Nike Inc. (NYSE:NKE)

The period demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) initially increased significantly before declining, while the cost of capital remained relatively stable with a late-period increase. Invested capital showed an overall increase, though with a recent decrease, impacting the resulting economic profit.

Economic Profit Trend

Economic profit exhibited a notable improvement from a loss of US$772 million in 2020 to a peak of US$1,890 million in 2022. This positive trend reversed in subsequent years, with economic profit decreasing to US$1,396 million in 2024 and ultimately falling to a loss of US$740 million in 2025. This suggests a weakening ability to generate returns exceeding the cost of capital in the later years.

NOPAT Performance

NOPAT increased substantially from US$2,477 million in 2020 to US$5,490 million in 2021, and continued to rise to US$5,557 million in 2022. However, NOPAT then decreased to US$5,013 million in 2023 and US$5,146 million in 2024, before experiencing a significant decline to US$2,913 million in 2025. This decline in operating profitability is a key driver of the reduced economic profit in the later periods.

Cost of Capital

The cost of capital remained relatively consistent between 2020 and 2024, fluctuating between 16.94% and 17.57%. A noticeable increase to 18.38% is observed in 2025. This increase in the cost of capital, coupled with declining NOPAT, contributed to the negative economic profit in that year.

Invested Capital

Invested capital generally increased from US$19,083 million in 2020 to US$22,129 million in 2024. However, a decrease to US$19,883 million is seen in 2025. While increased capital investment can support growth, the decline in 2025 did not prevent a fall into negative economic profit, indicating that the returns on the invested capital were insufficient to cover the cost of that capital.

The interplay between NOPAT, cost of capital, and invested capital significantly influenced economic profit. The initial positive trend was driven by strong NOPAT growth. However, the subsequent decline in NOPAT, combined with a rising cost of capital and a decrease in invested capital in the final year, resulted in a return to negative economic profit.

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 six-year period. Initially negative in 2020, it transitioned to positive values and peaked in 2021 before exhibiting a gradual decline, ultimately returning to a negative value in 2025. This pattern mirrors the behavior of economic profit, suggesting a strong correlation between the two metrics.

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 substantial increase was then observed, reaching 8.55% in 2021 and further improving to 8.94% in 2022. This suggests increasing efficiency in capital allocation and value creation during these years. However, the ratio decreased to 7.20% in 2023 and 6.31% in 2024, signaling a diminishing economic advantage. The ratio concluded the period at -3.72% in 2025, reverting to a position where the cost of capital exceeded the return generated.

The correlation between economic profit and the economic spread ratio is evident. The negative economic profit in 2020 aligns with the negative spread ratio, and the positive economic profits from 2021 to 2024 correspond with positive spread ratios. The return to negative economic profit in 2025 is mirrored by the negative economic spread ratio, reinforcing the relationship between these measures.

Invested Capital’s Influence

Invested capital generally increased from 2020 to 2024, peaking at US$22,129 million. The decrease to US$19,883 million in 2025 occurred concurrently with the return to a negative economic spread ratio. While not solely responsible, the reduction in invested capital may have contributed to the diminished ability to generate returns exceeding the cost of capital.

The observed fluctuations warrant further investigation to determine the underlying drivers. Factors such as changes in operational efficiency, competitive pressures, and capital allocation strategies likely contributed to these trends. The return to a negative economic spread ratio in 2025 suggests a potential need to reassess capital deployment and improve profitability to restore value creation.

The economic profit margin exhibited considerable fluctuation over the observed six-year period. Initially negative in 2020, it transitioned to positive values, peaking in 2021 and 2022 before declining again, ultimately returning to a negative value in 2025. This pattern suggests a sensitivity to underlying economic profit drivers and revenue performance.

Economic Profit Margin (2020-2025)

In 2020, the economic profit margin stood at -2.06%, 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 a similar level was maintained in 2022 at 4.05%. This suggests a period of enhanced profitability and efficient capital allocation during those years.

However, the economic profit margin began to decrease in 2023, registering at 2.87%, and continued this downward trajectory in 2024, reaching 2.72%. The most significant shift occurred in 2025, where the margin fell to -1.60%, signifying a return to negative economic profit relative to revenue. This decline warrants further investigation into the factors impacting profitability and capital efficiency.

The economic profit margin’s movement closely mirrors the trend in economic profit itself. The positive correlation between the two metrics is evident, as increases in economic profit generally corresponded with increases in the margin, and vice versa. The substantial decline in economic profit in 2025 directly resulted in the negative economic profit margin observed for that year.

Relationship to Revenues

Revenues generally increased from 2020 to 2024, peaking at US$51,362 million. However, revenues decreased in 2025 to US$46,309 million. While revenue growth initially supported positive economic profit margins, the revenue decline in 2025, coupled with a significant decrease in economic profit, contributed to the negative margin.

The observed fluctuations highlight the importance of monitoring both economic profit and revenue trends to understand the company’s overall financial performance and capital efficiency. The return to a negative economic profit margin in 2025 suggests potential challenges in generating returns exceeding the cost of capital and warrants a detailed review of operational and financial strategies.