Nike Inc. (NYSE:NKE)

The period under review demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) exhibited substantial growth initially, followed by a decline towards the end of the observed timeframe. Invested capital generally increased, with a decrease noted in the final year. The cost of capital remained relatively stable for most of the period, with increases observed at the beginning and end.

Economic Profit Trend

Economic profit began at a negative value in 2020, indicating the company’s returns were less than its cost of capital. A significant positive shift occurred in 2021 and 2022, with economic profit reaching 1,796 and 1,889 million US dollars respectively. This suggests improved capital allocation and profitability during those years. However, economic profit decreased in 2023 and 2024, remaining positive but at lower levels of 1,468 and 1,396 million US dollars. By 2025, economic profit returned to a negative value of -741 million US dollars, signaling a potential erosion of value creation.

NOPAT Performance

NOPAT increased considerably from 2,477 million US dollars in 2020 to 5,490 million US dollars in 2021, representing a substantial improvement in operational profitability. Growth continued, albeit at a slower pace, reaching 5,557 million US dollars in 2022. A decline was then observed in 2023 (5,013 million US dollars) and 2024 (5,146 million US dollars), before a more pronounced decrease to 2,913 million US dollars in 2025. This suggests potential challenges in maintaining operational efficiency or facing increased competitive pressures towards the end of the period.

Cost of Capital and Invested Capital Relationship

The cost of capital fluctuated between 17.03% and 18.38% over the period. While generally stable, the increase in the final year coincides with the return to negative economic profit. Invested capital generally trended upwards, peaking at 22,129 million US dollars in 2024, before decreasing to 19,883 million US dollars in 2025. The combination of a higher cost of capital and a decrease in NOPAT in 2025 likely contributed to the negative economic profit observed in that year.

Overall, the company demonstrated an ability to generate economic profit for several years, but recent trends indicate a weakening performance. The decline in NOPAT, coupled with a rising cost of capital in the final year, resulted in a return to negative economic profit, warranting further investigation into the underlying drivers of these changes.

Net Income

Net income shows a significant increase from 2,539 million USD in 2020 to a peak of 6,046 million USD in 2022. However, this is followed by a decline to 5,070 million USD in 2023. There is a partial recovery to 5,700 million USD in 2024 before a sharp decrease to 3,219 million USD in 2025. Overall, net income demonstrates strong growth until 2022, but subsequent years indicate volatility and a downward trend by the final year.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a similar pattern to net income, increasing from 2,477 million USD in 2020 to 5,557 million USD in 2022. After peaking, it declines to 5,013 million USD in 2023 and slightly improves to 5,146 million USD in 2024. However, in 2025, NOPAT decreases substantially to 2,913 million USD. This trend aligns closely with net income, illustrating parallel fluctuations in profitability after operating costs and taxes.

Overall Trends and Insights

Both net income and NOPAT show a growth phase peaking around 2022, followed by a period of decline and instability. The decrease in values in 2025 suggests challenges impacting profitability, potentially due to operational or market conditions. The close alignment between net income and NOPAT indicates consistent operational efficiency relative to income generation before the decline starts.

Income Tax Expense

The income tax expense shows a fluctuating trend over the six-year period. It increased significantly from 348 million US dollars in 2020 to 934 million US dollars in 2021, followed by a decline to 605 million in 2022. However, it spiked again to 1,131 million in 2023 before gradually decreasing over the next two years, reaching 666 million in 2025. This pattern indicates volatility in the company's tax obligations, potentially influenced by changes in profitability or tax regulations.

Cash Operating Taxes

Cash operating taxes have generally trended upward from 764 million US dollars in 2020 to peak at 1,482 million in 2024. Notably, there was rapid growth between 2020 and 2021, and a stabilization phase followed with values remaining above 1,200 million until 2024. A decline is observed in 2025, dropping to 951 million. This suggests variations in operational cash tax payments, potentially reflecting changes in taxable income, tax planning strategies, or cash management.

Comparative Insight

Comparing income tax expense with cash operating taxes reveals some divergence in trends. While income tax expense is more volatile with pronounced peaks and troughs, cash operating taxes show a more gradual rise and fall. This might indicate differing timing or recognition of tax liabilities versus actual cash outflows related to taxes over the years.

Total reported debt & leases

The total reported debt and leases demonstrate a consistent downward trend over the observed period. Starting at 13,015 million US dollars at the end of May 2020, the figure gradually decreases each year, reaching 11,018 million US dollars by May 2025. This reduction suggests a strategic effort toward lowering financial leverage or refinancing liabilities on possibly more favorable terms.

Shareholders’ equity

Shareholders' equity exhibits considerable growth from May 2020 through May 2022, increasing from 8,055 million to a peak of 15,281 million US dollars. However, post-2022, equity experiences a slight decline, settling at 13,213 million by May 2025. The initial increase may indicate retained earnings accumulation or capital infusions, while the subsequent decrease might reflect distributions such as dividends, share repurchases, or changes in retained earnings.

Invested capital

Invested capital shows a fluctuation pattern throughout the period observed. Starting at 19,083 million in May 2020, it rises to a high of 22,129 million by May 2024 before decreasing to 19,883 million in May 2025. This variability could be due to changes in operational asset base, capital expenditures, or working capital adjustments, indicating shifts in investment strategies or business cycles.

The economic spread ratio demonstrates significant fluctuation over the observed period. Initially negative in 2020, it experienced substantial improvement through 2022 before declining again in subsequent years. Economic profit mirrored this pattern, moving from a loss to positive values and then back towards a loss by 2025. Invested capital generally increased until 2024, followed by a decrease in the final year.

Economic Spread Ratio - Overall Trend

The economic spread ratio began at -4.05% in 2020, indicating that the company’s return on invested capital was less than its weighted average cost of capital. A strong positive trend followed, peaking at 8.94% in 2022, signifying a period where the company generated returns exceeding its cost of capital. This positive trend reversed, with the ratio decreasing to 6.31% in 2024 and ultimately falling to -3.73% in 2025, suggesting a renewed inability to generate returns above the cost of capital.

Economic Profit and Invested Capital Relationship

Economic profit and invested capital exhibited a correlated movement. As economic profit increased from a loss of US$772 million in 2020 to US$1,889 million in 2022, invested capital also generally rose, peaking at US$21,137 million. The decline in economic profit in 2023 and 2024 coincided with a stabilization and then increase in invested capital, potentially indicating diminishing returns on additional investment. The substantial decrease in economic profit to a loss of US$741 million in 2025 accompanied a decrease in invested capital, suggesting a potential recalibration of capital allocation.

Year-over-Year Changes

The largest year-over-year increase in the economic spread ratio occurred between 2020 and 2021, moving from -4.05% to 8.54%. The most significant decline was observed between 2022 and 2023, decreasing from 8.94% to 7.20%. The final year, 2025, showed the most dramatic shift, with the ratio falling from 6.31% to -3.73%, representing a substantial reversal in financial performance relative to capital employed.

The observed fluctuations suggest a dynamic relationship between profitability, capital allocation, and the cost of capital. The recent decline in the economic spread ratio and return to negative economic profit in 2025 warrant further investigation to understand the underlying drivers and potential implications for future performance.

The economic profit margin exhibited considerable fluctuation over the observed six-year period. Initially negative in 2020, it transitioned to positive values for the subsequent three years before declining again in 2025.

Economic Profit Margin Trend

The economic profit margin began at -2.06% in 2020, indicating that the company’s economic profit was negative relative to its revenues. A substantial improvement occurred in 2021, with the margin rising to 4.03%, and continued to 4.05% in 2022. This suggests increasing efficiency in generating returns above the cost of capital during these years. A moderate decrease to 2.87% was noted in 2023, followed by a further decline to 2.72% in 2024. The most recent year, 2025, saw a return to a negative margin of -1.60%, signaling a potential weakening in the company’s ability to generate economic profit.

The economic profit margin’s movement appears correlated with revenue trends. Revenues increased consistently from 2020 to 2024, coinciding with the positive economic profit margin period. However, a decrease in revenues in 2025 was accompanied by a return to a negative economic profit margin. This suggests that revenue growth alone does not guarantee economic profitability; the cost of capital and operational efficiency play a crucial role.

Relationship to Revenues

While revenues grew from US$37,403 million in 2020 to US$51,362 million in 2024, the economic profit margin did not consistently increase. The peak margin occurred in 2021 and 2022, despite higher revenues in 2024. This indicates that factors beyond revenue volume, such as cost of capital or operational expenses, influenced the economic profit margin. The decline in revenue to US$46,309 million in 2025, coupled with a negative economic profit margin, reinforces the importance of maintaining both revenue growth and profitability.

The fluctuation in economic profit, from a loss of US$-772 million in 2020 to a peak of US$1,889 million in 2022, and then a decline to a loss of US$-741 million in 2025, directly impacts the economic profit margin. The observed trend suggests a sensitivity to underlying economic conditions or company-specific factors affecting profitability.