Microsoft Corp. (NASDAQ:MSFT)

Net operating profit after taxes (NOPAT)

The net operating profit after taxes exhibits a consistent upward trend across the periods analyzed. Starting at 46,746 million USD in mid-2020, NOPAT increased significantly to 65,443 million USD by mid-2021. This positive growth continued with moderate increases through 2022 and 2023, reaching 71,055 million USD. A notable acceleration occurred in the subsequent years, rising to 90,364 million USD in mid-2024 and further to 102,672 million USD by mid-2025. This progression indicates enhanced profitability and efficient operational performance over the examined timeframe.

Cost of capital

The cost of capital remained relatively stable with a slight incremental trend. Beginning at 13.49% in mid-2020, it rose marginally each year, peaking at 13.83% by mid-2025. The gradual increase in the cost of capital may reflect shifts in market conditions or risk assessments but does not appear to have significantly impacted overall financial performance.

Invested capital

Invested capital has shown a pronounced growth trajectory from 107,630 million USD in mid-2020 to 430,631 million USD in mid-2025. The increase accelerated notably between 2022 and 2025, nearly doubling from approximately 194,094 million USD to over 430,000 million USD. This substantial increase signifies considerable reinvestment or expansion efforts, potentially to support or drive future growth.

Economic profit

Economic profit revealed dynamic fluctuations throughout the periods. Initially, economic profit grew from 32,231 million USD in mid-2020 to a peak of 45,830 million USD in mid-2021. Thereafter, a decline occurred in subsequent years, falling to 36,958 million USD by mid-2023. However, recovery followed, with economic profit increasing again to 41,817 million USD in mid-2024 and slightly rising to 43,137 million USD in mid-2025. Despite the fluctuations, economic profit remained robust, underscoring the company's ability to generate value above its cost of capital over the analyzed period.

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 fluctuating trend over the examined periods. Starting at 32,231 million US dollars in mid-2020, it increased significantly to a peak of 45,830 million in mid-2021. Subsequently, it experienced a decline to 36,958 million by mid-2023, followed by a recovery to 43,137 million by mid-2025. This pattern suggests volatility in profitability but an overall upward movement when comparing the start and end points.

Invested Capital

There is a consistent and substantial growth in invested capital throughout the periods. Beginning at 107,630 million US dollars in mid-2020, invested capital nearly quadrupled to 430,631 million by mid-2025. This steady increase indicates ongoing and significant investments or asset accumulations over the years.

Economic Spread Ratio

The economic spread ratio exhibits a clear declining trend. Starting from a high level of approximately 30% in mid-2020, it rises slightly to nearly 32% in mid-2021 but then continuously decreases over the following years, reaching about 10% by mid-2025. This decline reflects diminishing returns on the invested capital despite growing absolute economic profits.

Summary Insights

The data reveal a scenario where economic profit, though fluctuating, remains relatively robust, but the invested capital is growing at a faster pace, causing a decline in the economic spread ratio. This suggests that while the company is generating increasing absolute profits, the efficiency of capital utilization is decreasing. This could indicate challenges in maintaining high return rates on larger asset bases or heavier investments made in recent years.

The financial data reveals several key trends over the six-year period analyzed. The adjusted revenue shows a consistent upward trajectory, increasing from 144,989 million US dollars in 2020 to 288,805 million US dollars in 2025. This doubling of revenue indicates strong growth and expanding business operations or market presence.

Economic profit, while positive throughout the period, demonstrates some fluctuation. It rose from 32,231 million US dollars in 2020 to a peak of 45,830 million US dollars in 2021, followed by a slight decline in 2022 to 44,427 million US dollars. Subsequently, economic profit decreased more noticeably to 36,958 million US dollars in 2023 but recovered partially in the following years to reach 43,137 million US dollars by 2025. This pattern indicates that although the company generates substantial economic profit, there have been periods of contraction potentially due to increased costs or investment impacts.

The economic profit margin, which measures economic profit as a percentage of adjusted revenue, reveals a declining efficiency trend. Starting at 22.23% in 2020, it peaked at 26.48% in 2021, then steadily decreased to 14.94% by 2025. Despite the growth in absolute revenue and economic profit, the diminishing margin suggests that economic profit is growing at a slower rate compared to revenue, pointing to either rising costs or lower returns on incremental revenue.

Adjusted Revenue

Consistent and significant growth, doubling over the period, which reflects expanding operations.

Economic Profit

Variable performance with an initial peak in 2021, followed by a notable dip and partial recovery, indicating fluctuating profitability levels.

Economic Profit Margin

Declining trend from above 22% to under 15%, illustrating decreasing efficiency in converting revenue growth into economic profit.

Overall, the data suggests a strong revenue growth trajectory accompanied by challenges in maintaining economic profit margins. This could imply increasing operational costs or investments that depress profit margins despite the expanding revenue base. Further analysis may be warranted to understand the drivers behind the margin compression and the strategies to enhance sustainable profitability.