Analysis of Investments
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Alphabet Inc. pages available for free this week:
- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Alphabet Inc., adjustment to net income
US$ in millions
| 12 months ended: | Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |
|---|---|---|---|---|---|---|
| Net income (as reported) | ||||||
| Add: Net change in available-for-sale investments, net of income tax | ||||||
| Net income (adjusted) |
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
Reported net income exhibited volatility over the five-year period, initially decreasing from 2021 to 2022, then increasing through 2025. A significant rise in reported net income is observed between 2023 and 2024, continuing into 2025. Adjusted net income mirrors this trend, though the magnitude of fluctuation is comparatively smaller. The difference between reported and adjusted net income suggests the impact of mark-to-market adjustments on available-for-sale securities.
- Overall Trend
- Both reported and adjusted net income demonstrate an overall upward trend when considering the entire period from 2021 to 2025. However, the path is not linear, with a notable dip in 2022 before a period of sustained growth.
- Year-over-Year Changes
- A decrease in both reported and adjusted net income occurred from 2021 to 2022. Reported net income declined from US$76,033 million to US$59,972 million, while adjusted net income decreased from US$74,657 million to US$56,259 million. Subsequently, both metrics increased from 2022 to 2023, with reported net income rising to US$73,795 million and adjusted net income reaching US$76,307 million. The most substantial increases occurred between 2023 and 2024, and again between 2024 and 2025.
- Impact of Adjustments
- The difference between reported and adjusted net income remained relatively small throughout the period, ranging from approximately US$1.376 billion to US$3.023 billion. This indicates that mark-to-market adjustments to available-for-sale securities had a consistent, though limited, effect on the overall net income figures. The adjustments consistently reduced the reported net income, suggesting unrealized losses on these securities, or gains that were offset by other factors.
- Growth Rates
- The largest percentage increase in reported net income occurred between 2023 and 2024, with a growth rate of approximately 35.7%. Adjusted net income experienced a similar growth rate during the same period. The growth from 2024 to 2025, while substantial in absolute terms, represents a slightly lower percentage increase than the prior year.
In conclusion, the financial performance, as indicated by net income, experienced a period of contraction followed by robust expansion. The adjustments related to available-for-sale securities consistently reduced reported net income, but their impact remained relatively stable in absolute terms.
Adjusted Profitability Ratios: Mark to Market Available-for-sale Securities (Summary)
Alphabet Inc., adjusted profitability ratios
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
The period under review demonstrates generally positive trends in profitability ratios, with adjustments impacting the magnitude of observed performance. Reported profitability metrics consistently exceed their adjusted counterparts, indicating that mark-to-market adjustments for available-for-sale securities have a dampening effect on reported earnings and equity. However, both reported and adjusted ratios exhibit similar directional movements over the five-year period.
- Net Profit Margin
- Both the reported and adjusted net profit margins experienced a decline from 2021 to 2022, with the adjusted margin falling more substantially. From 2022 through 2025, both metrics show a consistent upward trend, reaching their highest levels in the final year of the period. The adjusted net profit margin consistently trails the reported margin, with a difference ranging from approximately 0.5 to 1.3 percentage points.
- Return on Equity (ROE)
- Similar to the net profit margin, reported ROE decreased from 2021 to 2022 before embarking on a steady increase through 2025. The adjusted ROE mirrors this pattern, though at lower values due to the impact of mark-to-market adjustments. The gap between reported and adjusted ROE remains relatively stable, generally between 1.5 and 2.0 percentage points. Both ROE metrics demonstrate strong performance, exceeding 26% in 2023 and continuing to improve in subsequent years.
- Return on Assets (ROA)
- Reported ROA also declined from 2021 to 2022, followed by a period of growth. The adjusted ROA exhibits the same trend, consistently lower than the reported ROA. The difference between the two ROA metrics is relatively consistent, typically around 0.3 to 0.6 percentage points. Both ROA metrics show improvement in the later years of the period, stabilizing around 22% by 2025.
Overall, the adjustments related to available-for-sale securities consistently reduce the reported profitability ratios. Despite these adjustments, the underlying trend across all three ratios – net profit margin, ROE, and ROA – is positive, indicating improving profitability from 2022 to 2025. The consistent difference between reported and adjusted figures suggests a systematic impact from these securities, which should be considered when evaluating overall financial performance.
Alphabet Inc., Profitability Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
2025 Calculations
1 Net profit margin = 100 × Net income ÷ Revenues
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenues
= 100 × ÷ =
The period under review demonstrates fluctuations in both reported and adjusted net income, with corresponding impacts on net profit margins. While both metrics generally move in tandem, a consistent, though often small, difference exists between reported and adjusted figures. Overall, a positive trend in both net income and net profit margins is evident towards the end of the observed period.
- Reported Net Income
- Reported net income decreased from US$76,033 million in 2021 to US$59,972 million in 2022, representing a significant decline. A subsequent recovery is observed in 2023, reaching US$73,795 million, followed by substantial growth to US$100,118 million in 2024 and further increasing to US$132,170 million in 2025. This indicates a period of volatility followed by strong positive momentum.
- Adjusted Net Income
- Adjusted net income mirrors the trend of reported net income, declining from US$74,657 million in 2021 to US$56,259 million in 2022. It then increases to US$76,307 million in 2023, US$100,784 million in 2024, and US$133,147 million in 2025. The adjusted figures are consistently lower than the reported figures across all years, suggesting the presence of items impacting reported net income that are excluded in the adjusted calculation.
- Reported Net Profit Margin
- The reported net profit margin experienced a decrease from 29.51% in 2021 to 21.20% in 2022, coinciding with the decline in reported net income. The margin then recovers to 24.01% in 2023, and continues to improve, reaching 28.60% in 2024 and 32.81% in 2025. This upward trajectory suggests improved profitability as revenue grows or costs are managed effectively.
- Adjusted Net Profit Margin
- The adjusted net profit margin follows a similar pattern to the reported margin, decreasing from 28.98% in 2021 to 19.89% in 2022. It then rises to 24.82% in 2023, 28.79% in 2024, and 33.05% in 2025. The adjusted margin consistently remains slightly below the reported margin, reflecting the impact of the adjustments made to net income. The increasing trend in the adjusted margin indicates improving core profitability, excluding the impact of the adjusted items.
The convergence of the reported and adjusted net profit margins towards the end of the period suggests that the impact of the adjustments is becoming less significant relative to overall profitability. The consistent growth in both net income and net profit margins from 2023 to 2025 indicates a strengthening financial performance.
Adjusted Return on Equity (ROE)
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
2025 Calculations
1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net income ÷ Stockholders’ equity
= 100 × ÷ =
The period under review demonstrates fluctuations in both reported and adjusted net income, which correspondingly influence return on equity (ROE) metrics. While both reported and adjusted net income experienced a decline from 2021 to 2022, subsequent years show a recovery and continued growth through 2025. The adjusted ROE generally mirrors these trends, providing a potentially more conservative view of profitability.
- Net Income Trends
- Reported net income decreased from US$76,033 million in 2021 to US$59,972 million in 2022, representing a significant reduction. However, a recovery began in 2023, with reported net income reaching US$73,795 million, and continued strongly through 2025, culminating in US$132,170 million. Adjusted net income follows a similar pattern, declining in 2022 to US$56,259 million before increasing to US$133,147 million in 2025.
- Reported ROE Analysis
- Reported ROE experienced a decrease from 30.22% in 2021 to 23.41% in 2022, aligning with the decline in reported net income. The metric then recovered to 26.04% in 2023 and continued to rise, reaching 30.80% in 2024 and 31.83% in 2025. This indicates an improving capacity to generate profit from shareholder equity.
- Adjusted ROE Analysis
- Adjusted ROE exhibited a similar trajectory to reported ROE, decreasing from 29.67% in 2021 to 21.96% in 2022. Subsequent years show a recovery, with adjusted ROE reaching 26.93% in 2023, 31.00% in 2024, and 32.06% in 2025. The adjusted ROE consistently remains slightly below the reported ROE throughout the period, suggesting that adjustments to net income result in a modestly lower profitability assessment.
The convergence of reported and adjusted ROE trends suggests that the adjustments made to net income do not fundamentally alter the overall profitability picture. The consistent upward trend in both metrics from 2022 through 2025 indicates strengthening financial performance and an increasing return for shareholders.
Adjusted Return on Assets (ROA)
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
2025 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × ÷ =
The period under review demonstrates fluctuations in profitability metrics, specifically reported and adjusted net income, and their corresponding returns on assets. Both reported and adjusted net income experienced a decline from 2021 to 2022, followed by subsequent increases through 2025. The adjusted return on assets mirrors this pattern, exhibiting a similar trajectory.
- Net Income Trends
- Reported net income decreased from US$76,033 million in 2021 to US$59,972 million in 2022, representing a substantial decline. However, it rebounded to US$73,795 million in 2023 and continued to grow significantly, reaching US$100,118 million in 2024 and US$132,170 million in 2025. Adjusted net income followed a similar pattern, with a decrease in 2022, followed by increases in subsequent years, culminating in US$133,147 million in 2025.
- Reported Return on Assets (ROA)
- Reported ROA decreased from 21.16% in 2021 to 16.42% in 2022, coinciding with the decline in reported net income. A recovery was observed in 2023, with ROA increasing to 18.34%. Further growth occurred in 2024 and 2025, reaching 22.24% and stabilizing at 22.20% respectively. This suggests an improving efficiency in generating profits from the asset base.
- Adjusted Return on Assets (ROA)
- Adjusted ROA exhibited a similar trend to the reported ROA. It decreased from 20.78% in 2021 to 15.40% in 2022, then increased to 18.96% in 2023. The adjusted ROA continued to rise, reaching 22.38% in 2024 and remaining relatively stable at 22.37% in 2025. The close alignment between reported and adjusted ROA suggests that adjustments to net income have a limited impact on the overall profitability assessment.
The consistent increase in both net income figures and ROA from 2022 through 2025 indicates a strengthening financial performance. The stabilization of ROA in the final two years suggests a mature and potentially sustainable level of profitability, given the current asset base.