Palo Alto Networks Inc. (NASDAQ:PANW)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes has shown a consistent upward trend from 2019 to 2023, increasing from approximately $536 million to over $2.6 billion. A slight decline is observed in 2024, where the NOPAT decreased to about $2.5 billion compared to the previous year. This indicates overall strong operational profitability with a minor setback in the most recent period.

Cost of Capital

The cost of capital has experienced minor fluctuations over the analyzed years. Starting at 14.77% in 2019, it dipped to 14% in 2020 but gradually increased thereafter, reaching 15.48% in 2024. The rising cost of capital in recent years may reflect changing market conditions or a perceived increase in risk associated with the firm's investments.

Invested Capital

Invested capital has grown substantially over the period, nearly tripling from approximately $3.9 billion in 2019 to about $10.8 billion in 2024. This steady increase illustrates ongoing investment in the company's assets or projects, likely to support future growth and operational capacity.

Economic Profit

Economic profit was negative from 2019 through 2021, indicating that the company was not generating returns above its cost of capital during these years, with the most considerable negative point in 2020. However, a significant positive turnaround occurred in 2022, with economic profit rising sharply to approximately $484 million and continuing to increase to over $1.2 billion in 2023. Although there was a decline in 2024 to around $824 million, the company remains clearly profitable on an economic profit basis. This shift suggests an improvement in operational efficiency and/or a higher rate of return relative to the cost of capital.

Summary of Trends and Insights

Overall, the company exhibits strong growth in profitability and capital investment. The improvement in economic profit from negative to strongly positive values after 2021 demonstrates better alignment of returns with the firm's cost of capital, marking a significant enhancement in value creation. The increasing invested capital supports this growth but also coincides with a rising cost of capital, which may be a factor to monitor. The slight reduction in NOPAT and economic profit in 2024, coupled with the elevated cost of capital, suggests some caution moving forward, though the company remains solidly profitable.

Net Income (Loss)

The net income showed a significant fluctuation during the analyzed period. Initially, there was a considerable loss of $81.9 million in 2019, which worsened substantially to a loss of $267 million in 2020, and further to nearly $499 million in 2021. However, starting in 2022, the trend reversed with a notable recovery where the loss decreased back to $267 million. Subsequently, the company turned profitable with net income rising sharply to $439.7 million in 2023 and then increasing substantially to approximately $2.58 billion in 2024. This turnaround suggests effective changes in operations or strategy leading to improved profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited steady growth throughout the entire period. Starting at $536.4 million in 2019, it increased consistently each year, reaching $696.4 million in 2020, then $845.1 million in 2021. A marked acceleration happened in 2022 when NOPAT doubled to approximately $1.72 billion, followed by continued growth to $2.61 billion in 2023. There was a slight decrease in 2024 to about $2.5 billion, yet the figure remains significantly higher than in the initial years. The growth in NOPAT indicates enhanced core operational efficiency and profitability, despite minor recent decline.

Provision for (benefit from) income taxes

The provision for income taxes shows considerable volatility across the years. From 2019 to 2020, it increased significantly from 7,300 to 35,200 thousand US dollars, followed by a slight decrease to 33,900 thousand US dollars in 2021. A notable increase occurred again in 2022 and 2023, reaching 59,800 and 126,600 thousand US dollars, respectively. The year 2024 exhibits a substantial negative value of -1,589,300 thousand US dollars, indicating a significant tax benefit in that period. This reversal may warrant further investigation to understand the underlying causes, such as tax credits, loss carrybacks, or other accounting adjustments.

Cash operating taxes

Cash operating taxes demonstrate a steady upward trend over the six-year period. Starting at 32,566 thousand US dollars in 2019, cash tax payments rose consistently each year, reaching 57,464 in 2020, 81,834 in 2021, with a slight dip to 68,221 in 2022, then increasing again to 76,038 in 2023. The 2024 figure spikes sharply to 384,452 thousand US dollars, representing a dramatic increase compared to previous years. This substantial rise in cash taxes in 2024 contrasts with the large tax benefit recorded in the provision for income taxes, highlighting potential differences between accounting provisions and actual cash tax payments.

Total reported debt & leases

The total reported debt and leases showed an increasing trend from July 31, 2019, reaching a peak in July 31, 2022, with a value of 4,015,200 thousand US dollars. After this peak, a significant decline occurred over the subsequent two years, dropping to 2,330,900 thousand US dollars in 2023 and further down to 1,410,300 thousand US dollars in 2024. This pattern indicates a strategy of leveraging more debt until 2022, followed by notable deleveraging or repayment actions thereafter.

Stockholders’ equity

Stockholders’ equity decreased sharply from 1,586,300 thousand US dollars in 2019 to a low point of 210,000 thousand US dollars in 2022. This was followed by a robust recovery, with equity rising significantly to 1,748,400 thousand US dollars in 2023 and further increasing to 5,169,700 thousand US dollars in 2024. The equity trend reflects a period of diminished net asset value, potentially due to operational losses or share repurchases, followed by strong capital retention or additional equity infusions in the later years.

Invested capital

Invested capital exhibited consistent growth throughout the entire period. Starting at 3,879,623 thousand US dollars in 2019, it nearly doubled by 2020 and continued to rise annually, reaching 10,841,500 thousand US dollars in 2024. This steady increase suggests ongoing investments in the company's operations and assets, supporting growth initiatives despite fluctuations in debt and equity.

Economic Profit

The economic profit demonstrated a significant shift over the analyzed periods. Initially, the company experienced negative economic profit values from 2019 through 2021, with the lowest point observed in 2020 at -287,870 thousand US$. However, starting in 2022, economic profit turned positive, reaching 483,863 thousand US$. This positive trajectory continued into 2023 with a peak of 1,245,690 thousand US$, before decreasing to 823,525 thousand US$ in 2024. This pattern indicates a notable improvement in value creation from 2022 onwards, despite the slight decline in the latest year.

Invested Capital

Invested capital consistently increased throughout the period under review. Starting from 3,879,623 thousand US$ in 2019, it rose sharply to 7,029,200 thousand US$ in 2020, showing an aggressive capital allocation. The upward trend continued more moderately through 2021 to 2023, reaching 9,129,500 thousand US$, and further increased to 10,841,500 thousand US$ in 2024. This steady growth in invested capital suggests ongoing investments and expansion activities.

Economic Spread Ratio

The economic spread ratio, which measures the return on invested capital relative to the cost of capital, showed a negative trend initially, with values of -0.94% in 2019, declining further to -4.1% in 2020 and -3.13% in 2021. A substantial turnaround occurred in 2022, with the ratio becoming positive at 5.56%, followed by a peak at 13.64% in 2023. In 2024, it declined but remained positive at 7.6%. This ratio reflects the company’s shift from value destruction to value creation, with a particularly strong performance during 2022 and 2023, though somewhat moderated in the latest year.

The financial data for the period from July 31, 2019, to July 31, 2024, reveals significant changes in the company's performance metrics, particularly in economic profit, adjusted revenue, and economic profit margin.

Economic Profit

The economic profit shows a volatile trend across the six years. It started with a negative value of -36,599 thousand US dollars in 2019, which worsened substantially to -287,870 thousand in 2020. Subsequently, it showed improvement but remained negative in 2021 at -230,363 thousand. A critical turnaround occurred in 2022, where economic profit shifted to a positive 483,863 thousand, further increasing to 1,245,690 thousand in 2023, before declining somewhat to 823,525 thousand in 2024. This pattern suggests a recovery and substantial growth in economic value after a period of losses, although the decline in the last year indicates some challenges or increased costs.

Adjusted Revenue

The adjusted revenue displayed consistent growth over the entire period. It rose steadily from 3,509,000 thousand US dollars in 2019 to 10,211,600 thousand in 2024. The increase was especially pronounced from 2020 onwards with significant annual increments, demonstrating strong top-line growth and effective revenue expansion strategies.

Economic Profit Margin

The economic profit margin exhibited a similar trajectory to economic profit. Negative margins were recorded from 2019 through 2021, with the lowest point at -6.65% in 2020, followed by a gradual recovery to a positive 6.48% in 2022. It peaked at 13.55% in 2023, reflecting increased profitability relative to revenue, but then decreased to 8.06% in 2024. This suggests improved profitability efficiency in recent years with some variability in 2024.

Overall, the data indicate a transition from significant economic losses to strong profitability over the examined period. The company achieved remarkable revenue growth alongside a recovery in economic profit and profit margins, although the slight downturn in the latest year warrants attention to maintain sustained profitability.