Microsoft Corp. (NASDAQ:MSFT)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes demonstrates a consistent upward trend from 2020 to 2025. Starting at $46,746 million in mid-2020, it increases substantially to $102,672 million by mid-2025, indicating strong operational performance and profitability growth over the period.

Cost of Capital

The cost of capital shows a slight but steady increase over the six-year period, rising from 13.52% in 2020 to 13.86% in 2025. This gradual increase suggests a marginally higher return expected by investors or a small increase in the company's capital costs, which could impact valuation and investment decisions.

Invested Capital

Invested capital exhibits substantial growth, nearly quadrupling from $107,630 million in 2020 to $430,631 million in 2025. This significant increase reflects considerable investment in assets or working capital, potentially supporting the growth in net operating profit but also indicating a larger capital base to be managed efficiently.

Economic Profit

Economic profit, which accounts for the cost of capital, initially rises from $32,191 million in 2020 to a peak of $45,777 million in 2021. It then decreases slightly to $36,865 million in 2023 before recovering to $42,975 million by 2025. Despite some fluctuation, the economic profit remains strong, indicating that the company continues to generate returns above its cost of capital, although the dip between 2021 and 2023 suggests some periods of less efficient capital utilization or pressure on profitability.

Net Income

The net income demonstrates a consistent upward trend over the analyzed periods. Starting at 44,281 million US dollars in mid-2020, it increased to 61,271 million by mid-2021, marking significant growth. This positive trajectory continued in subsequent years, reaching 72,738 million in mid-2022 and slightly declining to 72,361 million in mid-2023. However, the figure rebounded strongly, climbing to 88,136 million in mid-2024 and further to 101,832 million in mid-2025, indicating robust profitability improvement over time.

Net Operating Profit After Taxes (NOPAT)

NOPAT values show a steady increase overall, reflecting operational efficiency and sustainable earnings. Beginning at 46,746 million US dollars in mid-2020, it rose consistently to 65,443 million in mid-2021 and then to 71,024 million by mid-2022. The measure remained relatively stable into mid-2023 at 71,055 million, followed by a significant increase to 90,364 million in mid-2024 and 102,672 million in mid-2025. This pattern suggests effective operational management and growing core profitability.

Overall Analysis

Both net income and NOPAT demonstrate strong growth trajectories from 2020 through 2025. The steady increases, with minor fluctuations, reveal enhanced profitability and operational performance. The convergence of net income and NOPAT rising sharply in later years suggests improved tax efficiency and successful conversion of operating profit into net earnings. The data indicates a positive financial momentum and operational resilience sustained across multiple fiscal years.

Provision for Income Taxes

The provision for income taxes shows a consistent upward trend over the six-year period. Starting from 8,755 million USD in 2020, it increases each year, reaching 21,795 million USD by 2025. Notably, the growth rate accelerates notably from 2021 onwards, with a more pronounced increase observed between 2022 and 2023, where the provision rises from 10,978 million USD to 16,950 million USD.

Cash Operating Taxes

Cash operating taxes also exhibit a significant upward trajectory, beginning at 8,771 million USD in 2020 and increasing steadily to 29,037 million USD in 2025. The most notable increase occurs between 2021 and 2022, where the cash operating taxes jump from 9,821 million USD to 16,637 million USD, and continue to climb in subsequent years, reaching nearly 30 billion USD by 2025.

Comparative Insights

While both provision for income taxes and cash operating taxes increase substantially over the period, cash operating taxes consistently exceed the provision for income taxes each year, with the gap widening over time. This suggests that actual cash payments related to taxes are growing at a faster pace than the accrued tax expense, indicating potential timing differences or changes in tax payment structures. The acceleration in increases for both metrics between 2022 and 2023 aligns with a period of notable growth in tax-related outflows.

Total reported debt & leases

Over the six-year period, total reported debt and leases display a generally upward trend. Starting at $82,110 million in mid-2020, the figure remains relatively stable through mid-2021 and 2022, with a slight dip in 2022 to $78,400 million. From mid-2023 onward, there is a noticeable increase, rising to $97,852 million by mid-2024 and reaching $112,184 million by mid-2025. This indicates increased financial leverage or borrowing activity, particularly in the last two years.

Stockholders’ equity

Stockholders’ equity consistently expands throughout the entire timeframe. Beginning at $118,304 million in June 2020, it shows steady growth each year, accelerating after mid-2022. Equity reaches $141,988 million in 2021, $166,542 million in 2022, and experiences a stronger rise to $206,223 million in 2023. By 2024 and 2025, the growth becomes more pronounced, escalating to $268,477 million and $343,479 million respectively. This reflects substantial accumulation of retained earnings or equity injections over the period, strengthening the company's financial foundation.

Invested capital

Invested capital demonstrates a strong and consistent upward trajectory across the six years. Starting at $107,630 million in 2020, it grows considerably each year, surpassing $140 billion in 2021 and reaching $194,094 million in 2022. The increase accelerates over the ensuing years, hitting $247,490 million in 2023, $351,567 million in 2024, and culminating at $430,631 million in 2025. This rise indicates expanding total capital employed in the business, which includes equity and debt, reflecting an increase in the scale of operations or investments.

Overall trends and insights

The data reveal a pattern of expanding financial scale coupled with increased leverage. While stockholders’ equity grows substantially, indicating enhanced net worth and reinvested earnings, total debt and leases also increase, particularly in the latter years, implying a greater use of borrowed funds. Invested capital's growth outpaces both debt and equity individually, signaling that the company is significantly scaling up its capital base. This expansion may support increased operational capabilities or strategic investments. The balance between rising equity and rising debt suggests an approach that combines internal funding strength with external financing to fuel growth.

Economic Profit

The economic profit showed an overall upward trend from 2020 to 2025, increasing from 32,191 million US dollars in 2020 to 42,975 million US dollars in 2025. There was a peak observed in 2021 at 45,777 million US dollars, followed by a decline through 2023 to 36,865 million US dollars, after which the figure rose again in 2024 and 2025.

Invested Capital

Invested capital exhibited a consistent and substantial increase over the examined period, rising from 107,630 million US dollars in 2020 to 430,631 million US dollars in 2025. This represents a significant expansion in the capital base, with the largest increments occurring between 2023 and 2025.

Economic Spread Ratio

The economic spread ratio demonstrated a clear declining trend, starting from 29.91% in 2020 and progressively dropping to 9.98% in 2025. The decline was steady each year, with a notable decrease from 31.87% in 2021 to 22.85% in 2022, and continuing downward through to the final year.

Overall Analysis

While the economic profit increased moderately over the six-year span, the invested capital grew at a much faster rate, nearly quadrupling by 2025. The sharp increase in invested capital coupled with the steady decrease in the economic spread ratio suggests that the returns generated per unit of invested capital are diminishing over time. The decline in economic spread ratio may indicate decreasing efficiency or profitability of the capital employed, despite absolute growth in economic profit. The temporary dip in economic profit between 2021 and 2023 could reflect underlying challenges affecting returns, which began to recover slightly in subsequent years.

The financial data indicates several significant trends over the period from June 30, 2020, to June 30, 2025. The adjusted revenue demonstrates a consistent upward trajectory, growing from approximately $145 billion to nearly $289 billion. This steady increase reflects continuous expansion in the company's revenue-generating activities.

In contrast, economic profit exhibits more variability. It rises from roughly $32 billion in 2020 to a peak of about $45.8 billion in 2021, followed by a slight decline in subsequent years, with the lowest point around $36.9 billion in 2023. After this dip, economic profit recovers moderately, reaching approximately $42.9 billion by 2025. This pattern suggests fluctuations in profit relative to costs and invested capital, despite the revenue growth.

The economic profit margin, which represents economic profit as a percentage of adjusted revenue, shows a declining trend throughout the period. Starting at 22.2% in 2020, it peaks at 26.45% in 2021 but then decreases steadily to 14.88% by 2025. This decline indicates that although the company’s revenues are increasing, the proportion of economic profit relative to these revenues is diminishing. This trend might point to increasing costs, investments, or competitive pressures impacting profitability ratios.

Adjusted Revenue:

Consistent growth, nearly doubling over five years, signifying robust revenue expansion.

Economic Profit:

Fluctuating growth with a peak in 2021, followed by a decline and partial recovery, indicating variability in profitability efficiency over time.

Economic Profit Margin:

Declining over time, reflecting a decreasing share of profit generated from revenue, which could be a signal of rising costs or diminishing returns on capital.

Overall, while the company shows strong revenue growth, the decreasing economic profit margin suggests pressure on profitability that may warrant closer examination of cost management, investment returns, and operational efficiency.