Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Microsoft Corp., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2026 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 153,695 – 18.05% × 571,487 = 50,554
The analysis of economic value creation reveals a period of aggressive capital expansion paired with a fluctuating economic profit trajectory. While operating profitability exhibits a strong upward trend, the rapid increase in invested capital placed significant pressure on the generation of economic profit throughout the mid-term period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrates a consistent growth trajectory, rising from 65,443 million USD in 2021 to 153,695 million USD by 2026. A notable acceleration in profitability is observed after 2023, with a substantial spike occurring in the final period of the analysis, indicating enhanced operational efficiency or scaled revenue streams.
- Invested Capital and Cost of Capital
- Invested capital shows an aggressive and steady expansion, increasing from 143,637 million USD in 2021 to 571,487 million USD in 2026. The cost of capital remained relatively stable, fluctuating within a narrow range between 18.01% and 18.25%. The compounding effect of the rapidly growing capital base and a steady cost of capital resulted in a significant increase in the total capital charge over the analyzed timeframe.
- Economic Profit Dynamics
- Economic profit experienced a steady decline from 39,567 million USD in 2021 to a minimum of 24,087 million USD in 2025. This contraction occurred because the rate of growth in invested capital outpaced the growth in NOPAT, meaning the cost of funding the expanded asset base grew faster than the resulting operating profits. A sharp reversal is observed in 2026, where economic profit surges to 50,554 million USD, driven by a massive acceleration in NOPAT that significantly exceeded the capital charge requirements.
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Net Operating Profit after Taxes (NOPAT)
Microsoft Corp., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in unearned revenue.
4 Addition of increase (decrease) in equity equivalents to net income.
5 2026 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 21,925 × 3.70% = 811
6 2026 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 3,862 × 21.00% = 811
7 Addition of after taxes interest expense to net income.
8 2026 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 7,686 × 21.00% = 1,614
9 Elimination of after taxes investment income.
An analysis of the financial performance from June 30, 2021, to June 30, 2026, reveals a consistent and accelerating upward trend in both profitability metrics. While both net income and net operating profit after taxes (NOPAT) exhibit strong growth, NOPAT demonstrates a more aggressive expansion, particularly in the latter stages of the period.
- Net Income Growth Trends
- Net income grew from 61,271 million US$ in 2021 to 133,749 million US$ by 2026. This trajectory is characterized by a period of moderate growth between 2021 and 2023, followed by a significant acceleration. A notable milestone occurs between 2024 and 2025, where net income surpasses the 100 billion US$ threshold, culminating in a sharp increase of approximately 31.6% in the final year of the analyzed period.
- NOPAT Performance and Volatility
- NOPAT reflects a similar growth pattern, rising from 65,443 million US$ in 2021 to 153,695 million US$ in 2026. A period of stagnation is observed between June 30, 2022, and June 30, 2023, where the value remained nearly flat at approximately 71 billion US$. However, this plateau was followed by rapid growth, with NOPAT increasing by roughly 70% between 2023 and 2026, indicating a substantial improvement in core operating efficiency.
- Comparative Analysis of NOPAT and Net Income
- NOPAT consistently exceeds net income throughout the entire period, suggesting that operating performance is stronger than the final bottom-line result after considering non-operating items. The variance between these two metrics widens significantly over time. In 2021, the difference was 4,200 million US$; by 2026, this gap expands to 19,946 million US$. This widening spread indicates that the company's operating profit is growing at a faster rate than its net income, highlighting an increase in the scale of operational value creation relative to overall accounting profit.
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Cash Operating Taxes
Microsoft Corp., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
The financial data reveals a divergent relationship between the provision for income taxes and actual cash operating taxes over the observed six-year period. While the provision for income taxes demonstrates a consistent and accelerating upward trajectory, cash operating taxes exhibit a period of growth followed by a significant contraction in the final year.
- Provision for Income Taxes Trend
- A steady increase in tax provisions is observed from June 30, 2021, through June 30, 2025, with the value rising from 9,831 million US$ to 21,795 million US$. This growth culminates in a sharp spike in June 2026, where the provision reaches 32,185 million US$, representing a total increase of approximately 227% over the analyzed period.
- Cash Operating Taxes Dynamics
- Cash tax outflows grew aggressively between 2021 and 2025, increasing from 9,821 million US$ to a peak of 29,037 million US$. However, this trend reverses abruptly in June 2026, with cash operating taxes falling to 16,958 million US$, a decrease of approximately 41.6% from the previous year's peak.
- Variance Between Accrual and Cash Outflows
- For the majority of the period between 2022 and 2025, cash operating taxes exceeded the provision for income taxes, suggesting that actual cash payments for taxes were higher than the expenses recognized on the income statement. This gap peaked in 2023 and 2025. Conversely, in June 2026, a significant inversion occurs where the provision for income taxes is nearly double the cash operating taxes, indicating a substantial increase in deferred tax liabilities or other non-cash tax adjustments.
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Invested Capital
Microsoft Corp., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of unearned revenue.
5 Addition of equity equivalents to stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of investments.
The analyzed period demonstrates a consistent and accelerating expansion in the company's capital base. Invested capital shows a strong upward trajectory, growing from US$ 143,637 million in 2021 to a projected US$ 571,487 million by 2026. This represents a substantial increase in the total resources deployed to generate operational returns.
- Invested Capital Growth
- Invested capital exhibits a compounded growth pattern, with the most significant absolute increases occurring between 2023 and 2026. The transition from 2023 (US$ 247,490 million) to 2024 (US$ 351,567 million) marks a notable step-up in capital intensity, which continues through the forecast period.
- Stockholders' Equity Trends
- Equity serves as the primary driver of the overall increase in invested capital. Stockholders' equity grew steadily from US$ 141,988 million in 2021 to US$ 442,387 million in 2026. The acceleration in equity accumulation suggests strong retained earnings or capital injections, significantly outweighing the growth rate of liabilities.
- Debt and Lease Obligations
- Total reported debt and leases remained relatively stable between 2021 and 2023, with a slight decrease observed in 2022 to US$ 78,400 million. However, a distinct shift occurred in 2024, where debt rose to US$ 97,852 million and continued to climb to US$ 128,813 million by 2026, indicating an increased utilization of leverage to support expansion.
The relationship between equity and debt indicates a capital structure that remains heavily equity-weighted despite the rising absolute levels of debt. The rapid scaling of invested capital implies a strategic commitment to growth, which necessitates a corresponding increase in Net Operating Profit After Tax (NOPAT) to sustain or improve Economic Value Added (EVA) against the rising cost of a larger capital base.
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Cost of Capital
Microsoft Corp., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,899,973) | 2,899,973) | ÷ | 3,024,992) | = | 0.96 | 0.96 | × | 18.68% | = | 17.91% | ||
| Debt and finance lease liabilities3 | 103,094) | 103,094) | ÷ | 3,024,992) | = | 0.03 | 0.03 | × | 4.52% × (1 – 21.00%) | = | 0.12% | ||
| Operating lease liability4 | 21,925) | 21,925) | ÷ | 3,024,992) | = | 0.01 | 0.01 | × | 3.70% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 3,024,992) | 1.00 | 18.05% | ||||||||||
Based on: 10-K (reporting date: 2026-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 3,814,998) | 3,814,998) | ÷ | 3,924,431) | = | 0.97 | 0.97 | × | 18.68% | = | 18.16% | ||
| Debt and finance lease liabilities3 | 86,572) | 86,572) | ÷ | 3,924,431) | = | 0.02 | 0.02 | × | 4.39% × (1 – 21.00%) | = | 0.08% | ||
| Operating lease liability4 | 22,861) | 22,861) | ÷ | 3,924,431) | = | 0.01 | 0.01 | × | 3.50% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 3,924,431) | 1.00 | 18.25% | ||||||||||
Based on: 10-K (reporting date: 2025-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 3,143,581) | 3,143,581) | ÷ | 3,238,796) | = | 0.97 | 0.97 | × | 18.68% | = | 18.13% | ||
| Debt and finance lease liabilities3 | 76,138) | 76,138) | ÷ | 3,238,796) | = | 0.02 | 0.02 | × | 4.43% × (1 – 21.00%) | = | 0.08% | ||
| Operating lease liability4 | 19,077) | 19,077) | ÷ | 3,238,796) | = | 0.01 | 0.01 | × | 3.30% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 3,238,796) | 1.00 | 18.23% | ||||||||||
Based on: 10-K (reporting date: 2024-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,457,171) | 2,457,171) | ÷ | 2,535,575) | = | 0.97 | 0.97 | × | 18.68% | = | 18.10% | ||
| Debt and finance lease liabilities3 | 63,267) | 63,267) | ÷ | 2,535,575) | = | 0.02 | 0.02 | × | 3.75% × (1 – 21.00%) | = | 0.07% | ||
| Operating lease liability4 | 15,137) | 15,137) | ÷ | 2,535,575) | = | 0.01 | 0.01 | × | 2.90% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 2,535,575) | 1.00 | 18.19% | ||||||||||
Based on: 10-K (reporting date: 2023-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,061,436) | 2,061,436) | ÷ | 2,140,955) | = | 0.96 | 0.96 | × | 18.68% | = | 17.98% | ||
| Debt and finance lease liabilities3 | 65,802) | 65,802) | ÷ | 2,140,955) | = | 0.03 | 0.03 | × | 3.73% × (1 – 21.00%) | = | 0.09% | ||
| Operating lease liability4 | 13,717) | 13,717) | ÷ | 2,140,955) | = | 0.01 | 0.01 | × | 2.10% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 2,140,955) | 1.00 | 18.08% | ||||||||||
Based on: 10-K (reporting date: 2022-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 2,153,016) | 2,153,016) | ÷ | 2,247,148) | = | 0.96 | 0.96 | × | 18.68% | = | 17.89% | ||
| Debt and finance lease liabilities3 | 82,541) | 82,541) | ÷ | 2,247,148) | = | 0.04 | 0.04 | × | 3.83% × (1 – 21.00%) | = | 0.11% | ||
| Operating lease liability4 | 11,591) | 11,591) | ÷ | 2,247,148) | = | 0.01 | 0.01 | × | 2.20% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 2,247,148) | 1.00 | 18.01% | ||||||||||
Based on: 10-K (reporting date: 2021-06-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Microsoft Corp., economic spread ratio calculation, comparison to benchmarks
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 50,554) | 24,087) | 26,289) | 26,044) | 35,923) | 39,567) | |
| Invested capital2 | 571,487) | 430,631) | 351,567) | 247,490) | 194,094) | 143,637) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 8.85% | 5.59% | 7.48% | 10.52% | 18.51% | 27.55% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Accenture PLC | -0.37% | 1.46% | 1.13% | 1.92% | 4.78% | 6.61% | |
| Adobe Inc. | — | 13.11% | 0.83% | 1.00% | 6.49% | 8.87% | |
| Cadence Design Systems Inc. | — | -1.28% | -2.88% | 7.17% | 6.58% | 6.80% | |
| Datadog Inc. | — | -8.84% | -9.53% | -6.05% | -11.80% | -3.98% | |
| International Business Machines Corp. | — | -0.75% | -7.59% | -3.55% | -11.30% | -6.16% | |
| Intuit Inc. | 7.82% | -2.91% | -6.59% | -8.64% | -7.53% | 0.10% | |
| Oracle Corp. | -3.89% | -8.03% | -7.89% | -8.69% | -7.67% | 0.54% | |
| Palantir Technologies Inc. | — | 41.65% | -12.27% | -8.99% | -32.73% | -40.19% | |
| Palo Alto Networks Inc. | -12.81% | -3.84% | 5.35% | 11.48% | 3.51% | -5.19% | |
| Salesforce Inc. | -7.05% | -12.48% | -14.29% | -17.73% | -14.61% | -12.46% | |
| ServiceNow Inc. | — | 2.67% | 5.94% | 5.24% | 0.73% | 1.95% | |
| Synopsys Inc. | — | -12.42% | -8.17% | -7.47% | -0.87% | -6.90% | |
| Workday Inc. | -9.53% | -11.63% | -13.04% | -19.26% | -14.09% | -19.34% | |
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Economic profit. See details »
2 Invested capital. See details »
3 2026 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 50,554 ÷ 571,487 = 8.85%
4 Click competitor name to see calculations.
The financial performance exhibits a period of aggressive capital expansion coupled with a significant compression in value creation efficiency, followed by a recovery in the final period. A sustained increase in the capital base has influenced the relationship between absolute economic profit and the economic spread ratio.
- Invested Capital Trends
- Invested capital grew consistently and substantially over the analyzed period, rising from US$ 143,637 million in 2021 to US$ 571,487 million by 2026. This trajectory indicates a continuous and large-scale deployment of resources into the business operations.
- Economic Profit Performance
- Economic profit demonstrated a downward trend for the first five years, decreasing from US$ 39,567 million in 2021 to a low of US$ 24,087 million in 2025. However, a sharp reversal occurred in 2026, with economic profit peaking at US$ 50,554 million, marking the highest value in the observed sequence.
- Economic Spread Ratio Analysis
- The economic spread ratio underwent a severe contraction, falling from 27.55% in 2021 to 5.59% in 2025. This indicates that while the company continued to generate positive economic profit, the efficiency of that value creation relative to the invested capital diminished significantly. An inflection point is observed in 2026, where the ratio recovered to 8.85%, suggesting an improvement in the margin by which the return on capital exceeds the cost of capital.
The inverse relationship between the rapid growth of invested capital and the declining economic spread ratio through 2025 suggests a phase of heavy investment where capital deployment outpaced immediate proportional gains in economic profit. The synchronized increase in both economic profit and the spread ratio in 2026 indicates that the previous capital expenditures may have begun to yield higher marginal returns.
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Economic Profit Margin
Microsoft Corp., economic profit margin calculation, comparison to benchmarks
| Jun 30, 2026 | Jun 30, 2025 | Jun 30, 2024 | Jun 30, 2023 | Jun 30, 2022 | Jun 30, 2021 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 50,554) | 24,087) | 26,289) | 26,044) | 35,923) | 39,567) | |
| Revenue | 331,839) | 281,724) | 245,122) | 211,915) | 198,270) | 168,088) | |
| Add: Increase (decrease) in unearned revenue | 8,447) | 7,081) | 6,371) | 5,405) | 4,267) | 4,961) | |
| Adjusted revenue | 340,286) | 288,805) | 251,493) | 217,320) | 202,537) | 173,049) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 14.86% | 8.34% | 10.45% | 11.98% | 17.74% | 22.86% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Accenture PLC | -0.26% | 0.94% | 0.64% | 0.99% | 2.30% | 3.39% | |
| Adobe Inc. | — | 11.86% | 0.94% | 1.25% | 7.56% | 11.05% | |
| Cadence Design Systems Inc. | — | -1.92% | -4.41% | 7.14% | 6.57% | 6.90% | |
| Datadog Inc. | — | -5.24% | -8.65% | -3.79% | -8.16% | -3.16% | |
| International Business Machines Corp. | — | -1.33% | -13.42% | -6.31% | -19.56% | -11.71% | |
| Intuit Inc. | 9.55% | -3.77% | -10.13% | -14.15% | -14.49% | 0.13% | |
| Oracle Corp. | -9.55% | -16.10% | -15.00% | -16.81% | -14.08% | 1.07% | |
| Palantir Technologies Inc. | — | 21.57% | -10.64% | -4.83% | -54.91% | -66.20% | |
| Palo Alto Networks Inc. | -35.61% | -4.55% | 5.68% | 11.39% | 4.09% | -6.98% | |
| Salesforce Inc. | -15.10% | -26.94% | -33.02% | -44.83% | -40.55% | -28.58% | |
| ServiceNow Inc. | — | 2.94% | 4.89% | 4.21% | 0.59% | 1.68% | |
| Synopsys Inc. | — | -72.47% | -13.69% | -10.54% | -1.23% | -10.97% | |
| Workday Inc. | -11.47% | -12.36% | -14.52% | -23.63% | -19.10% | -25.24% | |
Based on: 10-K (reporting date: 2026-06-30), 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30).
1 Economic profit. See details »
2 2026 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × 50,554 ÷ 340,286 = 14.86%
3 Click competitor name to see calculations.
The financial performance between June 30, 2021, and June 30, 2026, is characterized by a sustained expansion in scale coupled with a fluctuating capacity to generate economic value above the cost of capital. While adjusted revenue demonstrated consistent year-over-year growth, economic profit and the corresponding margin experienced a prolonged decline before a significant recovery in the final year of the period.
- Adjusted Revenue Growth
- A consistent upward trend is observed in adjusted revenue, which grew from US$ 173,049 million in 2021 to US$ 340,286 million in 2026. This steady increase indicates a robust expansion of the company's top-line operations throughout the analyzed timeframe.
- Economic Profit Trajectory
- Absolute economic profit followed a downward trend for the majority of the period, decreasing from US$ 39,567 million in 2021 to a minimum of US$ 24,087 million in 2025. This contraction suggests that the growth in net operating profit after tax did not keep pace with the increasing cost of capital employed. However, a substantial reversal occurred in 2026, with economic profit surging to US$ 50,554 million, the highest level recorded in the dataset.
- Economic Profit Margin Analysis
- The economic profit margin exhibited a steady contraction from a peak of 22.86% in 2021 to a low of 8.34% in 2025. This trend highlights a period of diminishing capital efficiency, where the value created per dollar of revenue declined. This trend was interrupted in 2026, when the margin rebounded to 14.86%, indicating a marked improvement in the ability to generate economic value relative to adjusted revenue.
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