Home Depot Inc. (NYSE:HD)

The period between February 2, 2020, and February 2, 2025, demonstrates fluctuating performance in economic profit. Net operating profit after taxes (NOPAT) initially increased, peaked, and then experienced a decline, while invested capital generally rose over the same timeframe. The cost of capital remained relatively stable, with minor variations.

NOPAT Trend

NOPAT increased from US$12,860 million in 2020 to US$14,172 million in 2021, representing a substantial gain. Further growth was observed in 2022, reaching US$18,148 million. However, NOPAT decreased to US$18,170 million in 2023 and continued to decline to US$16,384 million in 2024. A slight increase to US$16,730 million is noted in the most recent period, February 2, 2025, but remains below the 2022 peak.

Cost of Capital

The cost of capital exhibited minimal fluctuation throughout the period. It began at 15.21% in 2020, rose to 15.78% in 2021 and 15.84% in 2022, then decreased slightly to 15.68% in 2023. An increase to 16.09% was observed in 2024, followed by a decrease to 15.74% in 2025. These changes are relatively small and do not appear to be a primary driver of the observed economic profit trends.

Invested Capital

Invested capital showed a significant increase from US$36,678 million in 2020 to US$49,973 million in 2021. It experienced a slight decrease in 2022 to US$48,299 million, but then increased again to US$55,111 million in 2023 and US$55,884 million in 2024. A substantial increase is observed in the latest period, reaching US$72,841 million in February 2025.

Economic Profit

Economic profit followed a pattern of initial growth, peaking at US$10,499 million in 2022. It then decreased to US$9,528 million in 2023 and further to US$7,394 million in 2024. The most recent period shows a continued decline to US$5,268 million. While remaining positive throughout the observed period, the downward trend in economic profit suggests a diminishing return on invested capital, particularly considering the increasing invested capital base.

The increasing invested capital, coupled with a plateauing and then declining NOPAT, contributed to the observed decrease in economic profit. The relatively stable cost of capital suggests that changes in profitability, rather than financing costs, are the primary factor influencing economic profit performance.

Net Earnings

Net earnings exhibit an overall upward trend from the initial value of 11,242 million US dollars in the period ending February 2, 2020, reaching a peak of 17,105 million US dollars by January 29, 2023. However, after this peak, there is a noticeable decline, with net earnings decreasing to 15,143 million US dollars in January 28, 2024, and further slightly declining to 14,806 million US dollars by February 2, 2025.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows an increasing pattern from 12,860 million US dollars in the period ending February 2, 2020, to reach 18,170 million US dollars as of January 29, 2023. Following this peak, there is a decline in the subsequent period to 16,384 million US dollars in January 28, 2024. However, unlike net earnings, NOPAT recovers slightly in the most recent period, increasing to 16,730 million US dollars by February 2, 2025.

Comparative Insights

Both net earnings and NOPAT follow a similar trend characterized by growth up to the period ending early 2023, followed by a reduction. The decline in net earnings is more consistent in the last two periods, whereas NOPAT experiences a partial recovery in the final period. This divergence could indicate changes in operational efficiency or tax impacts that warrant further examination. Overall, the data suggests a phase of growth culminating around 2023, with some signs of financial pressure or transitional changes in profitability thereafter.

The financial data reveals the trends in provision for income taxes and cash operating taxes over six consecutive years.

Provision for Income Taxes

From February 2020 to January 2021, the provision for income taxes increased significantly from 3,473 million US dollars to 4,112 million, representing a notable rise. This upward trend continued into January 2022, peaking at 5,304 million US dollars. However, in the following years, the provision began to decline slightly: decreasing to 5,372 million in January 2023, then further reducing to 4,781 million in January 2024, and ending at 4,600 million in February 2025. Overall, after an initial sharp rise through 2022, the provision for income taxes demonstrated a downward adjustment over the last three years in the dataset.

Cash Operating Taxes

Cash operating taxes showed a strong upward movement from 3,573 million US dollars in February 2020 to 5,040 million in January 2021. This increase continued into January 2022 with another rise to 5,876 million. The following year, January 2023, registered a slight decrease to 5,622 million, which continued with marginal declines in subsequent years: 5,482 million in January 2024 and 5,201 million in February 2025. This pattern indicates that after reaching a peak in early 2022, cash operating taxes began to taper moderately but remained considerably higher than the initial 2020 values.

In summary, both provision for income taxes and cash operating taxes experienced significant growth from 2020 through early 2022, indicating increased tax-related expenses or obligations during this period. Post-2022, both metrics showed a gradual decline, potentially reflecting changes in taxable income, tax strategies, or regulatory impacts. The consistent higher levels from 2021 onwards compared to 2020 suggest an overall increase in tax burden or profitability subject to tax over the six-year span.

The financial data reveals several notable trends in the company’s capital structure and financial position over the observed periods.

Total reported debt & leases

This figure exhibits a consistent upward trend throughout the periods, increasing from $37,377 million in early 2020 to $62,290 million by early 2025. The rise indicates a growing reliance on debt and lease obligations, which increased by nearly 67% over the five-year span.

Stockholders’ equity (deficit)

Stockholders’ equity fluctuates significantly, starting with a negative position of -$3,116 million in early 2020 and improving to a positive $3,299 million by early 2021. However, it swings back to a negative figure in early 2022 at -$1,696 million, before gradually increasing again to reach $6,640 million by early 2025. This volatility suggests periods of financial strain or restructuring, followed by recovery phases, ultimately resulting in a strengthened equity base.

Invested capital

Invested capital shows an overall increasing pattern, beginning at $36,678 million in 2020, rising to $49,973 million in 2021, and experiencing some fluctuations before reaching a peak of $72,841 million in 2025. This growth reflects increased capital deployment, possibly through investments, acquisitions, or asset expansion aligning with the rise in debt levels.

In summary, the company appears to have expanded its capital base and debt load significantly over the period, while stockholders’ equity demonstrated volatility but ultimately improved. The overall increase in invested capital alongside growing debt indicates a strategy of leveraging to finance growth or operations, which has enhanced the total resources employed in the business.

The period under review demonstrates fluctuating performance in economic profit and invested capital, resulting in a corresponding variance in the economic spread ratio. Initial values show a substantial increase in invested capital between February 2020 and January 2021, while economic profit decreased concurrently. Subsequent years exhibit volatility in both metrics, with the economic spread ratio reflecting these changes.

Economic Profit

Economic profit peaked in January 2022 at US$10,499 million, representing the highest value within the observed timeframe. Following this peak, a decline is evident, with economic profit decreasing to US$7,394 million in January 2023 and further decreasing to US$5,268 million in February 2025. This suggests a weakening ability to generate returns exceeding the cost of capital in more recent periods.

Invested Capital

Invested capital experienced a significant increase from US$36,678 million in February 2020 to US$49,973 million in January 2021. While it decreased slightly to US$48,299 million in January 2022, it subsequently increased to US$55,111 million in January 2023 and US$55,884 million in January 2024. The most substantial increase occurred between January 2024 and February 2025, reaching US$72,841 million. This indicates a growing capital base, potentially through reinvestment or financing activities.

Economic Spread Ratio

The economic spread ratio began at 19.85% in February 2020, decreased to 12.58% in January 2021, and then rose to a high of 21.74% in January 2022. A subsequent decline is observed, with the ratio decreasing to 17.29% in January 2023 and 13.23% in January 2024. The most pronounced decrease occurred between January 2024 and February 2025, falling to 7.23%. This downward trend suggests a diminishing competitive advantage or increasing cost of capital relative to earnings.

The divergence between the increasing invested capital and the decreasing economic profit, particularly evident in the most recent periods, is reflected in the declining economic spread ratio. This suggests that while the company is investing more capital, it is generating proportionally lower returns on that investment.

The economic profit margin exhibited fluctuations over the analyzed period, beginning in 2020 and extending through projected figures for 2025. Initial values demonstrated a decrease followed by a recovery, then a subsequent decline. A detailed examination of the trends is presented below.

Economic Profit Margin Trend

The economic profit margin began at 6.58% in 2020. A decrease was observed in 2021, falling to 4.73%. The margin then increased significantly in 2022, reaching 6.91%, indicating improved profitability relative to sales. This positive trend continued, albeit at a slower pace, with a margin of 6.07% in 2023. However, a downward trend resumed in 2024, with the margin decreasing to 4.85%. Projections for 2025 indicate a further decline to 3.31%, representing the lowest margin observed within the analyzed timeframe.

Relationship to Adjusted Net Sales

Adjusted net sales generally increased from 2020 to 2023, moving from US$110,559 million to US$156,871 million. While sales experienced a slight decrease in 2024 to US$152,367 million, they are projected to increase again in 2025 to US$159,362 million. Despite these sales increases, the economic profit margin did not consistently rise, suggesting that increases in costs or adjustments to the net income calculation offset the benefits of higher sales in certain periods.

Economic Profit Trend

Economic profit itself followed a similar pattern to the margin. It decreased from US$7,280 million in 2020 to US$6,288 million in 2021, then rose substantially to US$10,499 million in 2022. A decrease to US$9,528 million occurred in 2023, followed by a further decline to US$7,394 million in 2024. The projected economic profit for 2025 is US$5,268 million, continuing the downward trend. The decreasing economic profit, coupled with the declining margin, suggests a weakening ability to generate returns exceeding the cost of capital.

In summary, while adjusted net sales demonstrated overall growth, the economic profit margin experienced volatility and a clear downward trend towards the end of the analyzed period. This indicates that the company’s profitability, relative to its capital costs, is diminishing despite increasing sales.