SLB N.V. (NYSE:SLB)

The period under review demonstrates a fluctuating relationship between net operating profit after taxes, cost of capital, and invested capital, resulting in a volatile economic profit. Initial observations indicate a progression from negative economic profit towards positive values, followed by a subsequent decline.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased significantly from 2021 to 2023, rising from US$2,298 million to US$4,641 million. This growth slowed in 2024, with NOPAT reaching US$4,815 million, before decreasing substantially to US$3,544 million in 2025. This suggests a peak in operational profitability around 2024, followed by a considerable reduction.

Cost of Capital

The cost of capital experienced an initial increase from 11.40% in 2021 to 12.46% in 2022. It then decreased slightly to 12.00% in 2024 before rising again to 12.38% in 2025. These fluctuations indicate changes in the perceived risk or market conditions affecting the company’s funding costs.

Invested Capital

Invested capital consistently increased throughout the period, growing from US$32,896 million in 2021 to US$44,371 million in 2025. This continuous expansion suggests ongoing investment in the business and its operations.

Economic Profit

Economic profit was negative in 2021 and 2022, at -US$1,451 million and -US$428 million respectively, indicating that returns did not cover the cost of capital. It improved significantly, becoming nearly breakeven at -US$17 million in 2023, and then positive at US$90 million in 2024. However, economic profit turned sharply negative again in 2025, reaching -US$1,950 million. This pattern suggests a period of value creation in 2024 that was not sustained, and a return to value destruction in the final year of the period.

The interplay between increasing invested capital and fluctuating NOPAT, coupled with a relatively stable cost of capital, drove the observed changes in economic profit. The substantial decline in NOPAT in 2025, despite continued investment, appears to be the primary driver of the significant negative economic profit recorded in that year.

Net income attributable to SLB and net operating profit after taxes (NOPAT) both demonstrate positive performance over the analyzed period, though with differing trajectories. NOPAT consistently exceeds net income attributable to SLB across all reported years. Both metrics experienced growth from 2021 to 2023, followed by a leveling off and subsequent decline in the most recent year.

NOPAT Trend

NOPAT increased from US$2,298 million in 2021 to US$3,801 million in 2022, representing a substantial growth of approximately 65.7%. This upward trend continued into 2023, with NOPAT reaching US$4,641 million. Further incremental growth was observed in 2024, reaching US$4,815 million. However, 2025 saw a decrease in NOPAT to US$3,544 million, indicating a decline of approximately 26.3% from the peak in 2024.

Net Income Trend

Net income attributable to SLB increased from US$1,881 million in 2021 to US$3,441 million in 2022, a growth of approximately 82.9%. The growth continued in 2023, reaching US$4,203 million, and then to US$4,461 million in 2024. Similar to NOPAT, net income decreased in 2025, falling to US$3,374 million, a decline of approximately 24.4% from the 2024 high.

Relationship between NOPAT and Net Income

The difference between NOPAT and net income attributable to SLB remains consistently positive throughout the period. This suggests that factors such as interest expense and non-operating items are reducing reported net income relative to core operational profitability as measured by NOPAT. The magnitude of this difference does not exhibit a significant trend over the period, remaining relatively stable in absolute terms.

The observed decline in both NOPAT and net income in 2025 warrants further investigation to determine the underlying causes. Potential factors could include changes in revenue, operating costs, tax rates, or non-operating expenses.

The reported tax expense and cash operating taxes demonstrate increasing values from 2021 through 2024, followed by a decrease in 2025. Both metrics exhibit a consistent pattern of growth before the final year’s decline.

Tax Expense

Tax expense increased from US$446 million in 2021 to US$1,093 million in 2024, representing a significant rise over the period. This increase suggests potentially higher profitability or changes in applicable tax rates. However, tax expense decreased to US$840 million in 2025, indicating a possible reduction in taxable income or the benefit of tax planning strategies.

Cash Operating Taxes

Cash operating taxes followed a similar trajectory to tax expense, rising from US$579 million in 2021 to US$1,211 million in 2024. This indicates an increasing cash outflow related to tax obligations. The value then decreased slightly to US$1,215 million in 2025. The consistency between the 2024 and 2025 values suggests the decrease may not be substantial.

Relationship between Tax Expense and Cash Operating Taxes

Cash operating taxes consistently exceeded tax expense across all reported years. This difference could be attributed to timing differences between the recognition of tax expense under accounting standards and the actual cash payments made for taxes. The gap between the two metrics remained relatively stable throughout the period, suggesting a consistent pattern in these timing differences.

The observed trends suggest a period of increasing tax obligations followed by a potential stabilization or slight reduction in 2025. Further investigation into the underlying drivers of these changes, such as profitability, tax rate fluctuations, and tax planning initiatives, would be necessary for a more comprehensive understanding.

The reported invested capital demonstrates a consistent upward trend over the five-year period. Simultaneously, changes are observed in the components contributing to this figure, namely total reported debt & leases and total stockholders’ equity.

Invested Capital Trend

Invested capital increased from US$32,896 million in 2021 to US$44,371 million in 2025. This represents a cumulative increase of approximately 35% over the period. The growth appears to be accelerating, with larger absolute increases observed in the later years of the period (2023-2025) compared to the earlier years (2021-2023).

Debt & Leases

Total reported debt & leases decreased from US$15,009 million in 2021 to US$12,541 million in 2025. The largest decrease occurred between 2021 and 2022, followed by a period of relative stability with minor fluctuations between 2022 and 2024. A further decrease is noted in 2025.

Stockholders’ Equity

Total stockholders’ equity exhibited a consistent increase throughout the period, rising from US$15,004 million in 2021 to US$26,109 million in 2025. This represents a cumulative increase of approximately 73%. The rate of increase in stockholders’ equity also appears to be accelerating, mirroring the trend observed in invested capital.

The increase in invested capital, coupled with the decrease in debt and the substantial increase in stockholders’ equity, suggests a shift in the company’s capital structure. The company appears to be relying more on equity financing and less on debt financing. The accelerating growth in both invested capital and stockholders’ equity in the later years of the period may indicate increased investment in operations or acquisitions, funded primarily by equity.

The economic spread ratio exhibited considerable fluctuation over the five-year period. Initially negative, the ratio improved significantly before declining sharply again. Economic profit demonstrated a similar pattern, moving from substantial losses to a modest profit and then back to a significant loss.

Economic Spread Ratio

The economic spread ratio began at -4.41% in 2021, indicating that the company’s return on invested capital was below its weighted average cost of capital. A notable improvement was observed in 2022, with the ratio increasing to -1.26%, suggesting a narrowing gap between returns and costs. This positive trend continued into 2023, reaching -0.05%, nearly achieving a break-even point. However, in 2024, the ratio briefly turned positive at 0.23%, signifying a period where returns exceeded costs. The most recent year, 2025, saw a substantial decline to -4.39%, returning the ratio to a level comparable to its initial value and indicating a significant underperformance relative to the cost of capital.

Economic Profit

Economic profit mirrored the trend in the economic spread ratio. Starting with a loss of US$1,451 million in 2021, the losses diminished to US$428 million in 2022 and further to US$17 million in 2023. A profit of US$90 million was recorded in 2024, but this was followed by a considerable loss of US$1,950 million in 2025. The magnitude of the loss in 2025 exceeds that of the initial year, suggesting a worsening financial performance.

Invested Capital

Invested capital consistently increased throughout the period, rising from US$32,896 million in 2021 to US$44,371 million in 2025. This growth in invested capital occurred alongside the fluctuating economic profit and economic spread ratio, suggesting that increased investment did not consistently translate into improved returns. The increasing capital base may have contributed to the larger loss observed in 2025.

The combined trends suggest a period of improving financial performance between 2021 and 2024, followed by a significant setback in 2025. The increasing invested capital, coupled with the declining economic spread ratio and negative economic profit in the most recent year, warrants further investigation.

The economic profit margin exhibited significant fluctuation over the five-year period. Initially negative, the margin improved substantially before declining again to a negative value.

Economic Profit Margin Trend

In 2021, the economic profit margin was -6.33%. This indicates that the company’s economic profit was 6.33% lower than its cost of capital. A considerable improvement was observed in 2022, with the margin increasing to -1.52%, suggesting a narrowing gap between economic profit and cost of capital. This positive trend continued into 2023, where the margin nearly reached breakeven at -0.05%. The company achieved a positive economic profit margin of 0.25% in 2024, indicating that economic profit exceeded the cost of capital. However, this improvement was short-lived, as the margin decreased sharply to -5.46% in 2025, representing a substantial decline in economic profitability relative to capital costs.

The economic profit margin’s movement closely mirrors the trend in economic profit. The negative economic profit in 2021 and 2022 directly contributed to the negative margins. The near-zero economic profit in 2023 resulted in a margin close to zero, and the positive economic profit in 2024 drove the margin into positive territory. The significant negative economic profit in 2025 was the primary driver of the substantial decline in the economic profit margin.

Relationship to Revenue

Revenue increased consistently from 2021 to 2024, from US$22,929 million to US$36,289 million. While revenue decreased slightly in 2025 to US$35,708 million, the economic profit margin declined more dramatically, suggesting that increased revenue alone was insufficient to maintain economic profitability. The decline in margin in 2025 indicates that the cost of capital, or other factors impacting economic profit, increased at a faster rate than revenue.

The volatility in the economic profit margin suggests potential instability in the company’s ability to generate returns exceeding its cost of capital. Further investigation into the factors driving these fluctuations, particularly the significant decline in 2025, would be warranted.