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 cover the cost of capital employed. Invested capital has generally increased, contributing to the sustained negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased significantly from 2020 to 2021, more than doubling. It remained relatively stable in 2022 before experiencing a substantial decline in 2023. A recovery is observed in 2024 and a further increase in 2025, reaching the highest level in the period. Despite these increases, NOPAT has not consistently exceeded the cost of capital.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating between 19.51% and 20.17%. This consistency suggests that the company’s risk profile and market conditions influencing its capital costs have remained largely unchanged. A slight increase is observed in the most recent year.

Invested Capital

Invested capital shows a consistent upward trend, increasing from US$47,247 million in 2020 to US$85,881 million in 2025. The most significant increase occurred between 2021 and 2022. This growth in invested capital, coupled with the cost of capital exceeding NOPAT, directly contributes to the negative economic profit.

Economic Profit

Economic profit is negative for each year presented, ranging from -US$6,343 million to -US$13,917 million. The most substantial negative economic profit occurred in 2023, coinciding with the lowest NOPAT value. While the negative economic profit lessens in 2024 and 2025, it remains substantial, indicating that the company is not generating returns exceeding its cost of capital. The trend suggests a gradual improvement, but significant increases in NOPAT are required to achieve positive economic profit.

In summary, the company consistently destroys economic value as indicated by the negative economic profit. The increasing invested capital exacerbates this issue, despite improvements in NOPAT in the later years of the period. Future performance will depend on the ability to generate NOPAT levels that exceed both the cost of capital and the absolute amount of invested capital.

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 exhibits a generally negative trend over the observed period, indicating that the company’s returns on invested capital are consistently below its cost of capital. While fluctuations occur, the ratio remains in negative territory throughout the six-year timeframe.

Economic Spread Ratio Trend

The economic spread ratio began at -14.91% in 2020 and improved slightly to -11.92% in 2021. However, it then deteriorated, reaching -16.51% in 2023, representing the lowest point in the series. A modest recovery is observed in the final two years, with the ratio increasing to -14.34% in 2024 and -11.76% in 2025. This suggests a potential stabilization, though returns still fall short of the cost of capital.

The negative economic spread ratio is consistently linked to negative economic profit. Economic profit decreases from -7,047 million in 2020 to -13,917 million in 2023, before showing a slight improvement to -10,098 million in 2025. This indicates that the company is destroying economic value each year, despite increasing invested capital.

Invested Capital

Invested capital demonstrates a consistent upward trend, increasing from 47,247 million in 2020 to 85,881 million in 2025. This growth in invested capital does not translate into positive economic profit, as evidenced by the persistently negative economic spread ratio. The increasing capital base, coupled with negative economic profit, suggests that additional investments are not generating sufficient returns to cover the cost of capital.

The observed pattern suggests a potential disconnect between investment decisions and the generation of returns. While the company continues to invest capital, its ability to generate returns exceeding its cost of capital remains a challenge. The slight improvement in the economic spread ratio in the final two years warrants further investigation to determine if this represents a sustainable trend or a temporary fluctuation.

The economic profit margin demonstrates a consistently negative trend over the observed period. While fluctuations exist, the overall pattern indicates a declining ability to generate economic profit relative to adjusted revenues.

Economic Profit Margin Trend

The economic profit margin began at -36.71% on January 31, 2020. It improved to -27.34% the following year, but then deteriorated significantly, reaching -42.04% on January 31, 2023. A slight recovery is observed in subsequent years, with the margin moving to -33.18% on January 31, 2024, and further improving to -25.48% on January 31, 2025. Despite this recent improvement, the margin remains substantially negative throughout the entire period.

The magnitude of the economic profit consistently represents a substantial negative value. Although the absolute value of economic profit fluctuates, it remains in the billions of US dollars, indicating a significant shortfall in generating returns exceeding the cost of capital.

Relationship between Economic Profit and Adjusted Revenues

Adjusted revenues exhibit a consistent upward trend, increasing from US$19,196 million in 2020 to US$39,635 million in 2025. However, this revenue growth has not translated into positive economic profit. The increasing revenues appear to be accompanied by even larger economic losses, as evidenced by the initially worsening economic profit margin. The recent improvement in the margin from 2023 to 2025 suggests that while economic profit remains negative, the rate of loss relative to revenue is decreasing.

The observed pattern suggests that while the entity is growing its top line, it is not effectively managing its capital costs or operational efficiency to generate economic value. Further investigation into the components of economic profit – namely, net operating profit after tax and the cost of capital – would be necessary to pinpoint the specific drivers of this negative trend.