ServiceNow Inc. (NYSE:NOW)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes demonstrates a consistent upward trend over the five-year period. Starting at $886 million in 2020, it increased steadily each year to reach $2,283 million in 2024. This indicates improving operational efficiency and profitability.

Cost of Capital

The cost of capital has exhibited a slight but noticeable increase over the period analyzed. Beginning at 14.65% in 2020, it gradually rose to 14.82% by 2024. Although changes are marginal, the rising cost of capital may reflect increased risk perception or changes in market conditions.

Invested Capital

Invested capital shows a significant upward trajectory, growing from $4,325 million in 2020 to $9,898 million in 2024. This nearly 2.3-fold increase reveals substantial reinvestment or acquisition activity, indicating expansion or scaling of the company’s asset base over time.

Economic Profit

Economic profit presents fluctuations but maintains an overall positive and increasing trend. Initially, economic profit was $253 million in 2020, slightly decreasing to $195 million in 2022, before rising sharply to $816 million in 2024. This upward shift suggests improved value creation exceeding the cost of capital, particularly notable in the last two years.

Summary of Trends

The data highlights overall growth and strengthening financial performance. Profitability, as measured by NOPAT, has nearly tripled, while invested capital has more than doubled, showing aggressive growth and capital investment. Despite incremental increases in the cost of capital, economic profit has improved significantly, demonstrating effective management of capital and enhanced shareholder value creation.

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.

Economic Profit

The economic profit experienced a decline from 253 million US dollars in 2020 to 195 million in 2022. However, a significant recovery occurred thereafter, with economic profit increasing sharply to 612 million in 2023 and further to 816 million in 2024. This trend indicates improving profitability and value creation in recent years.

Invested Capital

Invested capital shows a consistent upward trajectory over the period analyzed. Starting at 4,325 million US dollars in 2020, it rose steadily each year to reach 9,898 million by 2024. This reflects ongoing investment and growth in the company’s capital base.

Economic Spread Ratio

The economic spread ratio declined from 5.84% in 2020 to a low of 3.01% in 2022, indicating a reduction in the return relative to the cost of capital during this time frame. Subsequently, the ratio improved considerably to 7.53% in 2023 and 8.24% in 2024, suggesting that the company became more efficient in generating returns on its invested capital in recent years.

Overall Insight

The data reflects a period of challenge up to 2022, characterized by declining economic profit and diminished economic spread ratio despite growing invested capital. Notwithstanding, the subsequent years show marked improvement in profitability and economic efficiency, supported by increased economic spread ratios and growing economic profit. The consistent rise in invested capital implies a strategy focused on expansion and long-term growth. The improvements in economic spread and economic profit in the last two years suggest that these investments are translating into enhanced value creation.

Adjusted Revenues

The adjusted revenues demonstrate a consistent upward trend over the five-year period. Starting from $5,302 million in 2020, revenues have increased steadily each year, reaching $12,032 million by 2024. The growth pattern suggests robust sales expansion and possibly successful scaling efforts in the company's operations.

Economic Profit

Economic profit shows more variability but an overall positive trajectory. It began at $253 million in 2020 and experienced a slight decline over the next two years to $195 million in 2022. However, there was a substantial recovery and significant increase in the following years, climbing to $612 million in 2023 and further to $816 million in 2024. This indicates improved operational efficiency or cost management relative to capital costs in the latter years.

Economic Profit Margin

The economic profit margin reflects a similar pattern to economic profit, beginning at 4.77% in 2020 and decreasing to a low of 2.42% in 2022. After this decline, the margin recovered strongly to 6.06% in 2023 and further increased to 6.78% in 2024. The initial dip may suggest increased expenses or capital charges relative to profits, while the subsequent rise indicates improved profitability relative to revenue, highlighting enhanced value generation for shareholders.