Salesforce Inc. (NYSE:CRM)

The period under review demonstrates significant fluctuations in Return on Invested Capital (ROIC). Initially, a decline in ROIC is observed, followed by a recovery and subsequent strong growth. Net operating profit after taxes (NOPAT) and invested capital both exhibit trends that influence the ROIC performance.

ROIC Trend

ROIC began at 8.25% in 2021, decreased to 5.42% in 2022, and experienced a substantial drop to 2.31% in 2023. A recovery commenced in 2024, with ROIC rising to 6.31%. This upward trajectory continued into 2025, reaching 8.20%, and accelerated significantly in 2026, culminating in 12.76%.

NOPAT Analysis

NOPAT showed modest growth from 4,388 million in 2021 to 4,442 million in 2022. A considerable decrease was then recorded in 2023, falling to 1,931 million. Subsequent years witnessed substantial increases, with NOPAT reaching 5,317 million in 2024, 7,014 million in 2025, and 12,319 million in 2026. The strong NOPAT growth in the later years is a primary driver of the ROIC improvement.

Invested Capital Analysis

Invested capital increased significantly from 53,200 million in 2021 to 81,940 million in 2022. Growth slowed in subsequent years, with increases to 83,692 million in 2023, 84,311 million in 2024, and 85,579 million in 2025. A more substantial increase was observed in 2026, reaching 96,559 million. While invested capital generally increased throughout the period, the rate of increase did not consistently correlate with the fluctuations in ROIC, suggesting NOPAT is the dominant factor.

The substantial increase in ROIC from 2023 to 2026 is largely attributable to the significant growth in NOPAT, despite the continued increase in invested capital. The period between 2021 and 2023 demonstrates a weakening relationship between invested capital and profit generation, while the later period indicates a strengthening of this relationship.

The period under review demonstrates significant fluctuations in the components of return on invested capital. Overall, ROIC experienced volatility, beginning at 8.25% and declining to a low of 2.31% before recovering to 12.76% by the final period. This fluctuation is directly attributable to changes in operating profit margin, capital turnover, and the impact of taxes.

Operating Profit Margin (OPM)

Operating profit margin exhibited a substantial decline from 20.31% in 2021 to 8.46% in 2023. This represents a period of decreasing profitability. However, a strong recovery is then observed, with OPM increasing to 19.05% in 2024, 24.08% in 2025, and reaching 29.96% in 2026. This suggests improved operational efficiency and/or pricing power in the later years.

Turnover of Capital (TO)

Turnover of capital remained relatively stable throughout the period, fluctuating between 0.36 and 0.47. A slight upward trend is discernible, indicating a gradual improvement in the efficiency with which capital is utilized to generate revenue. However, the changes are modest compared to the fluctuations observed in operating profit margin.

Effective Cash Tax Rate Impact (1 – CTR)

The impact of the effective cash tax rate showed considerable variation. It began at a high of 93.17%, gradually decreasing to a low of 68.98% in 2023, before increasing again to 91.18% in 2026. The decrease in 2023 likely provided a boost to ROIC, while the subsequent increases in later years partially offset gains from improved profitability. The volatility suggests changes in tax planning or applicable tax laws.

The decline in ROIC between 2021 and 2023 was primarily driven by the significant decrease in operating profit margin, despite a relatively stable capital turnover. The subsequent recovery in ROIC from 2024 onwards is largely attributable to the substantial improvement in operating profit margin, coupled with a modest increase in capital turnover and a favorable shift in the effective cash tax rate impact. The interplay of these three factors demonstrates a complex relationship in determining overall returns.

The operating profit margin (OPM) exhibits a fluctuating pattern over the observed period. Net operating profit before taxes (NOPBT) also demonstrates considerable variation, influencing the OPM trend.

Operating Profit Margin (OPM) - Overall Trend

The OPM initially decreased from 20.31% in 2021 to 16.42% in 2022, representing a decline of approximately 3.89 percentage points. A significant drop was then observed in 2023, with the OPM falling to 8.46%. However, a strong recovery commenced in 2024, with the OPM rising to 19.05%, and continued through 2025, reaching 24.08%. This upward momentum persisted into 2026, culminating in an OPM of 29.96%.

Relationship with Net Operating Profit Before Taxes (NOPBT)

The decline in OPM in 2022 was accompanied by a modest increase in NOPBT. The substantial decrease in OPM during 2023 corresponds with a significant reduction in NOPBT, from US$4,845 million to US$2,799 million. The subsequent recovery in OPM from 2024 onwards is directly linked to the substantial growth in NOPBT, which increased from US$2,799 million in 2023 to US$13,511 million in 2026.

Relationship with Adjusted Revenues

Adjusted revenues consistently increased throughout the period, from US$23,197 million in 2021 to US$45,099 million in 2026. While revenue growth was consistent, the OPM did not move in direct correlation. The period of revenue growth from 2021 to 2023 saw a decline in OPM, indicating that revenue increases were not translating into proportional profitability. The period from 2024 to 2026 shows both revenue and OPM increasing, suggesting improved operational efficiency and profitability alongside revenue expansion.

Key Observations

The most notable feature is the dramatic improvement in OPM from 2023 to 2026. This suggests a significant shift in the company’s cost structure or pricing strategy, or a combination of both, allowing it to convert a greater proportion of revenue into operating profit. The initial decline in OPM, despite revenue growth, warrants further investigation to understand the underlying factors contributing to reduced profitability during that period.

The analysis reveals a fluctuating, yet generally improving, trend in the turnover of capital over the observed period. While initially declining, the metric demonstrates a recovery and subsequent increase towards the end of the forecast horizon.

Adjusted Revenues

Adjusted revenues exhibit a consistent upward trajectory throughout the period, increasing from 23,197 US$ millions in 2021 to a projected 45,099 US$ millions in 2026. This represents a substantial overall growth in sales generation.

Invested Capital

Invested capital increased significantly from 2021 to 2023, rising from 53,200 US$ millions to 83,692 US$ millions. Growth then moderated, with relatively small increases observed from 2023 to 2025, before accelerating again to reach 96,559 US$ millions in 2026. This suggests periods of substantial investment followed by more measured capital deployment.

Turnover of Capital (TO)

The turnover of capital ratio, which measures how efficiently invested capital is used to generate revenue, began at 0.44 in 2021. A decrease was observed in 2022, with the ratio falling to 0.36. The ratio then partially recovered to 0.40 in 2023 and continued to improve, reaching 0.43 in 2024 and 0.46 in 2025. The forecast indicates a further increase to 0.47 in 2026. This suggests an improving ability to generate revenue from each dollar of invested capital, particularly in the later years of the period.

The initial decline in the turnover of capital in 2022 coincided with a significant increase in invested capital, potentially indicating that the benefits of those investments had not yet fully materialized in revenue generation. The subsequent recovery and projected increases in the ratio suggest that the company is becoming more effective at utilizing its capital base to drive revenue growth. The increasing revenues, coupled with a moderating growth rate in invested capital towards the end of the period, contribute to this improved efficiency.

The effective cash tax rate exhibited considerable fluctuation over the observed period. Initial values were relatively low, increasing significantly in 2023 before moderating and then declining again. This pattern is closely linked to movements in cash operating taxes and net operating profit before taxes.

Effective Cash Tax Rate (CTR)

The CTR began at 6.83% in 2021 and increased to 8.32% in 2022, indicating a modest rise in the proportion of pre-tax profits paid as cash taxes. A substantial increase was then observed in 2023, with the CTR reaching 31.02%. This suggests a significantly higher cash tax burden relative to pre-tax profits during that year. The rate decreased to 23.51% in 2024 and 26.52% in 2025, indicating some moderation in the cash tax burden. Finally, the CTR experienced a notable decline to 8.82% in 2026, returning to a level comparable to the earlier years of the period.

Cash operating taxes demonstrated an increasing trend from 2021 to 2025, with values rising from US$322 million to US$2,531 million. However, a substantial decrease to US$1,192 million was recorded in 2026. This suggests a significant reduction in actual cash taxes paid in the latest year.

Relationship between NOPBT and Cash Taxes

Net operating profit before taxes (NOPBT) generally increased throughout the period, rising from US$4,710 million in 2021 to US$13,511 million in 2026. The large increase in the CTR in 2023 occurred alongside a decrease in NOPBT, amplifying the impact on the effective tax rate. The subsequent increase in NOPBT in 2024 and 2025, coupled with relatively stable cash taxes, contributed to the moderation of the CTR. The decrease in cash taxes in 2026, combined with continued growth in NOPBT, resulted in a significant reduction in the CTR.

The volatility in the CTR highlights the sensitivity of this metric to changes in both pre-tax profits and actual cash tax payments. The substantial increase in 2023 warrants further investigation to understand the underlying drivers, such as changes in tax regulations, deferred tax adjustments, or specific accounting treatments.