Palo Alto Networks Inc. (NASDAQ:PANW)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes showed a strong upward trajectory from 2020 to 2023, increasing from approximately 696 million USD to 2.61 billion USD. However, this trend reversed in 2024 and further declined in 2025, falling to about 1.79 billion USD. This pattern indicates substantial growth in operational profitability for four years, followed by a significant contraction in the last two years observed.

Cost of Capital

The cost of capital exhibited a gradual upward trend throughout the period, rising from 13.88% in 2020 to 15.77% in 2025. This steady increase suggests a growing expense associated with the company's capital, which could reflect heightened risk perception or rising market interest rates affecting the company’s financing costs.

Invested Capital

Invested capital consistently increased across all years reported, moving from about 7.03 billion USD in 2020 to 12.43 billion USD in 2025. This steady growth in invested capital reveals ongoing investment or reinvestment in the company's assets, likely aimed at supporting expansion or enhancing operational capacity.

Economic Profit

Economic profit shows a highly variable pattern. Initially, it was negative in 2020 and 2021, indicating that the company did not generate returns above its cost of capital. In 2022, economic profit turned positive and grew significantly, peaking in 2023 at approximately 1.26 billion USD before declining in 2024 and becoming negative again in 2025. This volatility reflects periods of value creation followed by erosion, influenced by changes in both operating profit and cost of capital.

Summary of Trends and Insights

From 2020 to 2023, the company experienced robust growth in operating profit and invested capital, accompanied by improving economic profit, signaling effective value generation. However, starting in 2024, despite the continued rise in invested capital and increasing cost of capital, both NOPAT and economic profit declined, with economic profit turning negative once more in 2025. The rising cost of capital compounds pressure on profitability, suggesting less efficient capital utilization or increased risk costs. This combination points to potential challenges in maintaining operational efficiency or competitive positioning in the most recent years analyzed.

Net Income (Loss)

The net income exhibited significant volatility across the periods presented. Initially, there was a substantial loss of $267 million in 2020, which deepened to nearly $499 million in 2021. In 2022, the loss reduced to $267 million, indicating some recovery. Subsequently, in 2023, the company returned to profitability with a net income of approximately $440 million.

Notably, in 2024 net income surged dramatically to approximately $2.58 billion, representing a significant upward trend. However, in 2025, net income declined to about $1.13 billion, still maintaining a profit but at a reduced level compared to the previous year.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a continuous growth trend from 2020 through 2023. Starting at approximately $696 million in 2020, it increased to $845 million in 2021. The upward trajectory accelerated in 2022 with NOPAT reaching about $1.72 billion and peaked at around $2.61 billion in 2023.

Following the peak, NOPAT decreased in 2024 and 2025 to approximately $2.50 billion and $1.79 billion, respectively. Although these declines represent a downward adjustment from the 2023 high, NOPAT levels in 2024 and 2025 remain substantially higher than in the initial years.

Overall Trends and Insights

There is a clear pattern of financial improvement over the period analyzed. Both net income and NOPAT shifted from negative or moderate levels in the earlier years to significant positive figures in later periods.

The net income recovery and subsequent profits after 2022 suggest enhanced operational efficiency or impactful business activities, given that NOPAT, a measure of operational profitability, generally increased prior to and during the years of rising net income.

The reduction in net income and NOPAT in 2025 compared to the previous year could indicate emerging challenges or a normalization after an exceptionally high period in 2024. Nevertheless, profitability remains robust relative to earlier years.

Provision for (benefit from) income taxes

The provision for income taxes shows considerable volatility over the analyzed period. Initially, the values remain positive and relatively stable from 2020 through 2023, increasing from 35,200 to 126,600 thousand US dollars. However, in 2024, there is a significant negative spike, with the provision recorded as a benefit amounting to -1,589,300 thousand US dollars. This sudden reversal likely indicates a substantial tax credit or adjustment during this year. In 2025, the provision shifts back to a positive figure of 461,800 thousand US dollars, indicating another major change in tax positioning.

Cash operating taxes

Cash operating taxes demonstrate a steady upward trend from 2020 to 2025. The figures increase from 57,464 thousand US dollars in 2020 to 74,038 thousand US dollars in 2023, showing consistent growth. Notably, cash taxes surge dramatically in 2024 and 2025, reaching 384,452 and 740,528 thousand US dollars, respectively. This sharp increase in cash taxes contrasts with the provision for income taxes' negative spike in 2024, suggesting differences in the timing or nature of book versus cash tax recognition during these years.

The analysis of the financial data reveals several notable trends over the observed periods.

Total Reported Debt & Leases

This item shows a decreasing trend from the fiscal year ending July 31, 2020 through July 31, 2025. The debt stood at approximately 3.48 billion USD in 2020 and increased slightly to around 3.61 billion USD in 2021. Afterward, the amount peaked in 2022 at roughly 4.02 billion USD before embarking on a steady decline each year. By 2025, the total reported debt and leases had decreased significantly to about 417 million USD, indicating a substantial reduction in the company's leverage or obligations over the period.

Stockholders’ Equity

Stockholders’ equity initially decreased sharply from approximately 1.10 billion USD in 2020 to 210 million USD by 2022, suggesting potential losses, share repurchases, or other equity-reducing activities during this interval. However, beginning in 2023, equity increased markedly, reaching 1.75 billion USD and continuing to grow substantially to about 5.17 billion USD in 2024 and further to 7.82 billion USD in 2025. This strong recovery and subsequent growth may indicate improved profitability, capital infusions, or retained earnings enhancement.

Invested Capital

Invested capital displayed a consistent upward trajectory throughout all periods. Starting at roughly 7.03 billion USD in 2020, it increased gradually each year, reaching approximately 12.43 billion USD by 2025. This steady rise suggests ongoing investment into the company's operations and assets, potentially to support growth strategies or expansion initiatives.

In summary, the financial data indicates a strategic reduction of debt alongside a significant increase in equity and invested capital over the observed period. This combination points towards strengthening financial stability and potentially enhanced capacity for growth and value creation.

Economic Profit

The economic profit exhibited a volatile trend over the analyzed period. Initially, it showed negative values in 2020 and 2021, indicating losses of approximately $279 million and $220 million, respectively. This trend reversed in 2022, achieving a positive economic profit of approximately $496 million, followed by further increases in 2023, reaching about $1.26 billion. However, the figure declined in 2024 to around $839 million and turned negative again by 2025, with an estimated loss of $171 million. This fluctuation suggests varying operational efficiency and returns relative to the cost of capital.

Invested Capital

Invested capital consistently increased throughout the years under review. Starting from about $7.03 billion in 2020, the invested capital rose each year, reaching approximately $12.43 billion by 2025. This steady upward trend indicates continuous investment in assets or business expansion, which could have implications for future revenue generation and risk exposure.

Economic Spread Ratio

The economic spread ratio, representing the difference between the return on invested capital and the cost of capital, showed a similar volatile pattern to economic profit. It was negative in 2020 and 2021 at -3.97% and -3%, respectively, correlating with negative economic profit. The ratio improved substantially in 2022 and peaked at 13.79% in 2023, reflecting strong profitability and efficient capital utilization during this period. Subsequently, the ratio decreased to 7.74% in 2024 and dropped below zero again to -1.37% in 2025. This indicates a deterioration in the company's ability to generate returns above its cost of capital towards the end of the period.

Overall Assessment

The financial data points to a period of recovery and growth following initial losses, with economic profit and spread ratio peaking around 2023. The continuous increase in invested capital demonstrates aggressive asset expansion or investment. However, the decline in both economic profit and economic spread ratio in the final year suggests emerging challenges in maintaining profitability relative to capital costs. This pattern may warrant a review of capital allocation strategies and operational efficiencies going forward.

Adjusted Revenue

The adjusted revenue displayed a strong upward trend from July 31, 2020, through July 31, 2025. Starting at approximately $4.33 billion in 2020, revenue growth was consistent each year, peaking at nearly $10.49 billion by 2025. The most notable increases occurred between 2021 and 2023, with growth continuing but at a more moderate pace afterward.

Economic Profit

Economic profit showed significant volatility over the analyzed periods. Initially, negative values indicated losses, with the economic profit decreasing from approximately -$279 million in 2020 to around -$220 million in 2021. The situation reversed in 2022 when economic profit turned positive, reaching almost $496 million and further increasing to over $1.25 billion in 2023. However, after peaking in 2023, economic profit declined sharply, falling to about $839 million in 2024 and then turning negative again, recording roughly -$171 million by 2025. This pattern suggests fluctuating profitability and potential challenges in sustaining economic gains beyond 2023.

Economic Profit Margin

The economic profit margin mirrored the volatility observed in economic profit values. Initially negative, it improved steadily from -6.44% in 2020 to a positive margin of 6.63% in 2022, reaching a peak of 13.69% in 2023. Despite this strong performance, the margin decreased substantially thereafter, dropping to 8.22% in 2024 and turning negative at -1.63% in 2025. This confirms the trend of declining profitability margins following a peak in 2023, raising concerns about long-term profit sustainability relative to revenue.

Overall Analysis

The company demonstrated robust revenue growth throughout the period, indicating successful top-line expansion. Nevertheless, economic profit and its margin reveal significant fluctuations, with strong profitability established in 2022 and 2023 but followed by deterioration and losses in 2025. This discrepancy highlights potential issues in cost management, capital efficiency, or market dynamics impacting economic returns despite growing revenues. Continuous monitoring of economic profit alongside revenue will be essential to evaluate operational effectiveness and sustainable profitability.