Workday Inc. (NASDAQ:WDAY)

The financial performance, as measured by economic profit, demonstrates a volatile pattern over the observed period. While net operating profit after taxes (NOPAT) generally increased, economic profit remained consistently negative, indicating that the company’s returns did not exceed its cost of capital throughout the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced significant fluctuations. Initially negative in 2020, it turned positive in 2021 and exhibited substantial growth through 2024, reaching 673 million US dollars. A further increase to 860 million US dollars is projected for 2025. This suggests improving operational efficiency and profitability.

Cost of Capital

The cost of capital remained relatively stable, fluctuating within a narrow range between 17.15% and 17.42% over the six-year period. This consistency suggests a stable risk profile and financing structure for the company. A slight increase is observed in the most recent year, 2025.

Invested Capital

Invested capital consistently increased from 5,129 million US dollars in 2020 to a projected 9,420 million US dollars in 2025. This growth indicates ongoing investment in the business, potentially supporting expansion or new initiatives. The rate of increase appears to be accelerating in later years.

Economic Profit

Despite the growth in NOPAT and invested capital, economic profit remained negative throughout the period. The largest negative economic profit was recorded in 2023, reaching -1,301 million US dollars. While the negative economic profit lessened in 2024 and is projected to slightly improve in 2025 (-830 and -775 million US dollars respectively), the company continues to generate returns below its cost of capital. This suggests that investments, while increasing in absolute terms, are not yet generating sufficient returns to cover the cost of funding those investments.

In summary, the company demonstrates improving operational profitability as evidenced by NOPAT. However, the consistent negative economic profit indicates that the returns generated from invested capital are insufficient to meet the company’s cost of capital. Continued monitoring of NOPAT growth relative to invested capital and cost of capital is recommended to assess future economic profit performance.

The financial data reveals notable fluctuations in both net income and net operating profit after taxes (NOPAT) over the six-year period under review.

Net Income (Loss)

The net income figures exhibit significant volatility. In the initial two years, there are substantial losses of US$481 million and US$282 million, respectively. This trend reverses in the third year with a modest net income of US$29 million, followed by another loss of US$367 million in the fourth year. The final two years show a marked improvement, with net income surging to US$1,381 million in the fifth year before moderating to US$526 million in the sixth year. This pattern indicates a recovery trajectory with considerable ups and downs, culminating in positive and substantially higher profitability compared to the initial years.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a consistent upward trend overall despite a minor dip in the fourth year. Starting from a significant negative value of US$113 million in the first year, NOPAT shifts to positive territory at US$84 million in the second year and climbs further to US$506 million in the third year. Although it declines to US$102 million in the fourth year, the metric rebounds strongly to US$673 million and US$860 million in the final two years. This trend corresponds with improving operational efficiency and profitability before tax considerations, underscoring enhanced operating performance over time.

In summary, the data reflects a company experiencing initial financial challenges with losses and negative operating profits that progressively improve, culminating in positive net income and solid operational profitability in the most recent years. The fluctuations observed in net income suggest episodic impacts beyond operational capabilities, while the upward trend in NOPAT demonstrates strengthening core business performance.

Provision for (benefit from) income taxes

The provision for income taxes demonstrates considerable volatility over the analyzed periods. It begins with a negative value of -2 million USD in early 2020, indicating a tax benefit or credit. This shifts to a modest positive provision of 7 million USD in 2021, before returning to a larger benefit of -13 million USD in 2022. A significant increase to 107 million USD is observed in 2023, followed by a sharp reversal to a substantial tax benefit of -1025 million USD in 2024. The latest figure in 2025 reflects a positive provision again at 112 million USD. These fluctuations suggest an irregular tax expense pattern, possibly influenced by varying taxable income, deferred tax adjustments, or extraordinary items across the years.

Cash operating taxes

Cash operating taxes show a generally increasing trend with notable irregularities. Starting at 13 million USD in 2020, this figure rises to 20 million USD in 2021, then unexpectedly falls to a negative value of -4 million USD in 2022, indicating a refund or credit situation. The amount then spikes sharply to 118 million USD in 2023. However, similar to previous volatility, it drops again to -3 million USD in 2024 before rising to 34 million USD in 2025. This pattern points to inconsistent cash tax payments possibly due to timing differences, utilization of tax credits, or adjustments in prior year tax liabilities.

Total reported debt & leases

The total reported debt and leases value exhibited an overall upward trend over the observed periods. Starting at 1,570 million USD in early 2020, the figure increased to 2,238 million USD by early 2021, followed by a slight decrease to 2,103 million USD in early 2022. Subsequent years saw a marked increase with values reaching 3,249 million USD in early 2023, then increasing gradually to 3,296 million USD in early 2024 and 3,362 million USD in early 2025. This pattern indicates a growing reliance on debt and lease obligations, particularly notable from 2022 onward.

Stockholders’ equity

Stockholders’ equity displayed a consistent and substantial growth trend throughout the periods analyzed. Beginning at 2,487 million USD in early 2020, it rose steadily each year: 3,278 million USD (2021), 4,535 million USD (2022), 5,586 million USD (2023), culminating at 8,082 million USD in early 2024 and 9,034 million USD by early 2025. The continuous increase in equity suggests positive retained earnings, additional capital contributions, or asset revaluations, strengthening the company’s net worth.

Invested capital

The invested capital increased at a diminishing yet overall positive rate across the reported years. Starting at 5,129 million USD in early 2020, it grew to 6,061 million USD by early 2021, then to 7,706 million USD in early 2022. Growth continued more slowly in subsequent years, reaching 8,178 million USD (2023), 8,631 million USD (2024), and 9,420 million USD (2025). This upward trend reflects increased resources committed to the business, likely in both equity and debt financing.

Summary of financial position trends

The increasing stockholders’ equity alongside a rising total debt and leases balance indicates that the company has been expanding its capital structure with a mixture of equity and debt. The growth in invested capital parallels these changes, showing an overall expansion in resource deployment. Notably, debt growth accelerated in later years, emphasizing a possible strategic leveraging to support business growth. The consistent equity increase suggests a solid financial foundation and potential profitability or capital inflows contributing to retained earnings and equity balance. These patterns demonstrate steady financial growth, with a balanced but gradually increasing leverage position.

The economic spread ratio demonstrates a fluctuating, yet generally improving, trend over the observed period. While consistently negative, indicating the company’s return on invested capital is less than its cost of capital, the magnitude of the negative spread has decreased in several years.

Economic Spread Ratio Trend

The economic spread ratio began at -19.41% as of January 31, 2020. It improved to -15.94% the following year, and continued to -10.69% in 2022. A slight deterioration occurred in 2023, with the ratio reaching -15.90%. However, the ratio improved again in subsequent years, reaching -9.62% in 2024 and -8.23% in 2025. This suggests a gradual, though not linear, improvement in the company’s ability to generate returns exceeding its cost of capital.

The economic spread ratio’s movement appears correlated with changes in economic profit and invested capital. While invested capital consistently increased throughout the period, economic profit remained negative. The narrowing of the negative economic spread ratio suggests that the rate of increase in invested capital has, at times, been offset by improvements in economic profit, or that the cost of capital has decreased relative to the returns generated.

Relationship to Economic Profit and Invested Capital

The economic spread ratio is calculated using economic profit and invested capital. The consistent negative economic profit values indicate that the company is not currently generating sufficient profit to cover its cost of capital. However, the increasing invested capital base suggests continued investment in growth initiatives. The observed trend in the economic spread ratio implies that these investments are gradually becoming more efficient, or that the company is improving its operational performance, even if absolute economic profit remains negative.

The trend towards a less negative economic spread ratio is a positive sign, but continued monitoring is necessary. Sustained improvement requires either an increase in economic profit to positive levels, a reduction in the cost of capital, or a more efficient allocation of invested capital.

The economic profit margin exhibited fluctuations over the observed period, ranging from January 31, 2020, to January 31, 2025. While remaining negative throughout, the margin demonstrates a general trend toward improvement in recent years.

Economic Profit Margin Trend

From January 31, 2020, to January 31, 2021, the economic profit margin decreased from -24.98% to -20.80%. This represents a narrowing of the loss, but still indicates that economic value was not being created.

A more substantial improvement was observed between January 31, 2021, and January 31, 2022, with the margin increasing to -14.48%. This suggests a positive shift in the relationship between revenues and the cost of capital.

However, the margin deteriorated again in the following year, reaching -19.51% on January 31, 2023. This reversal indicates a potential increase in the cost of capital or a decline in profitability relative to that cost.

The trend reversed once more, with the economic profit margin improving to -10.71% on January 31, 2024, and further to -8.74% on January 31, 2025. This recent improvement suggests a strengthening of economic profitability.

Adjusted revenues consistently increased throughout the period, moving from US$3,987 million on January 31, 2020, to US$8,866 million on January 31, 2025. This revenue growth occurred concurrently with the fluctuations in the economic profit margin, indicating that revenue increases alone do not guarantee economic value creation.

Relationship between Economic Profit and Adjusted Revenues

Despite the consistent growth in adjusted revenues, the negative economic profit values throughout the period indicate that the company’s returns are not exceeding its cost of capital. The improving economic profit margin in the later years suggests that the company is becoming more efficient at generating returns relative to its capital costs, but further improvement is needed to achieve positive economic profit.

The magnitude of the economic profit, while negative, also shows some fluctuation. The largest negative economic profit occurred on January 31, 2023, at -US$1,301 million, while the smallest occurred on January 31, 2025, at -US$775 million. This suggests that the company’s financial performance, as measured by economic profit, is not consistently worsening, and recent performance indicates a positive trajectory.