Microsoft Corp. (NASDAQ:MSFT)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes exhibited a consistent upward trend across the periods analyzed. It increased from 46,746 million US dollars in mid-2020 to 102,672 million US dollars by mid-2025, more than doubling during this timeframe. The growth rate showed particular acceleration from 2023 onwards.

Cost of Capital

The cost of capital experienced a gradual increase over the observed years, starting at 13.49% in 2020 and rising to 13.83% by 2025. The increment is steady yet modest, suggesting a slightly higher required return on invested capital over time.

Invested Capital

Invested capital demonstrated significant growth, rising from 107,630 million US dollars in 2020 to 430,631 million US dollars in 2025. This substantial increase indicates considerable expansion in the capital base, with particularly strong growth rates observed between 2022 and 2025.

Economic Profit

Economic profit initially rose from 32,221 million US dollars in 2020 to a peak of 45,817 million in 2021. However, it then declined to 36,936 million in 2023 before recovering to 43,098 million by 2025. The fluctuations suggest variability in returns above the cost of capital, possibly influenced by the rapid expansion in invested capital and changing profitability dynamics.

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 notable trends over the analyzed periods. Economic profit demonstrates fluctuations, with an initial growth from 32,221 million USD in 2020 to a peak of 45,817 million USD in 2021. This is followed by a decline to 44,410 million USD in 2022 and a more pronounced drop to 36,936 million USD in 2023. Subsequently, economic profit shows a recovery trend, increasing to 41,786 million USD in 2024 and further to 43,098 million USD in 2025.

Invested capital exhibits a consistent and substantial increase throughout the period. Starting at 107,630 million USD in 2020, it escalates steadily each year, reaching 430,631 million USD by 2025. This represents nearly a fourfold growth over six years, indicating significant investment expansion or asset accumulation.

The economic spread ratio, which reflects the efficiency of capital deployment in generating economic profit, shows a downward trend. It begins at a high level of 29.94% in 2020 and slightly increases to 31.9% in 2021 before declining continuously to 22.88% in 2022, 14.92% in 2023, 11.89% in 2024, and finally 10.01% in 2025. This pattern suggests diminishing returns on the increased invested capital over time.

Economic Profit

Peaked in 2021, then declined through 2023, followed by gradual recovery in 2024 and 2025.

Invested Capital

Steadily and significantly increased each year, indicating an ongoing expansion of capital base.

Economic Spread Ratio

Initially high values with a peak in 2021, followed by continuous decline through 2025, signifying reduced profitability per unit of invested capital.

In summary, while the company expanded its invested capital markedly over the periods, the economic profit did not increase proportionally, leading to a declining economic spread ratio. This could indicate challenges in maintaining capital efficiency amid rapid growth or increasing costs associated with investment.

Adjusted Revenue

The adjusted revenue of the company demonstrates a consistent upward trajectory over the six-year period. Starting from approximately 145 billion US dollars in mid-2020, the revenue grows steadily each year, reaching nearly 289 billion US dollars by mid-2025. This indicates sustained growth in the company’s revenue-generating capacity, reflecting expanded operations or increased sales during this period.

Economic Profit

Economic profit shows a less consistent pattern compared to adjusted revenue. It starts at around 32 billion US dollars in mid-2020 and sees a significant rise to about 46 billion in mid-2021. However, subsequently, economic profit declines to roughly 44 billion in mid-2022 and further decreases to around 37 billion in mid-2023. Following this dip, a recovery phase is observed as economic profit rises again, reaching approximately 43 billion by mid-2025. This trend suggests fluctuations in profitability beyond operating revenue, possibly due to changes in costs, investments, or other economic factors affecting returns.

Economic Profit Margin

The economic profit margin displays a consistent decreasing trend over the timeframe. Starting from 22.22% in mid-2020, it increases slightly to 26.48% in mid-2021 but then steadily declines through the subsequent years, reaching 14.92% by mid-2025. This downward trend in margin, occurring even as adjusted revenue increases, may imply rising costs, increased competition, or diminishing returns on capital employed. It indicates that while the company is growing its top-line revenue, its efficiency or profitability relative to revenue is decreasing over time.

Overall Insights

The financial data reveals a company experiencing robust revenue growth accompanied by volatility in economic profit and a declining economic profit margin. The growth in adjusted revenue signifies successful expansion, but the decreasing economic profit margin poses concerns about operational efficiency or capital utilization. The fluctuation in economic profit highlights potential challenges in maintaining consistent profitability despite increasing revenues. These trends warrant further analysis into cost structure, investment decisions, and market conditions impacting the company’s financial performance.