67% | |
| ServiceNow Inc. | — | 2.61% | 5.89% | 5.18% | 0.68% | 1.89% | |
| Synopsys Inc. | — | -12.51% | -8.28% | -7.58% | -0.98% | -7.00% | |
| Workday Inc. | -9.74% | -11.85% | -13.26% | -19.48% | -14.31% | -19.56% | |
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2026 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 52,721 ÷ 571,487 = 9.23%
4 Click competitor name to see calculations.
The financial trajectory from June 30, 2021, to June 30, 2026, is characterized by a significant expansion of the capital base coupled with a period of diminishing returns on invested capital, followed by a sharp recovery in absolute economic profit. While the scale of investment grew aggressively throughout the period, the efficiency of generating value above the cost of capital faced a sustained decline before reversing in the final year.
- Invested Capital Expansion
- A consistent and substantial upward trend in invested capital is observed, rising from 143,637 million USD in 2021 to 571,487 million USD by 2026. This represents a nearly fourfold increase in the capital deployed, indicating a period of intense investment and asset accumulation.
- Economic Profit Volatility
- Economic profit exhibited a general downward trend for the first five years, falling from a peak of 40,112 million USD in 2021 to a low of 25,743 million USD in 2025. However, this trend is abruptly reversed in 2026, where economic profit surges to 52,721 million USD, marking the highest value in the analyzed period.
- Economic Spread Ratio Analysis
- The economic spread ratio demonstrates a sharp and steady contraction from 27.93% in 2021 to a nadir of 5.98% in 2025. This decline indicates that the growth in invested capital significantly outpaced the growth in economic profit, leading to reduced capital efficiency. A partial recovery is noted in 2026, with the ratio increasing to 9.23%, suggesting that the surge in economic profit began to offset the impact of the expanded capital base.
The correlation between the rapid increase in invested capital and the declining economic spread ratio suggests a phase of heavy investment where the marginal returns were initially lower than the historical average. The substantial increase in economic profit in 2026 indicates a potential inflection point where previous capital expenditures began to yield higher economic value.
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Economic Profit Margin
Microsoft Corp., economic profit margin calculation, comparison to benchmarks
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 52,721) | 25,743) | 27,639) | 26,992) | 36,662) | 40,112) | |
| Revenue | 331,839) | 281,724) | 245,122) | 211,915) | 198,270) | 168,088) | |
| Add: Increase (decrease) in unearned revenue | 8,447) | 7,081) | 6,371) | 5,405) | 4,267) | 4,961) | |
| Adjusted revenue | 340,286) | 288,805) | 251,493) | 217,320) | 202,537) | 173,049) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 15.49% | 8.91% | 10.99% | 12.42% | 18.10% | 23.18% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Accenture PLC | — | 0.29% | 0.05% | 0.45% | 1.80% | 2.85% | |
| Adobe Inc. | — | 11.69% | 0.72% | 1.00% | 7.33% | 10.81% | |
| AppLovin Corp. | — | 28.40% | -0.08% | -28.94% | -50.89% | -61.46% | |
| Cadence Design Systems Inc. | — | -2.03% | -4.52% | 7.08% | 6.50% | 6.83% | |
| CrowdStrike Holdings Inc. | -21.70% | -22.19% | -13.41% | -6.46% | -12.70% | -21.54% | |
| Datadog Inc. | — | -5.36% | -8.83% | -3.91% | -8.30% | -3.32% | |
| International Business Machines Corp. | — | -1.24% | -13.33% | -6.22% | -19.48% | -11.62% | |
| Intuit Inc. | — | -6.97% | -13.93% | -18.18% | -19.15% | -3.07% | |
| Oracle Corp. | -8.10% | -14.76% | -13.78% | -15.61% | -13.05% | 2.15% | |
| Palantir Technologies Inc. | — | 21.37% | -10.99% | -5.04% | -55.57% | -66.84% | |
| Palo Alto Networks Inc. | — | -4.94% | 5.34% | 11.09% | 3.75% | -7.37% | |
| Salesforce Inc. | -15.53% | -27.39% | -33.50% | -45.34% | -41.11% | -29.06% | |
| ServiceNow Inc. | — | 2.88% | 4.84% | 4.17% | 0.54% | 1.64% | |
| Synopsys Inc. | — | -73.02% | -13.87% | -10.69% | -1.38% | -11.14% | |
| Workday Inc. | -11.72% | -12.59% | -14.76% | -23.89% | -19.39% | -25.52% | |
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Economic profit. See details »
2 2026 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × 52,721 ÷ 340,286 = 15.49%
3 Click competitor name to see calculations.
The financial performance between June 2021 and June 2026 is characterized by consistent top-line expansion contrasted with a period of margin compression, followed by a significant recovery in economic value generation in the final year.
- Adjusted Revenue Trends
- A sustained upward trajectory is observed in adjusted revenue, which grew from 173,049 million in 2021 to 340,286 million in 2026. This represents continuous year-over-year growth, indicating a successful increase in the scale of operations throughout the analyzed period.
- Economic Profit Performance
- Economic profit exhibited a general decline from 2021 through 2025, falling from 40,112 million to a low of 25,743 million. This downward trend suggests that the cost of capital or operational expenditures increased at a rate that offset the gains from revenue growth. However, a substantial reversal occurred in 2026, where economic profit surged to 52,721 million, the highest level in the reported period.
- Economic Profit Margin Analysis
- The economic profit margin experienced a steady contraction for five consecutive years, decreasing from 23.18% in 2021 to 8.91% in 2025. This persistent decline indicates a reduction in the efficiency of generating economic value relative to the growth in revenue. This trend was broken in 2026, with the margin recovering to 15.49%, signaling a marked improvement in the relationship between revenue and the cost of capital.
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