Palo Alto Networks Inc. (NASDAQ:PANW)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes shows a general upward trend from 2020 to 2023, increasing from approximately $696 million to about $2.61 billion. However, in 2024 and 2025, NOPAT declines to around $2.5 billion and further to $1.79 billion, indicating a potential slowdown or challenges impacting profitability in the later years.

Cost of Capital

The cost of capital progressively rises throughout the period, starting at 13.88% in 2020 and reaching 15.78% by 2025. This steady increase suggests higher financing costs or increased risk perceptions over time.

Invested Capital

Invested capital shows continuous growth across all years, expanding from approximately $7.0 billion in 2020 to about $12.43 billion in 2025. This consistent increase reflects ongoing investments or asset accumulation, which may be aimed at supporting growth or operational capability.

Economic Profit

Economic profit, an indicator factoring in the cost of capital, starts negative at -$280 million in 2020 and improves progressively to positive territory by 2022, peaking at roughly $1.26 billion in 2023. This suggests the company began generating value beyond its cost of capital from 2022 onwards. However, the economic profit declines thereafter, dropping to $838 million in 2024 and turning negative again in 2025 at -$172 thousand, signifying a potential erosion of value creation relative to capital costs in the most recent year.

Summary of Trends

Overall, the company exhibits strong growth in operating profit and invested capital in the earlier years, supported by increasing economic profit indicating effective value generation. The rising cost of capital represents a growing expense that may pressure returns. The decline in both NOPAT and economic profit in the last two years could point to emerging challenges or a need for strategic reassessment to sustain profitability and value creation. The continuous rise in invested capital alongside decreasing economic profit in the final year warrants attention to asset utilization and capital efficiency.

Net Income (Loss)

The net income exhibited significant volatility across the periods presented. Initially, there was a substantial loss of $267 million in 2020, which deepened to nearly $499 million in 2021. In 2022, the loss reduced to $267 million, indicating some recovery. Subsequently, in 2023, the company returned to profitability with a net income of approximately $440 million.

Notably, in 2024 net income surged dramatically to approximately $2.58 billion, representing a significant upward trend. However, in 2025, net income declined to about $1.13 billion, still maintaining a profit but at a reduced level compared to the previous year.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a continuous growth trend from 2020 through 2023. Starting at approximately $696 million in 2020, it increased to $845 million in 2021. The upward trajectory accelerated in 2022 with NOPAT reaching about $1.72 billion and peaked at around $2.61 billion in 2023.

Following the peak, NOPAT decreased in 2024 and 2025 to approximately $2.50 billion and $1.79 billion, respectively. Although these declines represent a downward adjustment from the 2023 high, NOPAT levels in 2024 and 2025 remain substantially higher than in the initial years.

Overall Trends and Insights

There is a clear pattern of financial improvement over the period analyzed. Both net income and NOPAT shifted from negative or moderate levels in the earlier years to significant positive figures in later periods.

The net income recovery and subsequent profits after 2022 suggest enhanced operational efficiency or impactful business activities, given that NOPAT, a measure of operational profitability, generally increased prior to and during the years of rising net income.

The reduction in net income and NOPAT in 2025 compared to the previous year could indicate emerging challenges or a normalization after an exceptionally high period in 2024. Nevertheless, profitability remains robust relative to earlier years.

Provision for (benefit from) income taxes

The provision for income taxes shows considerable volatility over the analyzed period. Initially, the values remain positive and relatively stable from 2020 through 2023, increasing from 35,200 to 126,600 thousand US dollars. However, in 2024, there is a significant negative spike, with the provision recorded as a benefit amounting to -1,589,300 thousand US dollars. This sudden reversal likely indicates a substantial tax credit or adjustment during this year. In 2025, the provision shifts back to a positive figure of 461,800 thousand US dollars, indicating another major change in tax positioning.

Cash operating taxes

Cash operating taxes demonstrate a steady upward trend from 2020 to 2025. The figures increase from 57,464 thousand US dollars in 2020 to 74,038 thousand US dollars in 2023, showing consistent growth. Notably, cash taxes surge dramatically in 2024 and 2025, reaching 384,452 and 740,528 thousand US dollars, respectively. This sharp increase in cash taxes contrasts with the provision for income taxes' negative spike in 2024, suggesting differences in the timing or nature of book versus cash tax recognition during these years.

The analysis of the financial data reveals several notable trends over the observed periods.

Total Reported Debt & Leases

This item shows a decreasing trend from the fiscal year ending July 31, 2020 through July 31, 2025. The debt stood at approximately 3.48 billion USD in 2020 and increased slightly to around 3.61 billion USD in 2021. Afterward, the amount peaked in 2022 at roughly 4.02 billion USD before embarking on a steady decline each year. By 2025, the total reported debt and leases had decreased significantly to about 417 million USD, indicating a substantial reduction in the company's leverage or obligations over the period.

Stockholders’ Equity

Stockholders’ equity initially decreased sharply from approximately 1.10 billion USD in 2020 to 210 million USD by 2022, suggesting potential losses, share repurchases, or other equity-reducing activities during this interval. However, beginning in 2023, equity increased markedly, reaching 1.75 billion USD and continuing to grow substantially to about 5.17 billion USD in 2024 and further to 7.82 billion USD in 2025. This strong recovery and subsequent growth may indicate improved profitability, capital infusions, or retained earnings enhancement.

Invested Capital

Invested capital displayed a consistent upward trajectory throughout all periods. Starting at roughly 7.03 billion USD in 2020, it increased gradually each year, reaching approximately 12.43 billion USD by 2025. This steady rise suggests ongoing investment into the company's operations and assets, potentially to support growth strategies or expansion initiatives.

In summary, the financial data indicates a strategic reduction of debt alongside a significant increase in equity and invested capital over the observed period. This combination points towards strengthening financial stability and potentially enhanced capacity for growth and value creation.

Economic profit

The economic profit demonstrates notable volatility over the reported periods. Initially, there is a substantial negative value of -279,528 thousand US dollars in 2020, which improves to -221,094 thousand US dollars in 2021. A significant positive turnaround occurs in 2022 with 494,786 thousand US dollars, peaking in 2023 at 1,257,805 thousand US dollars. However, after 2023, economic profit declines sharply to 838,441 thousand US dollars in 2024 and turns negative again at -171,922 thousand US dollars in 2025. This trend suggests fluctuating profitability and challenges sustaining positive economic returns in the later years.

Invested capital

Invested capital shows a consistent upward trend across all periods. It rises steadily from 7,029,200 thousand US dollars in 2020 to 12,434,500 thousand US dollars in 2025. This increase indicates ongoing capital investment and growth of the asset base, which more than doubles in size over the six-year period. The steady capital accumulation may suggest expanded operational capacity or increased resource allocation despite fluctuations in economic profitability.

Economic spread ratio

The economic spread ratio, which reflects the return on invested capital relative to the cost of capital, aligns closely with the patterns observed in economic profit but with somewhat smoother variation. The ratio begins negative at -3.98% in 2020 and improves to -3.00% in 2021. It shifts to positive values in the subsequent years, reaching a peak of 13.78% in 2023, before declining to 7.73% in 2024 and falling below zero to -1.38% in 2025. The positive spread between 2022 and 2024 indicates profitable capital use, but the return fails to sustain beyond that period, reflecting diminished effectiveness or increased costs relative to returns in the final year observed.

Adjusted Revenue

Adjusted revenue exhibited a consistent upward trajectory from July 31, 2020, through July 31, 2025. Starting at approximately 4.33 billion US dollars in 2020, the figure increased steadily each year, reaching around 10.49 billion US dollars by 2025. This reflects sustained revenue growth over the entire period, with particularly strong increments observed between 2021 and 2023.

Economic Profit

Economic profit displayed a more volatile pattern compared to revenue. Beginning with a significant negative value of approximately -279.5 million US dollars in 2020, it improved in 2021, remaining negative but less so at about -221.1 million US dollars. From 2022 to 2024, economic profit turned positive, peaking at roughly 1.26 billion US dollars in 2023 before declining to approximately 838.4 million in 2024. Notably, there was a substantial drop back into negative territory in 2025, with a value of approximately -171.9 million US dollars. This fluctuation indicates variable profitability, with periods of economic value creation followed by a reversal.

Economic Profit Margin

The economic profit margin echoed the trend seen in economic profit, moving from negative to positive before declining again. Starting at -6.46% in 2020, the margin improved to -4.04% in 2021, crossing into positive territory at 6.62% in 2022 and peaking at 13.68% in 2023. It then decreased to 8.21% in 2024 before turning negative again at -1.64% in 2025. This suggests that the company’s ability to generate economic profit relative to revenue strengthened significantly in the middle years but weakened toward the end of the period.

Summary of Trends

The company exhibited robust revenue growth over the six-year span, indicating an expanding market presence or successful sales strategies. However, economic profit and the corresponding margin showed volatility, with a transition from losses to substantial profitability and then a reversal into losses. This pattern could point to varying cost structures, investment cycles, or competitive pressures impacting the company’s economic value generation independently of revenue growth. The decline in profitability metrics in the final year suggests emerging challenges that may need to be addressed to sustain long-term value creation.