Palo Alto Networks Inc. (NASDAQ:PANW)

Net operating profit after taxes (NOPAT)

The NOPAT has exhibited a consistent upward trend from 2019 through 2023, increasing from approximately 536 million US dollars in 2019 to over 2.6 billion US dollars in 2023. However, in 2024, there is a slight decline, with NOPAT falling to around 2.5 billion US dollars. This overall growth indicates improving operational profitability, though the recent decrease suggests possible emerging challenges or changes in operational efficiency.

Cost of capital

The cost of capital has remained relatively stable over the period, fluctuating marginally between 14.04% and 15.52%. There is a gradual increase from 14.81% in 2019 to 15.52% in 2024, indicating a slight rise in the required return on invested capital, which may affect investment decisions and valuation.

Invested capital

Invested capital has shown a significant increasing trend during the entire period, growing nearly threefold from approximately 3.9 billion US dollars in 2019 to over 10.8 billion US dollars in 2024. This expansion of capital base suggests substantial investments in assets or business growth initiatives, reflecting a commitment to scale operations or improve competitive positioning.

Economic profit

Economic profit was negative in the initial years, with losses peaking around 290 million US dollars in 2020. It then transitioned to positive territory in 2022, reaching a peak of over 1.24 billion US dollars in 2023 before declining to approximately 819 million US dollars in 2024. This pattern suggests that the company initially struggled to generate returns above its cost of capital but began to create significant shareholder value starting from 2022, although the decrease in 2024 signals a potential reduction in value-added performance relative to invested capital.

Net Income (Loss)

The net income showed a significant fluctuation during the analyzed period. Initially, there was a considerable loss of $81.9 million in 2019, which worsened substantially to a loss of $267 million in 2020, and further to nearly $499 million in 2021. However, starting in 2022, the trend reversed with a notable recovery where the loss decreased back to $267 million. Subsequently, the company turned profitable with net income rising sharply to $439.7 million in 2023 and then increasing substantially to approximately $2.58 billion in 2024. This turnaround suggests effective changes in operations or strategy leading to improved profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited steady growth throughout the entire period. Starting at $536.4 million in 2019, it increased consistently each year, reaching $696.4 million in 2020, then $845.1 million in 2021. A marked acceleration happened in 2022 when NOPAT doubled to approximately $1.72 billion, followed by continued growth to $2.61 billion in 2023. There was a slight decrease in 2024 to about $2.5 billion, yet the figure remains significantly higher than in the initial years. The growth in NOPAT indicates enhanced core operational efficiency and profitability, despite minor recent decline.

Provision for (benefit from) income taxes

The provision for income taxes shows considerable volatility across the years. From 2019 to 2020, it increased significantly from 7,300 to 35,200 thousand US dollars, followed by a slight decrease to 33,900 thousand US dollars in 2021. A notable increase occurred again in 2022 and 2023, reaching 59,800 and 126,600 thousand US dollars, respectively. The year 2024 exhibits a substantial negative value of -1,589,300 thousand US dollars, indicating a significant tax benefit in that period. This reversal may warrant further investigation to understand the underlying causes, such as tax credits, loss carrybacks, or other accounting adjustments.

Cash operating taxes

Cash operating taxes demonstrate a steady upward trend over the six-year period. Starting at 32,566 thousand US dollars in 2019, cash tax payments rose consistently each year, reaching 57,464 in 2020, 81,834 in 2021, with a slight dip to 68,221 in 2022, then increasing again to 76,038 in 2023. The 2024 figure spikes sharply to 384,452 thousand US dollars, representing a dramatic increase compared to previous years. This substantial rise in cash taxes in 2024 contrasts with the large tax benefit recorded in the provision for income taxes, highlighting potential differences between accounting provisions and actual cash tax payments.

Total reported debt & leases

The total reported debt and leases showed an increasing trend from July 31, 2019, reaching a peak in July 31, 2022, with a value of 4,015,200 thousand US dollars. After this peak, a significant decline occurred over the subsequent two years, dropping to 2,330,900 thousand US dollars in 2023 and further down to 1,410,300 thousand US dollars in 2024. This pattern indicates a strategy of leveraging more debt until 2022, followed by notable deleveraging or repayment actions thereafter.

Stockholders’ equity

Stockholders’ equity decreased sharply from 1,586,300 thousand US dollars in 2019 to a low point of 210,000 thousand US dollars in 2022. This was followed by a robust recovery, with equity rising significantly to 1,748,400 thousand US dollars in 2023 and further increasing to 5,169,700 thousand US dollars in 2024. The equity trend reflects a period of diminished net asset value, potentially due to operational losses or share repurchases, followed by strong capital retention or additional equity infusions in the later years.

Invested capital

Invested capital exhibited consistent growth throughout the entire period. Starting at 3,879,623 thousand US dollars in 2019, it nearly doubled by 2020 and continued to rise annually, reaching 10,841,500 thousand US dollars in 2024. This steady increase suggests ongoing investments in the company's operations and assets, supporting growth initiatives despite fluctuations in debt and equity.

The financial data indicates significant fluctuations in the economic profit over the six-year period. Initially, there were consistent negative economic profits, reaching the lowest point in 2020 with a loss of 290,618 thousand US dollars. A notable turnaround occurred in 2022, where economic profit turned positive, peaking at 1,241,700 thousand US dollars in 2023, before declining to 818,613 thousand US dollars in 2024.

The invested capital demonstrated a continuous upward trend throughout the period, increasing from 3,879,623 thousand US dollars in 2019 to 10,841,500 thousand US dollars in 2024. This steady growth reflects ongoing investments in assets or operations.

The economic spread ratio, reflecting the return relative to the cost of capital, mirrored the economic profit trends. It was negative from 2019 through 2021, with the lowest ratio at -4.13% in 2020, subsequently turning positive in 2022. It surged impressively to 13.6% in 2023, indicating a strong economic return, before decreasing to 7.55% in 2024.

Economic Profit

Displayed negative values in the initial three years, indicating losses or returns below the cost of capital. A major shift to positive economic profit in 2022 suggests improved operational performance and value creation.

Invested Capital

Consistently increased over the period, more than doubling from 2019 to 2024. This growth indicates ongoing capital investments or asset accumulation, possibly aimed at expanding the business or enhancing its capabilities.

Economic Spread Ratio

Initially negative, this ratio improved significantly after 2021, peaking in 2023. The ratio's improvement aligns with the change in economic profit, implying that returns on invested capital surpassed its cost significantly during the latter years.

An analysis of the financial data over the six-year period reveals significant changes in key performance indicators related to profitability and revenue generation.

Economic Profit

The economic profit initially shows substantial negative values, declining from -38,232 thousand US$ in 2019 to a low of -290,618 thousand US$ in 2020. This negative trend improves slightly in 2021 to -233,416 thousand US$. A notable reversal occurs starting in 2022, where economic profit becomes positive at 480,266 thousand US$, surging further in 2023 to 1,241,700 thousand US$. However, there is a decrease in 2024 to 818,613 thousand US$, although it remains significantly positive compared to earlier years.

Adjusted Revenue

Adjusted revenue displays a consistent upward trend across the entire period. It increases from 3,509,000 thousand US$ in 2019 to over 10,211,600 thousand US$ in 2024. The growth is particularly strong between 2021 and 2023, reflecting an accelerated expansion of revenue generation.

Economic Profit Margin

The economic profit margin mirrors the pattern observed in economic profit. It is negative from 2019 through 2021, reaching a low of -6.71% in 2020, and improving to -4.27% in 2021. Beginning in 2022, the margin shifts to a positive 6.43% and peaks at 13.5% in 2023. In 2024, it declines to 8.02%, maintaining positive profitability but at a reduced rate compared to the previous year.

Overall, the data indicates a turnaround from sustained economic losses in the initial years to strong profitability and revenue growth starting in 2022. The peak in 2023 suggests optimal financial performance that slightly moderates in 2024 but remains robust. This trend suggests improvements in operational efficiency or market positioning that positively affect profitability metrics, despite a modest contraction in economic profit and margin percentages in the most recent year.