Oracle Corp. (NYSE:ORCL)

The period under review demonstrates significant fluctuations in economic profit. While net operating profit after taxes (NOPAT) and invested capital exhibit varied trends, the cost of capital consistently increased, contributing to a generally negative economic profit performance.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased substantially from US$10,144 million in 2020 to US$14,348 million in 2021. However, a considerable decline was observed in 2022, falling to US$7,492 million. NOPAT recovered in subsequent years, reaching US$10,160 million in 2023, US$11,940 million in 2024, and further increasing to US$14,158 million in 2025. This indicates a volatile earnings pattern with a recent upward trend.

Cost of Capital

The cost of capital experienced a steady increase throughout the period. Starting at 13.55% in 2020, it rose to 14.04% in 2021, 14.33% in 2022, 15.67% in 2023, 16.12% in 2024, and peaked at 16.68% in 2025. This consistent rise in the cost of capital presents a growing challenge to profitability.

Invested Capital

Invested capital decreased from US$87,978 million in 2020 to US$81,745 million in 2021, and continued to decline to US$77,262 million in 2022. A significant increase was then noted in 2023, reaching US$98,251 million, followed by US$101,930 million in 2024 and US$115,423 million in 2025. This suggests a period of capital reallocation and subsequent reinvestment.

Economic Profit

Economic profit was negative in 2020 at -US$1,774 million, but turned positive in 2021, reaching US$2,871 million. However, it reverted to negative territory in 2022 (-US$3,579 million) and continued to worsen in 2023 (-US$5,232 million) and 2024 (-US$4,491 million). The trend continued with a further decline to -US$5,090 million in 2025. The consistently negative economic profit in the later years, despite increasing NOPAT, indicates that the cost of capital is exceeding the returns generated from invested capital.

The increasing cost of capital appears to be a primary driver of the negative economic profit trend. While NOPAT has shown recovery in recent years, it has not been sufficient to offset the rising cost of funding the invested capital. The growth in invested capital, particularly in the later years, may also be contributing to the negative economic profit if the returns on these investments are not commensurate with the associated capital costs.

Net Income Trend

The net income showed a rising trend from 2020 to 2021, increasing from 10,135 million USD to 13,746 million USD. However, there was a significant decline in 2022, with net income dropping to 6,717 million USD. Following this decline, the net income gradually increased over the next three years, reaching 8,503 million USD in 2023, 10,467 million USD in 2024, and 12,443 million USD in 2025. Overall, despite the dip in 2022, the net income demonstrates recovery and growth toward the latter years.

Net Operating Profit After Taxes (NOPAT) Trend

NNOPAT also increased from 10,144 million USD in 2020 to a peak of 14,348 million USD in 2021. It similarly experienced a large decrease in 2022 to 7,492 million USD. From 2023 onward, NOPAT consistently rose, reaching 10,160 million USD in 2023, 11,940 million USD in 2024, and culminating at 14,158 million USD in 2025. This suggests a strong rebound in operational profitability and effective tax management.

Comparative Insights

The patterns for both net income and NOPAT are aligned, with a peak in 2021, a notable downturn in 2022, and a steady recovery through the following years. NOPAT values are consistently close to net income values, indicating relatively stable operating efficiency and tax impact. The data imply that the company managed to improve operating results over time despite the intermediate disturbance in 2022.

Provision for (benefit from) income taxes

The provision for income taxes displays a fluctuating trend over the periods observed. It started at a positive amount of 1928 million USD in May 31, 2020, then dropped sharply to a negative value of -747 million USD in May 31, 2021, suggesting a tax benefit for that year. This was followed by a return to positive values with 932 million USD in 2022 and steady increases in subsequent years, reaching 1717 million USD in May 31, 2025. The data indicates variability but an overall upward trend after the negative dip.

Cash operating taxes

Cash operating taxes present a generally increasing trajectory from May 31, 2020, through May 31, 2025. Starting at 3101 million USD in 2020, the amount decreased in 2021 to 2197 million USD, but then steadily increased each year thereafter, reaching a peak of 4137 million USD in 2024, with a slight decrease to 4134 million USD in 2025. This suggests progressively higher cash tax outflows during the later years, indicative of either higher taxable income or changes in tax payments.

Total reported debt & leases

The total reported debt and leases exhibited an overall increasing trend from 2020 through 2025. Starting at $73,695 million in 2020, the amount rose to $87,027 million in 2021, followed by a decline to $79,517 million in 2022. Thereafter, a consistent upward movement occurred, reaching $95,330 million in 2023, slightly declining to $94,414 million in 2024, and finally increasing substantially to $108,952 million in 2025. This pattern indicates fluctuating debt exposures with a notable increase in the last reported period.

Total Oracle Corporation stockholders’ equity (deficit)

Stockholders’ equity showed significant volatility and a considerable turnaround over the years. Initially, equity stood at $12,074 million in 2020, sharply declining to $5,238 million in 2021 and turning into a deficit of -$6,220 million by 2022. Subsequently, equity recovered to a positive $1,073 million in 2023, then improved substantially to $8,704 million in 2024, and reached $20,451 million in 2025. This indicates a transition from financial distress or negative equity toward a stronger equity position, reflecting improved capital structure and retained earnings or other comprehensive income gains.

Invested capital

Invested capital decreased from $87,978 million in 2020 to $77,262 million in 2022, indicating reductions or restructuring in capital allocation during this period. However, from 2022 onward, invested capital rose markedly to $98,251 million in 2023, continuing to $101,930 million in 2024, and further to $115,423 million in 2025. This evolution suggests renewed investment activities and potentially greater operational scale or asset acquisition in the latter years. The confluence of rising invested capital and improving equity alongside increasing debt points to an expansion phase with leveraged financing.

The economic spread ratio exhibits considerable fluctuation over the observed period. Initially negative in 2020, it became positive in 2021 before returning to negative values and continuing to decline through 2023 and 2024. The ratio stabilizes at -4.41% in both 2024 and 2025.

Economic Spread Ratio

The economic spread ratio began at -2.02% in 2020, indicating that the company’s return on invested capital was less than its cost of capital. A significant improvement occurred in 2021, with the ratio reaching 3.51%, demonstrating a period where returns exceeded the cost of capital. However, this positive trend was short-lived. The ratio declined sharply to -4.63% in 2022 and further to -5.33% in 2023, suggesting a widening gap between the cost of capital and returns generated. The ratio moderated slightly to -4.41% in 2024 and remained constant at that level in 2025.

Economic profit mirrors the trend in the economic spread ratio. It was negative in 2020, positive in 2021, and then consistently negative from 2022 through 2025. The magnitude of the negative economic profit increased from US$1,774 million in 2020 to US$5,232 million in 2023, before decreasing slightly to US$4,491 million in 2024 and US$5,090 million in 2025.

Invested Capital

Invested capital generally increased over the period, declining slightly from 2020 to 2021, but then exhibiting consistent growth from 2021 to 2025. The increase from US$81,745 million in 2021 to US$115,423 million in 2025 suggests ongoing investment in the business. Despite this increase in capital employed, the economic spread ratio remained negative, indicating that these investments have not yet generated returns sufficient to cover the cost of capital.

The combination of a declining economic spread ratio and increasing invested capital from 2022 to 2025 suggests a potential concern regarding capital allocation efficiency. While the company continues to invest, the returns on those investments, relative to their cost, are diminishing or remain insufficient to generate positive economic profit.

The economic profit margin exhibits considerable fluctuation over the observed period. Initially negative, it experienced a substantial improvement before reverting to, and exceeding, its initial negative value. Adjusted revenues demonstrate a consistent upward trajectory throughout the period, contrasting with the volatile performance of economic profit and its margin.

Economic Profit Margin

The economic profit margin began at -4.59% in May 31, 2020. A significant positive shift occurred in the following year, reaching 6.95% by May 31, 2021. However, this improvement proved temporary, as the margin declined sharply to -8.50% by May 31, 2022. Further deterioration followed, with the margin reaching -10.30% on May 31, 2023, representing the lowest point in the observed period. A slight recovery to -8.38% was noted by May 31, 2024, but this was followed by a further decline to -8.84% on May 31, 2025. This pattern suggests a weakening ability to generate returns exceeding the cost of capital.

Adjusted Revenues

Adjusted revenues increased steadily throughout the period. From US$38,624 million in May 31, 2020, revenues grew to US$41,334 million in May 31, 2021, and US$42,096 million in May 31, 2022. The rate of growth accelerated in subsequent years, reaching US$50,782 million by May 31, 2023, US$53,569 million by May 31, 2024, and US$57,586 million by May 31, 2025. This consistent revenue growth did not translate into corresponding improvements in economic profit margin, indicating potential issues with cost management or capital efficiency.

The divergence between the increasing adjusted revenues and the consistently negative, and declining, economic profit margin suggests that while the company is successfully growing its top line, it is struggling to convert that revenue growth into economic profit. The continued negative economic profit indicates that the company’s returns are not covering its cost of capital, despite increasing sales.