Microsoft Corp. (NASDAQ:MSFT)

Net operating profit after taxes (NOPAT)

The NOPAT shows a consistent upward trend over the six-year period. Starting at 46,746 million USD in mid-2020, it increased steadily to reach 102,672 million USD by mid-2025. This represents more than a two-fold increase, highlighting significant growth in the company's operational profitability after taxes.

Cost of capital

The cost of capital exhibits a slight but consistent increase over the period. It started at 13.53% in mid-2020 and rose gradually to 13.87% by mid-2025. Although the incremental rise is modest, it indicates a mildly increasing cost of financing the company's operations and investments over time.

Invested capital

Invested capital has shown a strong growth trajectory, expanding from 107,630 million USD in mid-2020 to 430,631 million USD in mid-2025. This almost fourfold increase suggests significant capital investments or acquisitions, reflecting a strategic scaling of the company's asset base supporting its operating activities.

Economic profit

Economic profit demonstrates some fluctuations but remains overall positive and substantial throughout the period. It rises from 32,183 million USD in mid-2020 to a peak of 45,765 million USD in mid-2021, then declines to 36,846 million USD by mid-2023 before recovering somewhat to 42,941 million USD in mid-2025. This pattern suggests periods of varying efficiency in generating returns above the cost of capital, with the company managing to sustain significant economic profit margins despite some volatility.

Overall insights

The data reveals a company experiencing strong growth in profitability and invested capital, indicating successful expansion and operational improvement. The steady increase in NOPAT, paired with the rising invested capital, supports the notion of scaling operations effectively. The modest increase in the cost of capital implies slightly higher financing costs, potentially reflective of changes in market or credit conditions. Despite some variation in economic profit, it remains robust, demonstrating the company's ability to generate value beyond its capital costs consistently across the years analyzed.

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 for the analyzed periods presents clear trends regarding economic profit, invested capital, and the economic spread ratio.

Economic Profit

The economic profit generally increased from 32,183 million US dollars in mid-2020 to a peak of 45,765 million US dollars in mid-2021. However, after this peak, it displayed a downward trend, declining to 36,846 million in mid-2023. Subsequently, it showed a slight recovery, rising to 41,658 million in mid-2024 and continuing to increase to 42,941 million by mid-2025. Overall, economic profit demonstrates a pattern of initial growth, followed by a dip, and a moderate rebound towards the end of the observed period.

Invested Capital

Invested capital exhibited a sustained and significant upward trend throughout the entire period. Starting at 107,630 million US dollars in mid-2020, it rose steadily each year reaching 143,637 million in 2021, 194,094 million in 2022, and continuing sharply higher to 247,490 million in 2023. The growth accelerated further to 351,567 million in 2024 and culminated at 430,631 million by mid-2025. This indicates a continuous expansion of the capital base invested in the operations.

Economic Spread Ratio

This ratio, expressed as a percentage, decreased consistently over the entire span. Beginning at a relatively high level of 29.9% in mid-2020, it increased slightly to 31.86% in mid-2021 before entering a persistent decline phase. The ratio fell to 22.84% in 2022, dropped further to 14.89% in 2023, then to 11.85% in 2024, and finally reached 9.97% in mid-2025. This downward trend suggests diminishing returns relative to the amount of invested capital.

In summary, while economic profit experienced volatility with a peak and corrective decline followed by recovery, invested capital consistently grew at a strong pace. Conversely, the economic spread ratio steadily decreased, implying that the incremental returns generated per unit of invested capital have reduced over the years, which may pose considerations for future capital efficiency and investment strategy.

Adjusted Revenue

Adjusted revenue demonstrated a consistent upward trajectory over the observed periods. Starting at approximately $145 billion in mid-2020, revenue increased steadily each year, reaching nearly $289 billion by mid-2025. This indicates robust top-line growth and suggests effective revenue-generating activities or expansion during these years.

Economic Profit

Economic profit showed an initial increase from about $32.2 billion in 2020 to a peak of around $45.8 billion in 2021. However, after this peak, economic profit declined in subsequent years to approximately $36.8 billion in 2023, before rebounding slightly to about $42.9 billion in 2025. This pattern suggests some volatility in profitability, potentially related to changes in costs or capital charges, despite the overall revenue growth.

Economic Profit Margin

The economic profit margin, representing economic profit as a percentage of adjusted revenue, declined steadily over the period. It started at 22.2% in 2020, peaked at 26.45% in 2021, but then continually decreased to 14.87% by 2025. This declining margin trend indicates that while revenue grew, the proportion of economic profit relative to revenue diminished, implying reduced efficiency in converting revenue into economic profit or increased capital costs.

Overall Analysis

The financial data indicates strong revenue growth over the five-year span. However, the economic profit and especially the economic profit margin experienced a peak around 2021 followed by a declining trend. This suggests that the company faced increasing challenges in maintaining its profitability margins despite top-line expansion. The slight recovery in economic profit towards 2025, though not matched by margin improvement, may reflect efforts to stabilize profitability but not yet sufficient to reverse margin erosion.