Nike Inc. (NYSE:NKE)

The period demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) initially increased significantly, followed by a decline in later years. Invested capital generally trended upward, with a decrease observed in the most recent year. The cost of capital remained relatively stable, with a slight increase in the final year examined.

Economic Profit Trend

Economic profit exhibited a substantial improvement from a loss of US$767 million in 2020 to a peak of US$1,896 million in 2022. This positive trend reversed in 2023, with economic profit decreasing to US$1,474 million, and continued to decline, resulting in a loss of US$735 million in 2025. This suggests a weakening ability to generate returns exceeding the cost of capital in the latter part of the period.

NOPAT Performance

NOPAT increased markedly from US$2,477 million in 2020 to US$5,490 million in 2021, and further to US$5,557 million in 2022. A decrease to US$5,013 million was observed in 2023, followed by a slight increase to US$5,146 million in 2024. The most significant decline occurred in 2025, with NOPAT falling to US$2,913 million. This indicates a potential challenge in maintaining operational profitability.

Invested Capital and Cost of Capital Relationship

Invested capital generally increased from US$19,083 million in 2020 to US$22,129 million in 2024, before decreasing to US$19,883 million in 2025. The cost of capital remained relatively consistent, fluctuating between 16.92% and 18.35% throughout the period. The increase in invested capital without a corresponding sustained increase in NOPAT likely contributed to the decline in economic profit observed in the later years.

Cost of Capital Impact

The cost of capital experienced a slight increase in 2025 to 18.35%, coinciding with the return to a negative economic profit. This suggests that a higher cost of funding, combined with lower NOPAT, significantly impacted the company’s ability to generate economic value.

Overall, the analysis reveals a period of initial strong economic profit generation followed by a concerning trend of declining performance. The decrease in NOPAT, coupled with a rising cost of capital and fluctuations in invested capital, contributed to the erosion of economic profit in the later years of the period.

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 exhibited considerable fluctuation over the observed period. Initially negative in 2020, it demonstrated substantial improvement through 2021, 2022, and 2023 before declining again in 2024 and turning negative in 2025. This pattern mirrors the trend in economic profit, suggesting a strong correlation between the two metrics.

Economic Spread Ratio Trend

The economic spread ratio began at -4.02% in 2020, indicating that the company’s return on invested capital was less than its weighted average cost of capital. A significant increase was then observed, reaching 8.57% in 2021 and peaking at 8.97% in 2022. This suggests improved profitability relative to the cost of capital during these years. The ratio subsequently decreased to 7.23% in 2023 and further to 6.34% in 2024, signaling a diminishing advantage. By 2025, the ratio had fallen to -3.69%, returning to a position where returns are not covering the cost of capital.

Invested capital generally increased from 2020 to 2023, peaking at US$22,129 million in 2024, before decreasing to US$19,883 million in 2025. This increase in invested capital did not translate into a sustained improvement in the economic spread ratio, as evidenced by the decline in the ratio during 2024 and 2025. The negative economic spread ratio in 2025, coupled with the reduced invested capital, suggests potential challenges in generating returns commensurate with the capital employed.

Economic Profit and Spread Relationship

The economic profit figures closely align with the economic spread ratio. Negative economic profit in 2020 and 2025 corresponds with negative spread ratios, while positive economic profit from 2021 to 2024 aligns with positive spread ratios. This consistency indicates that the economic spread ratio is a reliable indicator of the company’s value creation performance.

The observed volatility in the economic spread ratio warrants further investigation. Understanding the factors driving these fluctuations – including changes in operating efficiency, cost of capital, and investment decisions – is crucial for assessing the company’s long-term financial health and strategic direction.

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 2024 and becoming negative in 2025.

Economic Profit Margin Trend

The economic profit margin began at -2.05% in 2020, indicating that the company’s economic profit was negative relative to its revenues. A substantial increase was then observed, reaching 4.05% in 2021 and further improving to 4.06% in 2022. This suggests a period of enhanced profitability from an economic value perspective. However, the margin decreased to 2.88% in 2023 and 2.73% in 2024, signaling a diminishing economic profit relative to revenue. The most recent year, 2025, shows a return to a negative margin of -1.59%, indicating a decline in economic profitability.

The economic profit margin’s movement appears correlated with revenue trends. Revenues increased from 2020 to 2023, coinciding with the initial rise in the economic profit margin. While revenues remained relatively stable between 2023 and 2024, the economic profit margin continued to decline. The decrease in revenue in 2025 is associated with a return to a negative economic profit margin.

Relationship to Revenues

The period of positive economic profit margins (2021-2023) aligns with a period of revenue growth. The subsequent decline in the margin, even with relatively stable revenues in 2024, suggests increasing costs or a higher cost of capital eroding economic profitability. The negative margin in 2025, coupled with a decrease in revenues, indicates a significant reduction in economic value creation.

The volatility in the economic profit margin suggests sensitivity to changes in underlying economic factors, potentially including cost of capital, operating expenses, or revenue generation efficiency. Further investigation into the components of economic profit would be necessary to pinpoint the specific drivers of these fluctuations.