Stock Analysis on Net

Palo Alto Networks Inc. (NASDAQ:PANW)

$24.99

Economic Value Added (EVA)

Microsoft Excel

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Economic Profit

Palo Alto Networks Inc., economic profit calculation

US$ in thousands

Microsoft Excel
12 months ended: Jul 31, 2024 Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019
Net operating profit after taxes (NOPAT)1
Cost of capital2
Invested capital3
 
Economic profit4

Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= × =


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 Operating Profit after Taxes (NOPAT)

Palo Alto Networks Inc., NOPAT calculation

US$ in thousands

Microsoft Excel
12 months ended: Jul 31, 2024 Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019
Net income (loss)
Deferred income tax expense (benefit)1
Increase (decrease) in allowance for credit losses2
Increase (decrease) in deferred revenue3
Increase (decrease) in equity equivalents4
Interest expense
Interest expense, operating lease liability5
Adjusted interest expense
Tax benefit of interest expense6
Adjusted interest expense, after taxes7
Interest income
Investment income, before taxes
Tax expense (benefit) of investment income8
Investment income, after taxes9
Net operating profit after taxes (NOPAT)

Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in allowance for credit losses.

3 Addition of increase (decrease) in deferred revenue.

4 Addition of increase (decrease) in equity equivalents to net income (loss).

5 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =

6 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =

7 Addition of after taxes interest expense to net income (loss).

8 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =

9 Elimination of after taxes investment income.


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.

Cash Operating Taxes

Palo Alto Networks Inc., cash operating taxes calculation

US$ in thousands

Microsoft Excel
12 months ended: Jul 31, 2024 Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019
Provision for (benefit from) income taxes
Less: Deferred income tax expense (benefit)
Add: Tax savings from interest expense
Less: Tax imposed on investment income
Cash operating taxes

Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).


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.

Invested Capital

Palo Alto Networks Inc., invested capital calculation (financing approach)

US$ in thousands

Microsoft Excel
Jul 31, 2024 Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019
Current portion of convertible senior notes, net
Convertible senior notes, net, excluding current portion
Operating lease liability1
Total reported debt & leases
Stockholders’ equity
Net deferred tax (assets) liabilities2
Allowance for credit losses3
Deferred revenue4
Equity equivalents5
Accumulated other comprehensive (income) loss, net of tax6
Adjusted stockholders’ equity
Available-for-sale investments7
Invested capital

Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).

1 Addition of capitalized operating leases.

2 Elimination of deferred taxes from assets and liabilities. See details »

3 Addition of allowance for doubtful accounts receivable.

4 Addition of deferred revenue.

5 Addition of equity equivalents to stockholders’ equity.

6 Removal of accumulated other comprehensive income.

7 Subtraction of available-for-sale investments.


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.

Cost of Capital

Palo Alto Networks Inc., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Convertible Senior Notes3 ÷ = × × (1 – 21.00%) =
Operating lease liability4 ÷ = × × (1 – 21.00%) =
Total:

Based on: 10-K (reporting date: 2024-07-31).

1 US$ in thousands

2 Equity. See details »

3 Convertible Senior Notes. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Convertible Senior Notes3 ÷ = × × (1 – 21.00%) =
Operating lease liability4 ÷ = × × (1 – 21.00%) =
Total:

Based on: 10-K (reporting date: 2023-07-31).

1 US$ in thousands

2 Equity. See details »

3 Convertible Senior Notes. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Convertible Senior Notes3 ÷ = × × (1 – 21.00%) =
Operating lease liability4 ÷ = × × (1 – 21.00%) =
Total:

Based on: 10-K (reporting date: 2022-07-31).

1 US$ in thousands

2 Equity. See details »

3 Convertible Senior Notes. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Convertible Senior Notes3 ÷ = × × (1 – 21.00%) =
Operating lease liability4 ÷ = × × (1 – 21.00%) =
Total:

Based on: 10-K (reporting date: 2021-07-31).

1 US$ in thousands

2 Equity. See details »

3 Convertible Senior Notes. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Convertible Senior Notes3 ÷ = × × (1 – 21.00%) =
Operating lease liability4 ÷ = × × (1 – 21.00%) =
Total:

Based on: 10-K (reporting date: 2020-07-31).

1 US$ in thousands

2 Equity. See details »

3 Convertible Senior Notes. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 ÷ = × =
Convertible Senior Notes3 ÷ = × × (1 – 21.00%) =
Operating lease liability4 ÷ = × × (1 – 21.00%) =
Total:

Based on: 10-K (reporting date: 2019-07-31).

1 US$ in thousands

2 Equity. See details »

3 Convertible Senior Notes. See details »

4 Operating lease liability. See details »


Economic Spread Ratio

Palo Alto Networks Inc., economic spread ratio calculation, comparison to benchmarks

Microsoft Excel
Jul 31, 2024 Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019
Selected Financial Data (US$ in thousands)
Economic profit1
Invested capital2
Performance Ratio
Economic spread ratio3
Benchmarks
Economic Spread Ratio, Competitors4
Accenture PLC
Adobe Inc.
Cadence Design Systems Inc.
CrowdStrike Holdings Inc.
Fair Isaac Corp.
International Business Machines Corp.
Intuit Inc.
Microsoft Corp.
Oracle Corp.
Palantir Technologies Inc.
Salesforce Inc.
ServiceNow Inc.
Synopsys Inc.
Workday Inc.

Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).

1 Economic profit. See details »

2 Invested capital. See details »

3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =

4 Click competitor name to see calculations.


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.

Economic Profit Margin

Palo Alto Networks Inc., economic profit margin calculation, comparison to benchmarks

Microsoft Excel
Jul 31, 2024 Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019
Selected Financial Data (US$ in thousands)
Economic profit1
 
Revenue
Add: Increase (decrease) in deferred revenue
Adjusted revenue
Performance Ratio
Economic profit margin2
Benchmarks
Economic Profit Margin, Competitors3
Accenture PLC
Adobe Inc.
Cadence Design Systems Inc.
CrowdStrike Holdings Inc.
Fair Isaac Corp.
International Business Machines Corp.
Intuit Inc.
Microsoft Corp.
Oracle Corp.
Palantir Technologies Inc.
Salesforce Inc.
ServiceNow Inc.
Synopsys Inc.
Workday Inc.

Based on: 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31).

1 Economic profit. See details »

2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × ÷ =

3 Click competitor name to see calculations.


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.