Microsoft Corp. (NASDAQ:MSFT)

Net Operating Profit After Taxes (NOPAT)

The NOPAT exhibited a strong upward trend over the analyzed period. Beginning at $46,746 million in mid-2020, it increased consistently each year, reaching $102,672 million by mid-2025. This represents more than a twofold increase, indicating significant growth in operating profitability.

Cost of Capital

The cost of capital showed a slight but steady increase throughout the period, rising from 13.55% in 2020 to 13.90% in 2025. The relatively stable cost of capital suggests a consistent risk profile and financing environment for the company during these years.

Invested Capital

Invested capital expanded substantially over the five years, moving from $107,630 million in 2020 to $430,631 million in 2025. This nearly fourfold increase suggests aggressive reinvestment and asset accumulation, which could be fueling the growth in operating profit.

Economic Profit

Economic profit rose from $32,157 million in 2020 to $42,831 million in 2025, indicating the company created significant value beyond the cost of capital. Although there was a peak in 2021 ($45,729 million) followed by a slight decline through 2023 ($36,783 million), economic profit rebounded in subsequent years, reflecting effective management of capital and profit generation despite increasing invested capital.

Overall Insights

The data reflects robust growth in operating profitability and significant capital investment. Despite rising invested capital and a modest increase in cost of capital, the company maintained economic profitability well above capital costs, demonstrating efficient wealth creation. The occasional fluctuations in economic profit highlight sensitivity to the balance between profit growth and capital investment but overall depict a healthy financial trajectory.

Net Income

The net income demonstrates a consistent upward trend over the analyzed periods. Starting at 44,281 million US dollars in mid-2020, it increased to 61,271 million by mid-2021, marking significant growth. This positive trajectory continued in subsequent years, reaching 72,738 million in mid-2022 and slightly declining to 72,361 million in mid-2023. However, the figure rebounded strongly, climbing to 88,136 million in mid-2024 and further to 101,832 million in mid-2025, indicating robust profitability improvement over time.

Net Operating Profit After Taxes (NOPAT)

NOPAT values show a steady increase overall, reflecting operational efficiency and sustainable earnings. Beginning at 46,746 million US dollars in mid-2020, it rose consistently to 65,443 million in mid-2021 and then to 71,024 million by mid-2022. The measure remained relatively stable into mid-2023 at 71,055 million, followed by a significant increase to 90,364 million in mid-2024 and 102,672 million in mid-2025. This pattern suggests effective operational management and growing core profitability.

Overall Analysis

Both net income and NOPAT demonstrate strong growth trajectories from 2020 through 2025. The steady increases, with minor fluctuations, reveal enhanced profitability and operational performance. The convergence of net income and NOPAT rising sharply in later years suggests improved tax efficiency and successful conversion of operating profit into net earnings. The data indicates a positive financial momentum and operational resilience sustained across multiple fiscal years.

Provision for Income Taxes

The provision for income taxes shows a consistent upward trend over the six-year period. Starting from 8,755 million USD in 2020, it increases each year, reaching 21,795 million USD by 2025. Notably, the growth rate accelerates notably from 2021 onwards, with a more pronounced increase observed between 2022 and 2023, where the provision rises from 10,978 million USD to 16,950 million USD.

Cash Operating Taxes

Cash operating taxes also exhibit a significant upward trajectory, beginning at 8,771 million USD in 2020 and increasing steadily to 29,037 million USD in 2025. The most notable increase occurs between 2021 and 2022, where the cash operating taxes jump from 9,821 million USD to 16,637 million USD, and continue to climb in subsequent years, reaching nearly 30 billion USD by 2025.

Comparative Insights

While both provision for income taxes and cash operating taxes increase substantially over the period, cash operating taxes consistently exceed the provision for income taxes each year, with the gap widening over time. This suggests that actual cash payments related to taxes are growing at a faster pace than the accrued tax expense, indicating potential timing differences or changes in tax payment structures. The acceleration in increases for both metrics between 2022 and 2023 aligns with a period of notable growth in tax-related outflows.

Total reported debt & leases

Over the six-year period, total reported debt and leases display a generally upward trend. Starting at $82,110 million in mid-2020, the figure remains relatively stable through mid-2021 and 2022, with a slight dip in 2022 to $78,400 million. From mid-2023 onward, there is a noticeable increase, rising to $97,852 million by mid-2024 and reaching $112,184 million by mid-2025. This indicates increased financial leverage or borrowing activity, particularly in the last two years.

Stockholders’ equity

Stockholders’ equity consistently expands throughout the entire timeframe. Beginning at $118,304 million in June 2020, it shows steady growth each year, accelerating after mid-2022. Equity reaches $141,988 million in 2021, $166,542 million in 2022, and experiences a stronger rise to $206,223 million in 2023. By 2024 and 2025, the growth becomes more pronounced, escalating to $268,477 million and $343,479 million respectively. This reflects substantial accumulation of retained earnings or equity injections over the period, strengthening the company's financial foundation.

Invested capital

Invested capital demonstrates a strong and consistent upward trajectory across the six years. Starting at $107,630 million in 2020, it grows considerably each year, surpassing $140 billion in 2021 and reaching $194,094 million in 2022. The increase accelerates over the ensuing years, hitting $247,490 million in 2023, $351,567 million in 2024, and culminating at $430,631 million in 2025. This rise indicates expanding total capital employed in the business, which includes equity and debt, reflecting an increase in the scale of operations or investments.

Overall trends and insights

The data reveal a pattern of expanding financial scale coupled with increased leverage. While stockholders’ equity grows substantially, indicating enhanced net worth and reinvested earnings, total debt and leases also increase, particularly in the latter years, implying a greater use of borrowed funds. Invested capital's growth outpaces both debt and equity individually, signaling that the company is significantly scaling up its capital base. This expansion may support increased operational capabilities or strategic investments. The balance between rising equity and rising debt suggests an approach that combines internal funding strength with external financing to fuel growth.

The financial data reveals several significant trends relating to the company's economic profit, invested capital, and economic spread ratio over the analyzed period.

Economic Profit

Economic profit demonstrated an overall upward trajectory from 2020 to 2025, increasing from $32,157 million in 2020 to $42,831 million in 2025. Despite this general upward trend, the data shows a peak around 2021 with $45,729 million, followed by a decline to $36,783 million in 2023 before recovering again in the subsequent years. This pattern indicates variability in profitability with periods of contraction and growth within the timeframe.

Invested Capital

There is a clear and consistent rise in invested capital across all years considered. The invested capital increased substantially from $107,630 million in 2020 to $430,631 million in 2025. This nearly fourfold increase signals a significant expansion in the resources deployed by the company, reflecting either aggressive growth strategies, substantial capital expenditure, or acquisitions over the period.

Economic Spread Ratio

The economic spread ratio exhibits a downward trend throughout the years, starting at 29.88% in 2020 and declining steadily to 9.95% in 2025. This reduction suggests diminishing returns on the invested capital, indicating that while the invested capital grew substantially, the profitability per unit of capital employed decreased over time. The declining spread may reflect increased competition, rising costs of capital, or less efficient capital deployment in more recent years.

In summary, the company experienced growth in absolute economic profit and sizable increases in invested capital. However, the decreasing economic spread ratio raises concerns about the efficiency and profitability of new investments relative to the capital invested.

Economic Profit

The economic profit exhibited an overall increasing trend from 2020 to 2025, starting at 32,157 million US dollars in June 2020 and reaching 42,831 million US dollars by June 2025. There was a notable peak in 2021 at 45,729 million, followed by a slight dip to 36,783 million in 2023 before recovering in the subsequent years.

Adjusted Revenue

Adjusted revenue consistently grew over the period analyzed. Beginning at 144,989 million US dollars in 2020, the revenue increased each year, reaching 288,805 million US dollars in 2025. The growth was steady, with an accelerated increase observed from 2023 onwards.

Economic Profit Margin

The economic profit margin as a percentage showed a declining trend from 22.18% in 2020 down to 14.83% in 2025. Despite fluctuations, the margin decreased consistently year over year, indicating that economic profit did not keep pace proportionately with the growth in adjusted revenue.

Summary Insights

While economic profit and adjusted revenue both increased in absolute terms, the decreasing economic profit margin suggests a reduction in profitability efficiency relative to revenue growth. This pattern may imply rising costs, increased investment, or pricing pressures affecting margin sustainability despite increasing revenue volumes. The temporary dip in economic profit around 2023 while revenue was rising underscores potential operational challenges during that period. Overall, growth is evident but accompanied by reduced margin efficiency.