Salesforce Inc. (NYSE:CRM)

The analysis reveals a consistent pattern of negative economic profit over the observed period. While net operating profit after taxes (NOPAT) demonstrates fluctuations, it has not been sufficient to overcome the cost of capital when considering the invested capital base.

Economic Profit Trend

Economic profit consistently remains negative, ranging from approximately -5.755 billion to -11.676 billion US dollars. Although the magnitude of the negative economic profit decreased in the most recent two years (2023 and 2024), it remains substantial. A slight improvement is noted in the final year, 2025, with economic profit moving to -7.736 billion US dollars.

NOPAT Performance

Net operating profit after taxes increased significantly from 2020 to 2021, reaching 4.388 billion US dollars. It remained relatively stable in 2022 before experiencing a considerable decline in 2023 to 2.538 billion US dollars. NOPAT then rebounded strongly in 2024 and continued to increase in 2025, reaching 7.196 billion US dollars. Despite these increases, NOPAT has not consistently exceeded the cost of capital applied to the invested capital.

Cost of Capital

The cost of capital exhibits relative stability throughout the period, fluctuating between 16.85% and 17.42%. A minor increase is observed in the final year, moving to 17.39%. This consistent cost of capital contributes to the sustained negative economic profit, as NOPAT has not consistently outpaced the returns required by investors.

Invested Capital

Invested capital increased substantially from 2020 to 2022, more than doubling from 47.247 billion to 81.940 billion US dollars. Growth slowed considerably in subsequent years, with only incremental increases observed from 2023 to 2025. The large capital base, combined with the consistent cost of capital, significantly contributes to the negative economic profit.

In summary, the organization consistently generates negative economic profit, indicating that its returns are not covering the cost of capital. While NOPAT shows recent positive trends, the substantial invested capital base and relatively stable cost of capital continue to result in an economic loss. The slight reduction in negative economic profit in the final two years suggests potential improvements, but further analysis is needed to determine the sustainability of this trend.

The financial data indicates significant fluctuations in net income and net operating profit after taxes (NOPAT) over the analyzed years, highlighting periods of both substantial growth and decline.

Net Income Trends

Net income started at a relatively low level and then surged dramatically by the year ending January 31, 2021, reflecting a strong performance during this period. However, the following year saw a considerable drop, indicating either extraordinary costs or reduced profitability. The subsequent year also showed a low point before a sharp increase resumed, reaching peak levels by January 31, 2025. This pattern suggests volatility in profitability, with distinct cycles of growth and contraction.

Net Operating Profit After Taxes (NOPAT) Trends

NOPAT followed a similar but less volatile pattern compared to net income. It doubled from January 31, 2020, to January 31, 2021, showing operational strength and efficiency. The following years saw a moderate decline and recovery pattern, with a notable dip in 2023 before surpassing previous highs in the latest year. The progression indicates that operations remained generally profitable, with improved ability to generate profits from the core business activities, particularly in the last reported year.

Comparative Observations

While both net income and NOPAT exhibit growth over the overall period, net income shows greater relative fluctuations, likely reflecting impacts from non-operating items, taxes, or extraordinary events. NOPAT’s smoother trajectory underscores consistent operational profitability, even when net income faces pressures. The recovery and growth in the last years suggest effective management and operational improvements contributing to enhanced financial health.

Provision for (benefit from) income taxes

There is considerable volatility in the provision for income taxes over the years. Starting at a positive value of 580 million USD in 2020, it unexpectedly dropped to a negative figure of -1511 million USD in 2021, indicating a benefit or tax credit during that period. In subsequent years, the provision returned to positive territory and showed a steady increase, reaching 1241 million USD by 2025. This pattern suggests fluctuations in taxable income or tax rates, with a recovery and growth trend in the latter years.

Cash operating taxes

Cash paid for operating taxes exhibits a clear and consistent upward trend throughout the period. Beginning at 598 million USD in 2020, the amount increased steadily each year, more than quadrupling to 2531 million USD by 2025. This strong growth indicates rising taxable income, increased tax liabilities, or a change in tax payment timing or policies influencing cash outflows.

Total reported debt & leases

The total reported debt and leases exhibit a significant increase from January 31, 2020, to January 31, 2023. Starting at $6,257 million in 2020, the figure rises moderately to $6,413 million in 2021 before sharply increasing to $14,370 million in 2022 and further to $14,879 million in 2023. Following this peak, there is a declining trend in the subsequent years with amounts decreasing to $13,562 million in 2024 and further to $12,070 million in 2025. This pattern suggests a period of aggressive leverage growth until early 2023, followed by a measured reduction in debt levels.

Stockholders’ equity

Stockholders’ equity demonstrates consistent growth throughout the observed period. Beginning at $33,885 million in 2020, equity increases steadily year over year, reaching $41,493 million in 2021, $58,131 million in 2022, and then maintaining a more gradual increase to $58,359 million in 2023. This positive trend continues moderately, with equity reaching $59,646 million in 2024 and $61,173 million by 2025. The figures reflect a sustained strengthening in the company’s net asset base over the years.

Invested capital

Invested capital follows a trajectory generally aligned with the trends in debt and equity, showing considerable growth from 2020 to 2025. Initially at $47,247 million in 2020, invested capital rises to $53,200 million in 2021 before experiencing a substantial jump to $81,940 million in 2022. The increase continues at a slower pace, reaching $84,299 million in 2023 and remaining relatively stable with slight growth to $84,431 million in 2024 and $85,881 million in 2025. The sharp increase in 2022 may reflect capital expenditures, acquisitions, or other investments undertaken during this period, with subsequent years indicating stabilization in capital deployment.

The economic spread ratio demonstrates a pattern of negative value creation over the observed period. While fluctuations exist, the ratio consistently remains negative, indicating that the company’s returns on invested capital are less than its cost of capital.

Economic Spread Ratio Trend

The economic spread ratio began at -12.18% in 2020. A relative improvement was seen in 2021, with the ratio increasing to -9.17%. However, the ratio deteriorated in 2022 to -11.43%, followed by a further decline to -13.85% in 2023, representing the lowest point in the observed period. A slight recovery is noted in 2024, with the ratio moving to -11.60%, and this positive trend continues into 2025, reaching -9.01%.

The invested capital generally increased throughout the period, rising from US$47,247 million in 2020 to US$85,881 million in 2025. Despite this growth in invested capital, the economic profit remained consistently negative, contributing to the persistent negative economic spread ratio.

Economic Profit and Invested Capital Relationship

The negative economic profit figures, ranging from -US$5,755 million to -US$11,676 million, consistently contribute to the negative economic spread. The increasing invested capital does not appear to be translating into positive economic profit, suggesting potential inefficiencies in capital allocation or operational performance. The reduction in negative economic profit observed between 2023 and 2025 correlates with the improvement in the economic spread ratio.

The observed trend suggests that while the company is growing its invested capital base, it is not generating sufficient returns to cover its cost of capital. The recent improvement in the economic spread ratio in 2024 and 2025 indicates a potential shift, but continued monitoring is necessary to determine if this trend will be sustained.

The economic profit margin exhibited a generally declining trend from 2020 through 2023, followed by improvement in the most recent two years. While adjusted revenues consistently increased over the observed period, economic profit remained negative, indicating the company’s return on capital employed was less than its cost of capital throughout the analyzed timeframe.

Economic Profit Margin Trend

The economic profit margin began at -29.98% in 2020 and decreased to -35.28% in 2023, representing the lowest point in the series. A subsequent increase was observed in 2024, with the margin improving to -26.84%, and continuing to -19.52% in 2025. This suggests a gradual improvement in the company’s ability to generate returns exceeding its cost of capital, although it remains in negative territory.

Relationship between Adjusted Revenues and Economic Profit

Adjusted revenues demonstrated consistent growth, increasing from US$19,196 million in 2020 to US$39,635 million in 2025. However, this revenue growth did not translate into positive economic profit. The continued negative economic profit, despite rising revenues, indicates that the cost of capital is increasing at a faster rate than the returns generated from revenue growth, or that capital employed is growing disproportionately to revenue.

Economic Profit

Economic profit itself consistently remained negative throughout the period. The magnitude of the loss decreased from US$-5,755 million in 2020 to US$-4,877 million in 2021, before increasing in absolute value to US$-11,676 million in 2023. The trend reversed in 2024 and 2025, with economic profit losses decreasing to US$-9,794 million and US$-7,736 million respectively. This mirrors the trend observed in the economic profit margin.

In summary, while the company experienced substantial revenue growth, it consistently failed to generate economic profit. The recent improvement in the economic profit margin suggests a potential shift in the relationship between revenue, capital employed, and the cost of capital, but further monitoring is necessary to determine if this trend will continue and ultimately lead to positive economic profit.