ServiceNow Inc. (NYSE:NOW)

The period under review demonstrates a generally positive trajectory in economic profit, though with some fluctuation. Net operating profit after taxes (NOPAT) increased consistently from 2020 to 2024, while the cost of capital experienced a modest, steady increase. Invested capital also rose significantly throughout the period. These factors combined to influence the trend in economic profit.

NOPAT Trend

Net operating profit after taxes exhibited a clear upward trend, increasing from US$886 million in 2020 to US$2,283 million in 2024. The most substantial year-over-year increase occurred between 2022 and 2023, suggesting a period of accelerated operational performance. Growth slowed slightly between 2023 and 2024, but remained positive.

Cost of Capital Trend

The cost of capital showed a gradual increase over the five-year period, rising from 14.90% in 2020 to 15.07% in 2024. This increase, while relatively small, indicates a potentially increasing risk profile or changes in market conditions affecting the company’s funding costs.

Invested Capital Trend

Invested capital experienced substantial growth, nearly doubling from US$4,325 million in 2020 to US$9,898 million in 2024. This suggests significant investment in the business, potentially supporting the observed growth in NOPAT. The largest increase in invested capital occurred between 2021 and 2022.

Economic Profit Trend

Economic profit, while initially declining from US$242 million in 2020 to US$179 million in 2022, demonstrated a strong recovery and growth in the subsequent years. It increased significantly to US$592 million in 2023 and further to US$791 million in 2024. This indicates that the company is increasingly generating returns exceeding its cost of capital, particularly in the later years of the period. The initial decline in economic profit coincided with a larger increase in invested capital relative to NOPAT growth.

Overall, the analysis suggests improving financial performance as measured by economic profit. The increasing NOPAT and substantial growth in invested capital are key drivers of this trend, despite a slight increase in the cost of capital. The recovery in economic profit from 2022 onwards indicates effective capital allocation and operational improvements.

Net Income Trend

The net income exhibits a significant upward trajectory from 2020 to 2023, increasing from 119 million US dollars in 2020 to a peak of 1,731 million US dollars in 2023. This represents a substantial growth, indicating strong profitability growth during these years. However, a decline is observed in 2024, with net income decreasing to 1,425 million US dollars, suggesting some challenges or changes that impacted earnings in the latest period.

Net Operating Profit After Taxes (NOPAT) Trend

NOPAT shows consistent growth over the entire period from 2020 through 2024. Starting at 886 million US dollars in 2020, it rises steadily each year, reaching 2,283 million US dollars by 2024. This consistent upward trend implies improving operating efficiency and profitability before the impact of non-operating items or extraordinary costs that might affect net income.

Comparison Between Net Income and NOPAT

While both net income and NOPAT increase over time, NOPAT shows a more uniform upward trend without any decline. The divergence in 2024, where net income falls but NOPAT continues to rise, could indicate increased non-operating expenses, tax variability, or other financial adjustments affecting the bottom line. This difference highlights the importance of separating core operating performance from net profitability, where operating results remain strong despite a setback in net income.

Overall Financial Performance Insights

The financial data reveals strong growth and improved operating profitability over the five-year span. The peak in net income followed by a decline in the final year warrants attention to underlying factors outside operating performance. Meanwhile, continued NOPAT growth suggests the company maintains robust operational fundamentals, highlighting resilience and possible growth opportunities despite net income fluctuations.

The financial data reveals significant volatility in the provision for income taxes over the analyzed period. Initially, this provision decreased from 31 million US dollars at the end of 2020 to 19 million in 2021, followed by a marked increase to 74 million in 2022. The most notable fluctuation occurred in 2023, where the provision swung drastically to a negative value of -723 million, indicating a potential income tax benefit or adjustment during that year. In 2024, the provision reverted to a positive figure of 313 million, reflecting a substantial recovery or adjustment in tax expenses.

Conversely, cash operating taxes exhibited a different pattern characterized by gradual increases with some fluctuations. Starting at 56 million in 2020, cash taxes slightly rose to 59 million in 2021, then decreased to 53 million in 2022. From 2022 onwards, a steady upward trend is observable, with an increase to 82 million in 2023 followed by a more pronounced rise to 138 million in 2024. This suggests growing outflows related to operational tax payments, aligning with potential increases in taxable income or changes in tax regulations affecting operational cash tax expenses.

Provision for income taxes

Declined from 2020 to 2021, increased in 2022, sharply reversed to a large negative figure in 2023, and rebounded strongly in 2024.

Cash operating taxes

Presented a relatively stable trend with minor fluctuations until 2022, followed by a steady and significant increase through 2023 and 2024.

The contrasting behavior between the provision for income taxes and cash operating taxes in 2023 particularly highlights an unusual tax event or accounting adjustment that impacted accrual-based tax provisions but did not reduce the actual cash outflow for taxes. Subsequent normalization in 2024 suggests resolution of this irregularity, with tax provisions and cash taxes both increasing significantly, potentially reflecting higher taxable earnings or adjusted tax liabilities.

The financial data reveals distinct patterns in key capital structure and equity metrics over the five-year period ending in 2024.

Total Reported Debt & Leases

This metric remained relatively stable, showing a slight increase from 2,135 million USD in 2020 to 2,278 million USD in 2024. The trend suggests that the company maintained a consistent level of debt and lease obligations with only marginal fluctuations throughout the observed timeframe.

Stockholders’ Equity

There is a strong upward trend in stockholders’ equity, rising significantly from 2,834 million USD in 2020 to 9,609 million USD in 2024. This represents more than a threefold increase over five years, indicating substantial growth in the company’s net assets attributable to shareholders. The accelerated growth year-over-year suggests active equity accumulation, possibly driven by retained earnings, earnings growth, or additional equity financing.

Invested Capital

Invested capital also demonstrated a marked increase, growing from 4,325 million USD in 2020 to 9,898 million USD in 2024. The growth trajectory closely parallels that of stockholders’ equity, implying that the company substantially increased the total capital utilized for its operations. The steady growth in invested capital, supported by stable debt levels, underscores a strategy focused on expanding operational capacity while maintaining manageable leverage.

The economic spread ratio exhibited a fluctuating pattern over the five-year period. Initial values decreased before a substantial increase in later years. Economic profit demonstrated a similar trend, starting with a decline and then experiencing significant growth. Invested capital consistently increased throughout the period.

Economic Spread Ratio

The economic spread ratio began at 5.60% in 2020, indicating a relatively strong return on invested capital exceeding the cost of capital. A downward trend was observed in 2021 and 2022, with the ratio decreasing to 3.97% and 2.76% respectively. This suggests a diminishing advantage in generating returns above the cost of capital. However, a significant recovery occurred in 2023, with the ratio rising to 7.28%, and continued to increase in 2024, reaching 7.99%. This indicates a strengthening ability to generate returns exceeding the cost of capital in the most recent periods.

Economic Profit

Economic profit initially decreased from US$242 million in 2020 to US$233 million in 2021, followed by a further decline to US$179 million in 2022. This corresponded with the decreasing economic spread ratio. A substantial increase was then observed in 2023, with economic profit reaching US$592 million, and continued growth into 2024, reaching US$791 million. This growth aligns with the recovery and subsequent improvement in the economic spread ratio.

Invested Capital

Invested capital consistently increased throughout the period, rising from US$4,325 million in 2020 to US$9,898 million in 2024. This indicates a continuous reinvestment of capital into the business. The increasing invested capital, coupled with the fluctuating economic spread ratio, suggests that the efficiency of capital allocation varied over the period, with improved efficiency observed in the later years.

The combined trends suggest that while the company consistently reinvested capital, its ability to generate returns above the cost of that capital fluctuated. The recent increases in both economic profit and the economic spread ratio indicate a positive shift in performance, suggesting improved capital allocation and profitability in the later periods examined.

The economic profit margin exhibited a fluctuating pattern over the five-year period. Initial values decreased before a substantial increase in later years. Economic profit itself demonstrated a similar trend, initially declining before experiencing significant growth.

Economic Profit Margin

The economic profit margin began at 4.56% in 2020, representing a relatively strong initial performance. A downward trend was then observed, with the margin decreasing to 3.44% in 2021 and further to 2.22% in 2022. This indicates a diminishing ability to generate profit beyond the cost of capital during these years. However, a significant reversal occurred in 2023, with the margin increasing substantially to 5.86%. This positive trend continued into 2024, reaching 6.58%, the highest value within the observed period. This suggests improved profitability relative to capital employed in the latter two years.

Economic Profit

Economic profit mirrored the trend observed in the economic profit margin. It started at US$242 million in 2020, decreased to US$233 million in 2021, and then declined further to US$179 million in 2022. A substantial increase was then recorded in 2023, reaching US$592 million, followed by a further increase to US$791 million in 2024. This growth in economic profit directly contributed to the improvement in the economic profit margin.

Adjusted Revenues & Profitability Relationship

Adjusted revenues consistently increased throughout the period, moving from US$5,302 million in 2020 to US$12,032 million in 2024. While revenue growth was consistent, the economic profit margin’s fluctuations indicate that revenue increases did not automatically translate into proportional increases in economic profit. The significant margin improvement in 2023 and 2024 suggests increased efficiency in converting revenue growth into economic profit, potentially through cost management or improved capital allocation.

Overall, the period demonstrates a recovery in profitability as measured by economic profit and margin. The initial decline was followed by a strong rebound, indicating a positive shift in the company’s ability to generate returns exceeding its cost of capital.