Lam Research Corp. (NASDAQ:LRCX)

The financial performance, as measured by economic profit, exhibits considerable fluctuation over the observed period. Net operating profit after taxes (NOPAT) generally increased from 2020 to 2022, followed by a decline in 2023 and a further decrease in 2024, before a substantial recovery in 2025. Simultaneously, the cost of capital demonstrated a consistent, albeit gradual, upward trend throughout the entire period. Invested capital also generally increased, peaking in 2023 before experiencing a slight reduction in 2024 and then increasing again in 2025.

Economic Profit Trend

Economic profit began at a negative value in 2020, indicating the company’s returns were insufficient to cover its cost of capital. A significant positive shift occurred in 2021 and continued into 2022, demonstrating substantial value creation. However, economic profit decreased notably in 2023, and turned negative again in 2024, suggesting a weakening of value creation. The most recent year, 2025, shows a strong rebound, with economic profit returning to a level exceeding that of 2022.

NOPAT and Invested Capital Relationship

While NOPAT and invested capital both generally increased from 2020 to 2022, the rate of increase in NOPAT outpaced that of invested capital, contributing to the improved economic profit. The decline in NOPAT in 2023 and 2024, coupled with continued high levels of invested capital, directly resulted in the reduction of economic profit. The substantial increase in NOPAT in 2025, alongside a further increase in invested capital, drove the significant recovery in economic profit.

Cost of Capital Impact

The consistent rise in the cost of capital throughout the period presented a growing challenge to maintaining positive economic profit. Even as NOPAT increased in 2021 and 2022, the increasing cost of capital partially offset those gains. The higher cost of capital in 2024 likely exacerbated the negative economic profit experienced in that year, and the continued increase in 2025 required a substantial increase in NOPAT to achieve positive economic profit.

Overall, the period demonstrates a dynamic relationship between profitability, capital investment, and the cost of funding. The company’s ability to generate economic profit is sensitive to changes in these factors, as evidenced by the fluctuations observed between 2020 and 2025.

Net Income

The net income demonstrated a generally positive trend over the analyzed period, with some fluctuations. Starting at approximately 2.25 billion USD in 2020, it almost doubled in 2021 to 3.91 billion USD and increased further to about 4.61 billion USD in 2022. A slight decrease occurred in 2023, falling to 4.51 billion USD, followed by a more pronounced decline in 2024 to 3.83 billion USD. However, in 2025, net income surged significantly to approximately 5.36 billion USD, marking the highest point in the time frame.

Net Operating Profit After Taxes (NOPAT)

The NOPAT showed a generally upward trajectory until 2022, beginning at about 2.40 billion USD in 2020 and increasing substantially to approximately 5.63 billion USD by 2022. However, there was a notable reduction in the following years; NOPAT dropped to 4.06 billion USD in 2023 and further declined to 3.26 billion USD in 2024. A strong recovery is observed in 2025, with NOPAT rising sharply to around 6.11 billion USD, the highest value recorded in the examined periods.

General Observations

Both net income and NOPAT largely followed similar trends, with growth peaking in 2022, followed by declines in 2023 and 2024, prior to significant recoveries in 2025. The reductions in 2023 and 2024 suggest temporary challenges affecting profitability and operational efficiency. The considerable rebound in 2025 indicates successful measures to restore profitability and operational performance. Overall, the company appears to maintain strong profit-generating capabilities with cyclical variability.

Provision for Income Taxes

The provision for income taxes exhibits a generally increasing trend from 2020 through 2023, rising from approximately 323 million US dollars in 2020 to nearly 598 million US dollars in 2023. However, in the subsequent year (2024), there is a noticeable decline to about 532 million US dollars, before rising again significantly in 2025 to approximately 600 million US dollars. This pattern suggests some fluctuation in estimated tax liabilities despite an overall upward movement.

Cash Operating Taxes

Cash operating taxes show a consistent and marked upward trajectory over the entire period analyzed. Starting at approximately 361 million US dollars in 2020, cash taxes almost double to around 654 million US dollars in 2021. The upward momentum continues sharply into 2022 with cash taxes reaching about 883 million US dollars. Although there is a downward adjustment in 2023 and 2024—declining to roughly 782 million and 718 million US dollars respectively—the value increases again considerably in 2025 to approximately 954 million US dollars. This indicates variability in actual cash outflows for taxes, with a generally increasing trend over the six-year period.

Comparative Insights

When comparing provision for income taxes with cash operating taxes, cash taxes have consistently been higher than provisions throughout all years. The gap between these two metrics widens substantially from 2020 to 2022, implying that actual tax payments in cash increasingly exceeded estimated provisions in these years. Although provisions increase steadily, the fluctuations and higher amounts in cash operating taxes may reflect timing differences, changes in tax planning strategies, or variations in tax payments versus accrual estimates.

Total Reported Debt & Leases

The total debt and leases demonstrate a declining trend over the reported periods. Starting from approximately 5.98 billion in mid-2020, the amount decreases to around 4.76 billion by mid-2025. This suggests a possible strategy of reducing leverage or paying down debt over the years, particularly notable from mid-2024 to mid-2025.

Stockholders’ Equity

Stockholders’ equity shows a consistent upward trend across all periods. It grows from about 5.17 billion in 2020 to nearly 9.86 billion in 2025. This significant increase indicates enhanced company value or accumulated earnings, suggesting strengthened financial health and increased net assets over time.

Invested Capital

Invested capital rises steadily from approximately 11.79 billion in 2020 to around 16.36 billion in 2025, with a minor dip observed between mid-2023 and mid-2024. This overall upward movement reflects continued investment in operations or assets, supporting growth initiatives or expansion efforts.

The economic spread ratio demonstrates significant fluctuation over the observed period. Initially negative in June 2020, it experienced substantial growth through June 2022 before declining and then recovering. This pattern mirrors the changes in economic profit, indicating a strong correlation between the two metrics.

Economic Spread Ratio Trend

In June 2020, the economic spread ratio was -0.94%, reflecting economic profit below the cost of capital. A dramatic increase followed, reaching 14.75% in June 2021 and peaking at 19.41% in June 2022. This suggests a period of strong value creation, where returns significantly exceeded the cost of invested capital.

A considerable decrease was then observed in June 2023, with the ratio falling to 4.43%. This indicates a narrowing of the spread between returns and the cost of capital, though still positive. The ratio declined further to -0.91% in June 2024, signifying a return to a position where economic profit did not cover the cost of capital.

Finally, a substantial recovery is evident in June 2025, with the economic spread ratio rising to 14.23%. This suggests a renewed ability to generate returns exceeding the cost of capital, bringing the ratio back in line with levels seen in 2021.

The invested capital consistently increased throughout the period, from US$11,789,502 thousand in June 2020 to US$16,358,579 thousand in June 2025. However, the economic spread ratio’s movement was not directly proportional to the increase in invested capital, indicating that factors beyond capital deployment significantly influenced value creation.

Correlation with Economic Profit

The economic spread ratio closely follows the trend of economic profit. The negative ratios in June 2020 and June 2024 correspond with negative economic profit values, while the positive and increasing ratios in June 2021 and June 2022 align with substantial positive economic profit. The recovery in June 2025 mirrors the return to positive economic profit.

The fluctuations in the economic spread ratio suggest a sensitivity to underlying economic conditions or company-specific factors impacting profitability and capital efficiency. The period between June 2021 and June 2022 represents a particularly strong performance, while the declines in June 2023 and June 2024 warrant further investigation to understand the drivers behind the reduced value creation.

The economic profit margin exhibited significant fluctuations over the observed period. Initial observations reveal a substantial shift from a negative value in 2020 to positive and increasing values through 2022, followed by a decline in 2023 and a further negative value in 2024, before recovering strongly in 2025.

Economic Profit Margin (2020-2025)

In 2020, the economic profit margin was -1.09%, indicating the company’s return on capital employed was less than its cost of capital. A dramatic improvement occurred in 2021, with the margin rising to 11.90%. This positive trend continued into 2022, reaching a peak of 14.33%, suggesting a strong ability to generate returns exceeding the cost of capital.

However, the margin decreased considerably in 2023 to 3.89%, signaling a reduction in the excess returns generated. This downward trend accelerated in 2024, resulting in a negative margin of -0.93%, similar to the initial year of the period. The margin then rebounded sharply in 2025, returning to 11.90%, mirroring the level observed in 2021.

The economic profit margin’s volatility suggests a sensitivity to underlying economic factors or company-specific operational changes. The substantial swings indicate that the company’s ability to generate economic profit is not consistently maintained. The return to a margin of 11.90% in 2025 is a positive indicator, but the preceding decline and subsequent recovery warrant further investigation to understand the drivers of these fluctuations.

Relationship to Adjusted Revenue

Adjusted revenue generally increased from 2020 to 2022, coinciding with the rise in economic profit margin. While revenue decreased in 2023 and 2024, the economic profit margin experienced a more pronounced decline, particularly in 2024. The strong revenue growth in 2025 appears to correlate with the significant recovery in the economic profit margin.

The observed patterns suggest that revenue growth alone does not guarantee economic profitability. The company’s cost of capital and its ability to efficiently convert revenue into economic profit are critical determinants of its financial performance.