Palo Alto Networks Inc. (NASDAQ:PANW)

The financial performance over the analyzed periods exhibits notable trends in profitability, invested capital, cost of capital, and economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a consistent upward trajectory from 2020 through 2023, increasing from approximately $696 million to over $2.6 billion. This represents significant operational profit growth over these four years. However, in 2024 and 2025, NOPAT declines notably, falling to roughly $2.5 billion and then more sharply to $1.79 billion, signaling a reduction in operating profitability during the latter years.

Cost of Capital

The cost of capital has exhibited a gradual increase throughout the periods, starting at 13.86% in 2020 and rising steadily to 15.76% by 2025. This upward trend indicates increasing capital costs, possibly reflecting greater risk perceptions or market dynamics affecting the company’s financing expenses.

Invested Capital

Invested capital increased consistently across the timeline, showing growth from approximately $7 billion in 2020 to $12.43 billion in 2025. The steady rise suggests ongoing investment in assets or operations, which aligns with the growth in NOPAT until 2023 but extends beyond the peak of operational profits, potentially indicating expansion efforts or higher asset bases.

Economic Profit

Economic profit started negative in 2020 and 2021 with losses of $278 million and $219 million respectively. In 2022, a positive turnaround occurred with economic profit rising to nearly $497 million, followed by a substantial increase to approximately $1.26 billion in 2023. Despite this peak, economic profit declined in the following years, dropping to $841 million in 2024 and turning negative again in 2025 with a loss of about $169 million. This reflects the combined effects of rising invested capital and cost of capital outpacing operational profit growth in the last year.

Overall, the company experienced a growth phase marked by increasing operating profits and economic profit from 2020 to 2023, accompanied by rising investments. However, the trend reversed in the last two years, with declining profitability and a negative economic profit in 2025, while cost of capital continues to rise. This pattern may indicate challenges in maintaining value creation amid increased capital costs and expanding asset bases.

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.

An analysis of the financial performance over the examined periods indicates notable fluctuations in key economic indicators.

Economic Profit

The economic profit exhibited a significant negative value initially at -278,065 thousand US$ in 2020, which improved to -219,469 thousand US$ in 2021. Subsequently, a pronounced positive turnaround occurred with economic profit rising to 496,700 thousand US$ in 2022 and peaking at 1,259,929 thousand US$ in 2023. However, the subsequent years saw a decline, with economic profit falling to 841,056 thousand US$ in 2024 and returning to a negative figure of -168,834 thousand US$ by 2025. This pattern suggests volatility in profitability, with marked improvement mid-period followed by a downturn.

Invested Capital

Invested capital steadily increased each year, starting at 7,029,200 thousand US$ in 2020 and rising progressively to 12,434,500 thousand US$ by 2025. This consistent growth indicates ongoing investment in assets or operational capacity over time.

Economic Spread Ratio

The economic spread ratio showed a recovery trend from negative values in 2020 (-3.96%) and 2021 (-2.98%) to positive ratios in 2022 (5.71%) and a peak in 2023 at 13.8%. This indicates a period where returns on invested capital exceeded the cost of capital. However, the ratio declined again to 7.76% in 2024 and dropped to a negative figure of -1.36% in 2025, echoing the downturn in economic profit and suggesting a potential loss of economic value in the most recent year.

Overall, the data reflect a period of initial economic challenges, followed by a phase of strong economic performance and value creation, before experiencing reversals in the latter years, highlighting potential risks related to sustained profitability and capital efficiency despite ongoing investments.

Adjusted Revenue

The adjusted revenue shows a consistent upward trend from July 31, 2020, through July 31, 2025. Starting at approximately $4.33 billion in 2020, the revenue increases each year, reaching about $10.49 billion by 2025. This represents strong and sustained growth over the six-year period, nearly more than doubling the initial revenue.

Economic Profit

The economic profit demonstrates significant variability over the years. It begins with substantial negative values in 2020 and 2021, indicating losses of approximately $278 million and $219 million, respectively. In 2022, there is a notable improvement as the economic profit turns positive, reaching nearly $497 million. This upward trend continues through 2023, peaking at around $1.26 billion, before declining in 2024 to $841 million. By 2025, economic profit returns to a negative value of about $169 million, indicating a reversal of the positive trend observed in prior years.

Economic Profit Margin

The economic profit margin follows a pattern consistent with the economic profit values. It starts with negative margins of -6.42% and -4.01% in 2020 and 2021, respectively, indicating losses relative to revenue. In 2022, the margin turns positive at 6.65%, followed by a peak of 13.7% in 2023. The margin then declines to 8.24% in 2024 and finally drops below zero to -1.61% in 2025. This fluctuation suggests variability in profitability relative to revenue, with significant gains in the middle years followed by declines toward the end of the period.

Overall Analysis

The data reveals strong revenue growth alongside volatile profitability measures. Initially, the company experienced losses, but from 2022 through 2024, it achieved positive economic profits and margins, reaching peak profitability in 2023. However, this momentum was not sustained, as economic profit and margin both decrease substantially in 2025, turning negative once more despite continued revenue growth. This pattern may indicate increasing costs, market challenges, or other factors impacting profitability despite top-line expansion. Continuous monitoring is advisable to understand drivers of profitability fluctuations and to assess the sustainability of growth trends.