Chipotle Mexican Grill Inc. (NYSE:CMG)

The financial performance, as measured by economic profit, demonstrates a significant improvement over the observed period. Initially, the entity experienced a negative economic profit, but subsequently achieved substantial positive economic profit growth. This improvement is driven by increases in net operating profit after taxes and fluctuations in the cost of capital and invested capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a consistent upward trend throughout the period, increasing from US$796.406 million in 2021 to US$1,835.501 million in 2025. The largest year-over-year increase occurred between 2022 and 2023, suggesting a period of accelerated operational improvement. Growth rates decelerated in the later years, but remained positive.

Cost of Capital

The cost of capital remained relatively stable, fluctuating between 15.95% and 16.39% over the five-year period. A slight decrease is observed in 2025, potentially indicating improved financial risk profile or changes in market conditions. The consistency in this metric suggests that the entity’s risk profile remained largely unchanged.

Invested Capital

Invested capital increased steadily from US$5,496.598 million in 2021 to US$7,294.198 million in 2025. This growth indicates ongoing investment in the business, potentially supporting the increase in NOPAT. The rate of increase in invested capital accelerated in 2023 and 2024, coinciding with the largest NOPAT gains.

Economic Profit

Economic profit transitioned from a loss of US$87.706 million in 2021 to a profit of US$671.785 million in 2025. This represents a substantial turnaround. The growth in economic profit accelerated from 2022 onwards, demonstrating the positive impact of increased NOPAT and relatively stable cost of capital, despite the growth in invested capital. The increasing economic profit suggests the entity is generating returns exceeding its cost of capital.

In summary, the entity’s financial performance improved significantly over the period, as evidenced by the positive trend in economic profit. This improvement is attributable to strong NOPAT growth, a stable cost of capital, and strategic investments reflected in the increasing invested capital.

Net operating profit after taxes (NOPAT) and net income both demonstrate a consistent upward trend over the five-year period. NOPAT exhibits a more substantial increase in absolute terms compared to net income, suggesting changes in the company’s capital structure or operating efficiency are impacting profitability beyond reported net earnings.

NOPAT Trend

NOPAT increased from US$796.406 million in 2021 to US$1,835.501 million in 2025. This represents a cumulative growth of approximately 130.5%. The growth rate appears to be accelerating, with larger year-over-year increases observed in later periods. Specifically, the increase from 2022 to 2023 (US$388.176 million) is greater than the increase from 2021 to 2022 (US$226.061 million).

Net Income Trend

Net income also increased consistently, rising from US$652.984 million in 2021 to US$1,535.761 million in 2025, a cumulative growth of approximately 135.3%. While net income growth is present, the rate of increase appears to moderate in the later years of the period, particularly between 2024 and 2025, where the increase is minimal (US$1.651 million).

Relationship between NOPAT and Net Income

The difference between NOPAT and net income widens over time. In 2021, NOPAT exceeded net income by US$143.422 million. By 2025, this difference had grown to US$300.740 million. This divergence could be attributable to factors such as increasing interest expense, non-operating income, or changes in the effective tax rate. Further investigation into these areas would be necessary to determine the specific drivers.

The sustained growth in both NOPAT and net income indicates improving operational performance and profitability. However, the widening gap between the two metrics warrants further scrutiny to understand the underlying financial dynamics.

The provision for income taxes and cash operating taxes both demonstrate increasing values from 2021 to 2023, followed by fluctuations in subsequent years. A significant increase is observed in both metrics between 2021 and 2022, continuing into 2023, before diverging trends emerge.

Provision for Income Taxes

The provision for income taxes increased from US$159,779 thousand in 2021 to US$282,430 thousand in 2022, and further to US$391,769 thousand in 2023. This represents substantial year-over-year growth. In 2024, the provision rose again to US$476,120 thousand, before experiencing a slight decrease to US$473,758 thousand in 2025. The 2025 value remains higher than the 2023 and 2022 figures.

Cash Operating Taxes

Cash operating taxes followed a similar pattern of growth initially, increasing from US$205,847 thousand in 2021 to US$363,003 thousand in 2022, and then to US$444,667 thousand in 2023. However, the growth accelerated in 2024, reaching US$569,594 thousand. A notable decrease is then observed in 2025, with cash operating taxes falling to US$452,687 thousand. This 2025 value is comparable to the 2023 level.

Relationship between Provision and Cash Taxes

In 2021 and 2022, the difference between cash operating taxes and the provision for income taxes was approximately US$46,000 thousand and US$80,000 thousand, respectively. This difference widened in 2023 to approximately US$53,000 thousand, and further increased to US$93,000 thousand in 2024. However, in 2025, the difference narrowed significantly to approximately US$1,000 thousand, indicating a convergence of these two tax measures. This suggests a potential shift in the timing of tax payments or changes in deferred tax assets/liabilities.

The increasing trend in both tax metrics through 2023 likely reflects increased profitability. The subsequent divergence in 2024 and 2025, particularly the decrease in cash operating taxes in 2025, warrants further investigation to understand the underlying drivers. The narrowing gap between the provision for income taxes and cash operating taxes in 2025 is a key observation that could indicate changes in tax planning strategies or accounting treatments.

The reported invested capital exhibited a fluctuating pattern over the five-year period. Total reported debt & leases consistently increased year-over-year, while shareholders’ equity showed more variability. These movements collectively influenced the overall trend in invested capital.

Total Reported Debt & Leases

Total reported debt & leases demonstrated a consistent upward trend throughout the period, increasing from US$3,520,314 thousand in 2021 to US$5,075,814 thousand in 2025. The rate of increase appeared relatively stable, suggesting a consistent reliance on debt financing or lease obligations.

Shareholders’ Equity

Shareholders’ equity experienced fluctuations. It increased from US$2,297,374 thousand in 2021 to US$3,062,207 thousand in 2023, representing substantial growth. However, it decreased to US$2,830,607 thousand in 2025, indicating potential share repurchases, dividend payouts, or retained earnings impacts. The 2024 value of US$3,655,546 thousand represents the highest point in the observed period.

Invested Capital

Invested capital initially decreased from US$5,496,598 thousand in 2021 to US$5,396,406 thousand in 2022. Subsequently, it increased significantly, reaching US$6,006,837 thousand in 2023 and US$6,827,838 thousand in 2024. The growth slowed in 2025, with invested capital reaching US$7,294,198 thousand. The overall trend suggests an increasing need for capital to support operations and growth, with a slight deceleration in the most recent year.

The interplay between increasing debt and fluctuating equity resulted in a generally upward trend in invested capital, though not without intermediate variations. The substantial increase in invested capital between 2022 and 2024 warrants further investigation to understand the underlying drivers of capital deployment.

The economic spread ratio demonstrates a significant positive trend over the observed period. Initially negative in 2021, the ratio has consistently increased through 2025. This improvement correlates with substantial growth in economic profit, while invested capital also increased, though at a slower rate.

Economic Spread Ratio

In 2021, the economic spread ratio was -1.60%, indicating that the company’s return on invested capital was less than its cost of capital, resulting in economic loss. A substantial shift occurred in 2022, with the ratio rising to 2.89%, signifying a move towards value creation. This positive trend continued, reaching 7.09% in 2023, 8.67% in 2024, and further increasing to 9.21% in 2025. The consistent increase suggests improving efficiency in capital allocation and/or enhanced profitability relative to the cost of capital.

The progression of the economic spread ratio is closely linked to the changes in economic profit. The negative economic profit in 2021 aligns with the negative spread ratio. As economic profit turned positive and grew substantially in subsequent years, the economic spread ratio followed suit. The growth rate of the economic spread ratio appears to be decelerating slightly between 2024 and 2025, although it remains positive and increasing.

Invested Capital & Economic Profit Relationship

While both invested capital and economic profit increased over the period, the economic spread ratio’s growth indicates that economic profit grew at a faster pace than invested capital. This suggests that the company is becoming more effective at generating profit from each dollar of capital employed. The increase in invested capital from US$5,496,598 thousand in 2021 to US$7,294,198 thousand in 2025 demonstrates expansion, but the simultaneous and more pronounced growth in economic profit is a positive indicator.

Overall, the observed trend in the economic spread ratio suggests a strengthening financial performance and improved value creation capabilities. The company has transitioned from destroying economic value to generating it, and the rate of value creation is increasing.

The economic profit margin demonstrates a significant positive trend over the five-year period. Initially negative in 2021, the metric has consistently increased through 2025.

Economic Profit Margin Trend

In 2021, the economic profit margin was -1.16%, indicating the company’s return on capital employed was less than its cost of capital. A substantial improvement occurred in 2022, with the margin rising to 1.80%. This positive shift suggests the company began generating returns exceeding its cost of capital. The margin continued its upward trajectory, reaching 4.30% in 2023, 5.22% in 2024, and further increasing to 5.63% in 2025. This consistent growth indicates an improving ability to generate economic profit from revenue.

The increasing economic profit margin aligns with the growth in economic profit, which moved from a loss of US$87.706 million in 2021 to a profit of US$671.785 million in 2025. This suggests that improvements in operational efficiency, capital allocation, or revenue generation are contributing to the enhanced economic performance.

Relationship to Adjusted Revenue

Adjusted revenue also exhibited consistent growth throughout the period, increasing from US$7.576 billion in 2021 to US$11.927 billion in 2025. However, the growth in the economic profit margin outpaced the growth in adjusted revenue, indicating that the company is becoming more efficient at converting revenue into economic profit. This suggests effective cost management or pricing strategies are in place.

The sustained positive trend in the economic profit margin is a favorable indicator of the company’s financial health and its ability to create value for its investors.