Microsoft Corp. (NASDAQ:MSFT)

The financial analysis based on the provided data reveals distinctive trends and insights over multiple years.

Net Operating Profit After Taxes (NOPAT)

The NOPAT illustrates a consistent upward trajectory across the periods, rising significantly from 46,746 million US dollars in 2020 to 102,672 million US dollars in 2025. This increase indicates an enhancement in operating profitability after tax obligations, suggesting improved efficiency or growth in core business areas.

Cost of Capital

The cost of capital shows a gradual increase from 13.52% in 2020 to 13.86% in 2025. Although the rise is moderate, it signals slightly higher capital costs over time, which could impact investment returns. The incremental growth may reflect changes in market conditions or the company’s risk profile.

Invested Capital

Invested capital experiences substantial growth, escalating from 107,630 million US dollars in 2020 to 430,631 million US dollars in 2025. This considerable increase indicates ongoing investments in operational assets and possibly expansion efforts. However, the rapid increase in invested capital requires careful monitoring to ensure efficient capital allocation.

Economic Profit

Economic profit, which measures the value created beyond the cost of capital, remains positive throughout the periods. Starting at 32,199 million US dollars in 2020, it peaks at 45,787 million US dollars in 2021, then experiences a decline in 2022 and 2023 before recovering moderately in 2024 and 2025 to 43,006 million US dollars. This pattern suggests that while the company consistently generates value in excess of its capital costs, there were periods of relative underperformance or increased capital expenses that tempered economic profit growth.

Overall, the data reflects robust profitability improvements complemented by significant investments in capital, although rising cost of capital and occasional dips in economic profit highlight the need for continued efficiency and strategic capital management.

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 demonstrates a general upward trend from 2020 through 2025, albeit with some fluctuations. It increased from 32,199 million USD in 2020 to a peak of 45,787 million USD in 2021. There was a decline in 2022 to 44,369 million USD and a more pronounced decrease in 2023 to 36,883 million USD. However, the figures rose again in the subsequent years, reaching 43,006 million USD by 2025. This pattern indicates variable but generally positive economic profit performance over the period.

Invested Capital

Invested capital shows a consistent and significant increase year over year, starting at 107,630 million USD in 2020 and rising steadily to 430,631 million USD by 2025. This indicates substantial reinvestment or expansion activity across the years, with the invested capital nearly quadrupling within the five-year span. The growth rate of invested capital appears to accelerate especially after 2022.

Economic Spread Ratio

The economic spread ratio presents a declining trend throughout the period from 2020 to 2025. It decreased from 29.92% in 2020 to 9.99% in 2025, with the most substantial drops occurring after 2021. This downward movement suggests a diminishing return on the invested capital in terms of economic profit margin, indicating that while the company’s invested capital is growing significantly, its efficiency in generating economic profit from that capital is reducing over the examined years.

Adjusted Revenue

The adjusted revenue exhibits a consistent upward trend over the observed periods. Starting at approximately $145 billion in mid-2020, it rises steadily each year, reaching around $289 billion by mid-2025. This indicates a strong growth trajectory in the company's sales or operating income base during the timeframe.

Economic Profit

Economic profit initially shows a significant increase from about $32.2 billion in mid-2020 to nearly $45.8 billion in mid-2021. However, it slightly declines in mid-2022 and more noticeably in mid-2023, decreasing to approximately $36.9 billion. Subsequently, it recovers moderately in the last two periods to roughly $43 billion by mid-2025. This pattern suggests some fluctuations in the company's profitability beyond its cost of capital, despite the rising revenues.

Economic Profit Margin

The economic profit margin, representing economic profit as a percentage of adjusted revenue, depicts a declining trend throughout the period. It starts at 22.21% in mid-2020, peaks at 26.46% in mid-2021, and then consistently decreases to around 14.89% by mid-2025. This implies that while revenues have grown steadily, the economic profit has not kept pace proportionally, indicating a reduction in economic efficiency or increased capital costs over time.

Overall Interpretation

The data portrays a company experiencing robust revenue growth paired with fluctuating economic profit levels and a steady contraction in economic profit margin. This suggests that despite increasing sales, the ability to generate economic value relative to the capital employed has weakened. Factors potentially contributing to this trend could include rising operational costs, increased capital expenditures, or competitive pressures affecting margins and profitability efficiency. The moderate recovery in economic profit after mid-2023 may indicate some strategic adjustments or cost optimizations taking effect.