Union Pacific Corp. (NYSE:UNP)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not generate sufficient returns to cover the cost of capital employed. Invested capital steadily increases throughout the period, contributing to the persistent negative economic profit.

NOPAT Trend

Net operating profit after taxes increased from US$7,625 million in 2021 to US$8,288 million in 2022. A subsequent decrease to US$7,558 million occurred in 2023, followed by a modest increase to US$7,772 million in 2024. The most recent year, 2025, shows a further increase to US$8,399 million. Despite these fluctuations, NOPAT remains below the level required to generate a positive economic profit.

Cost of Capital Trend

The cost of capital exhibits a slight upward trend, increasing from 15.34% in 2021 to 15.72% in both 2024 and 2025. The increase from 2022 (15.25%) to 2023 (15.57%) is also notable. This rising cost of capital places greater pressure on NOPAT to generate positive economic profit.

Invested Capital Trend

Invested capital consistently increased throughout the period, rising from US$58,241 million in 2021 to US$63,642 million in 2025. This continuous growth in invested capital, coupled with a relatively stable cost of capital, exacerbates the negative economic profit.

Economic Profit Trend

Economic profit remained negative across all years examined. The most substantial negative economic profit was observed in 2023, at US$-2,024 million. While the negative economic profit lessened slightly from US$-1,307 million in 2021 to US$-825 million in 2022, it has since worsened, reaching US$-1,604 million in 2025. The trend suggests that the company’s investments are not generating returns exceeding the cost of capital.

In summary, the analysis reveals a consistent inability to generate economic profit. Increases in NOPAT are offset by a rising cost of capital and, more significantly, a substantial and growing invested capital base. The continued negative economic profit suggests a need to evaluate investment strategies and capital allocation efficiency.

Net operating profit after taxes (NOPAT) exhibited a generally positive trajectory over the five-year period, though with some fluctuation. While net income demonstrated consistent growth, NOPAT presented a more nuanced pattern. Initial observations suggest a strong correlation between the two metrics, but variances warrant further investigation.

Overall Trend

NOPAT increased from US$7,625 million in 2021 to US$8,399 million in 2025. This represents a cumulative increase of approximately 10.2% over the period. However, the growth was not linear.

Year-over-Year Changes

A significant increase in NOPAT was observed between 2021 and 2022, rising by US$663 million, or 8.7%. This was the largest single-year increase in the observed period. A subsequent decrease occurred between 2022 and 2023, with NOPAT falling to US$7,558 million, a decline of US$730 million, or 8.8%. The period from 2023 to 2024 showed a modest recovery, with NOPAT reaching US$7,772 million, an increase of US$214 million, or 2.8%. The most substantial growth occurred between 2024 and 2025, with NOPAT increasing by US$627 million, or 8.1%.

Relationship to Net Income

While both net income and NOPAT generally increased, the magnitude of change differed. The difference between NOPAT and net income remained relatively stable throughout the period, suggesting consistent treatment of items impacting net income but not NOPAT, such as interest expense and non-operating items. The consistent difference indicates a predictable relationship between the two metrics.

The fluctuations in NOPAT, particularly the decline from 2022 to 2023, suggest potential impacts from operational factors or changes in the tax environment. The strong finish in 2025 indicates a potential return to improved operational efficiency or favorable market conditions. Further analysis, incorporating cost of capital, is necessary to determine the true economic value creation.

The reported income tax expense and cash operating taxes exhibit generally stable patterns over the five-year period, with some fluctuations observed. Cash operating taxes consistently exceed income tax expense annually.

Income Tax Expense

Income tax expense increased from US$1,955 million in 2021 to US$2,074 million in 2022, representing a 5.8% increase. A subsequent decrease was noted in 2023, falling to US$1,854 million. This was followed by increases in both 2024 and 2025, reaching US$2,047 million and US$2,028 million respectively. The 2025 value is slightly below the 2024 value, indicating a minor deceleration in growth.

Cash Operating Taxes

Cash operating taxes demonstrated a modest increase from US$2,055 million in 2021 to US$2,085 million in 2022, a 1.5% rise. The value decreased slightly in 2023 to US$2,020 million. A more substantial increase occurred in 2024, reaching US$2,285 million. The 2025 value decreased to US$2,059 million, representing a significant reduction from the 2024 peak.

Relationship between Income Tax Expense and Cash Operating Taxes

The difference between cash operating taxes and income tax expense remained positive throughout the period, ranging from approximately US$100 million to US$430 million. This suggests the presence of non-cash tax items or timing differences between reported income tax expense and actual cash outflows for taxes. The largest difference was observed in 2024, while the smallest difference occurred in 2021. The gap narrowed in 2025 as both values decreased.

Overall, the fluctuations in both income tax expense and cash operating taxes appear relatively contained. The increase in cash operating taxes in 2024, followed by a decrease in 2025, warrants further investigation to understand the underlying drivers of these changes and their impact on economic value added calculations.

The reported invested capital demonstrates a consistent upward trend over the five-year period. Total reported debt & leases and common shareholders’ equity contribute to this invested capital figure, exhibiting individual patterns that influence the overall trend.

Invested Capital Trend

Invested capital increased from US$58,241 million in 2021 to US$63,642 million in 2025. This represents a cumulative increase of approximately 9.3% over the period. The growth was not linear, with a slight deceleration in the rate of increase between 2022 and 2023, followed by a resumption of growth in subsequent years.

Debt & Leases

Total reported debt & leases increased from US$31,488 million in 2021 to US$34,957 million in 2022, representing a significant increase. However, this was followed by a decrease to US$34,179 million in 2023. The trend continued downward to US$32,463 million in 2024 before a slight increase to US$32,822 million in 2025. Overall, the debt & leases remained relatively stable between 2023 and 2025, fluctuating within a narrow range.

Common Shareholders’ Equity

Common shareholders’ equity experienced a decrease from US$14,161 million in 2021 to US$12,163 million in 2022. This was followed by a recovery, increasing to US$14,788 million in 2023, US$16,890 million in 2024, and further to US$18,467 million in 2025. This demonstrates a consistent upward trend in equity over the latter part of the period, contributing to the overall increase in invested capital.

The combined effect of these trends indicates a shift in the capital structure. While debt initially increased, it subsequently stabilized and slightly decreased, while equity experienced a more pronounced and sustained growth. This suggests a potential move towards a more equity-financed capital structure over the observed timeframe, although debt remains a substantial component of invested capital.

The analysis reveals a consistent pattern of negative economic profit over the five-year period, alongside increasing invested capital. This has resulted in a consistently negative economic spread ratio, though with some fluctuation. The economic spread ratio demonstrates a worsening trend initially, followed by a slight improvement in the most recent year.

Economic Profit

Economic profit exhibits negative values throughout the observed period, ranging from a loss of US$1,307 million in 2021 to a loss of US$2,024 million in 2023. While the loss narrowed slightly to US$1,980 million in 2024, it remained substantial. The most recent year, 2025, shows a further, albeit smaller, reduction in the loss to US$1,604 million.

Invested Capital

Invested capital demonstrates a steady upward trend, increasing from US$58,241 million in 2021 to US$63,642 million in 2025. This consistent growth in invested capital occurs concurrently with the negative economic profit, suggesting that increases in capital deployment are not translating into equivalent economic gains.

Economic Spread Ratio

The economic spread ratio is negative for each year, indicating that the company’s return on invested capital is less than its cost of capital. The ratio worsened from -2.24% in 2021 to -3.29% in 2023, representing a decline in value creation. A modest improvement is observed in 2024 and 2025, with the ratio reaching -3.19% and -2.52% respectively. This suggests a slight increase in efficiency or profitability relative to invested capital, but the ratio remains negative, signifying continued economic loss.

In summary, the company consistently fails to generate economic profit, despite increasing its invested capital. While the economic spread ratio shows a minor positive shift in the latest two years, the overall trend remains unfavorable, indicating a need for strategies to improve profitability and capital allocation.

The economic profit margin exhibited a generally negative trend over the five-year period. While fluctuations occurred, the metric consistently remained below zero, indicating the company’s returns did not exceed its cost of capital throughout the analyzed timeframe.

Economic Profit Margin

The economic profit margin began at -5.99% in 2021. A notable improvement was observed in 2022, with the margin increasing to -3.31%. However, this improvement was short-lived. The margin deteriorated significantly in 2023, reaching -8.39%, representing the lowest value within the period. A slight recovery occurred in 2024, with the margin moving to -8.16%, but this was followed by a further, albeit smaller, improvement to -6.55% in 2025. This suggests a persistent struggle to generate returns exceeding the cost of capital, with 2023 representing the most challenging year.

Economic profit itself mirrored the trend observed in the economic profit margin. Starting at a loss of US$1,307 million in 2021, it decreased to a loss of US$825 million in 2022. The loss then widened considerably to US$2,024 million in 2023, before stabilizing at US$1,980 million in 2024 and decreasing slightly to US$1,604 million in 2025. The consistent negative values for economic profit reinforce the conclusion that the company did not generate sufficient profit to cover its capital costs during this period.

Operating revenues demonstrated an increasing trend overall, rising from US$21,804 million in 2021 to US$24,510 million in 2025. However, the growth in revenues did not translate into positive economic profit, indicating that revenue increases were either offset by rising costs or insufficient to overcome the cost of capital. The divergence between revenue growth and negative economic profit suggests potential inefficiencies in capital allocation or operational performance.