Home Depot Inc. (NYSE:HD)

The period between February 2, 2020, and February 2, 2025, demonstrates fluctuating performance in economic profit. Net operating profit after taxes (NOPAT) initially increased before experiencing a decline, while invested capital generally rose over the period, with a significant jump in the most recent year. The cost of capital remained relatively stable, with a slight increase in later years. These factors combined to produce a pattern of increasing and then decreasing economic profit.

NOPAT Trend

NOPAT increased from US$12,860 million in 2020 to US$14,172 million in 2021, representing a substantial gain. Further growth was observed in 2022, reaching US$18,148 million. However, NOPAT decreased to US$18,170 million in 2023 and continued to decline to US$16,384 million in 2024. A slight recovery to US$16,730 million is noted in the latest period.

Cost of Capital

The cost of capital exhibited a modest upward trend, moving from 15.22% in 2020 to 15.78% in 2021 and 15.84% in 2022. A slight decrease to 15.68% occurred in 2023, followed by an increase to 16.09% in 2024, and a subsequent decrease to 15.74% in 2025.

Invested Capital

Invested capital increased significantly from US$36,678 million in 2020 to US$49,973 million in 2021. It experienced a slight decrease to US$48,299 million in 2022 before rising to US$55,111 million in 2023 and US$55,884 million in 2024. A substantial increase is observed in the most recent period, reaching US$72,841 million in 2025.

Economic Profit

Economic profit peaked at US$10,499 million in 2022, following US$7,279 million in 2020 and US$6,287 million in 2021. A decline was then observed, with economic profit decreasing to US$9,527 million in 2023 and further to US$7,394 million in 2024. The most recent period shows a further decrease to US$5,267 million. The decline in economic profit from 2022 onwards appears to be influenced by both the decrease in NOPAT and the increase in invested capital, despite a relatively stable cost of capital.

The substantial increase in invested capital in 2025, coupled with a moderate decrease in NOPAT, contributed to the most significant reduction in economic profit during the analyzed period. Continued monitoring of these trends is recommended to assess the long-term implications for value creation.

Net Earnings

Net earnings exhibit an overall upward trend from the initial value of 11,242 million US dollars in the period ending February 2, 2020, reaching a peak of 17,105 million US dollars by January 29, 2023. However, after this peak, there is a noticeable decline, with net earnings decreasing to 15,143 million US dollars in January 28, 2024, and further slightly declining to 14,806 million US dollars by February 2, 2025.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows an increasing pattern from 12,860 million US dollars in the period ending February 2, 2020, to reach 18,170 million US dollars as of January 29, 2023. Following this peak, there is a decline in the subsequent period to 16,384 million US dollars in January 28, 2024. However, unlike net earnings, NOPAT recovers slightly in the most recent period, increasing to 16,730 million US dollars by February 2, 2025.

Comparative Insights

Both net earnings and NOPAT follow a similar trend characterized by growth up to the period ending early 2023, followed by a reduction. The decline in net earnings is more consistent in the last two periods, whereas NOPAT experiences a partial recovery in the final period. This divergence could indicate changes in operational efficiency or tax impacts that warrant further examination. Overall, the data suggests a phase of growth culminating around 2023, with some signs of financial pressure or transitional changes in profitability thereafter.

The financial data reveals the trends in provision for income taxes and cash operating taxes over six consecutive years.

Provision for Income Taxes

From February 2020 to January 2021, the provision for income taxes increased significantly from 3,473 million US dollars to 4,112 million, representing a notable rise. This upward trend continued into January 2022, peaking at 5,304 million US dollars. However, in the following years, the provision began to decline slightly: decreasing to 5,372 million in January 2023, then further reducing to 4,781 million in January 2024, and ending at 4,600 million in February 2025. Overall, after an initial sharp rise through 2022, the provision for income taxes demonstrated a downward adjustment over the last three years in the dataset.

Cash Operating Taxes

Cash operating taxes showed a strong upward movement from 3,573 million US dollars in February 2020 to 5,040 million in January 2021. This increase continued into January 2022 with another rise to 5,876 million. The following year, January 2023, registered a slight decrease to 5,622 million, which continued with marginal declines in subsequent years: 5,482 million in January 2024 and 5,201 million in February 2025. This pattern indicates that after reaching a peak in early 2022, cash operating taxes began to taper moderately but remained considerably higher than the initial 2020 values.

In summary, both provision for income taxes and cash operating taxes experienced significant growth from 2020 through early 2022, indicating increased tax-related expenses or obligations during this period. Post-2022, both metrics showed a gradual decline, potentially reflecting changes in taxable income, tax strategies, or regulatory impacts. The consistent higher levels from 2021 onwards compared to 2020 suggest an overall increase in tax burden or profitability subject to tax over the six-year span.

The financial data reveals several notable trends in the company’s capital structure and financial position over the observed periods.

Total reported debt & leases

This figure exhibits a consistent upward trend throughout the periods, increasing from $37,377 million in early 2020 to $62,290 million by early 2025. The rise indicates a growing reliance on debt and lease obligations, which increased by nearly 67% over the five-year span.

Stockholders’ equity (deficit)

Stockholders’ equity fluctuates significantly, starting with a negative position of -$3,116 million in early 2020 and improving to a positive $3,299 million by early 2021. However, it swings back to a negative figure in early 2022 at -$1,696 million, before gradually increasing again to reach $6,640 million by early 2025. This volatility suggests periods of financial strain or restructuring, followed by recovery phases, ultimately resulting in a strengthened equity base.

Invested capital

Invested capital shows an overall increasing pattern, beginning at $36,678 million in 2020, rising to $49,973 million in 2021, and experiencing some fluctuations before reaching a peak of $72,841 million in 2025. This growth reflects increased capital deployment, possibly through investments, acquisitions, or asset expansion aligning with the rise in debt levels.

In summary, the company appears to have expanded its capital base and debt load significantly over the period, while stockholders’ equity demonstrated volatility but ultimately improved. The overall increase in invested capital alongside growing debt indicates a strategy of leveraging to finance growth or operations, which has enhanced the total resources employed in the business.

The economic spread ratio demonstrates a fluctuating pattern over the observed period. Initially, the ratio stood at 19.85% in February 2020, decreased to 12.58% in January 2021, and then experienced a substantial increase to 21.74% in January 2022. Subsequent years show a declining trend, with the ratio decreasing to 17.29% in January 2023, 13.23% in January 2024, and further decreasing to 7.23% in February 2025.

Economic Spread Ratio Trend

The economic spread ratio peaked in January 2022 at 21.74%, indicating a strong ability to generate returns exceeding the cost of capital at that time. The subsequent decline suggests a diminishing advantage in generating value relative to invested capital. The most significant decrease occurred between January 2024 and February 2025, with a drop of 6 percentage points.

Economic profit exhibited volatility during the period. While it decreased from US$7,279 million in February 2020 to US$6,287 million in January 2021, it rebounded strongly to US$10,499 million in January 2022. Economic profit then decreased to US$9,527 million in January 2023 and continued to decline to US$7,394 million in January 2024, before falling to US$5,267 million in February 2025.

Invested Capital

Invested capital increased significantly from US$36,678 million in February 2020 to US$49,973 million in January 2021. Although it decreased slightly to US$48,299 million in January 2022, it continued to rise, reaching US$55,111 million in January 2023 and US$55,884 million in January 2024. A substantial increase is observed in February 2025, with invested capital reaching US$72,841 million. This increase in invested capital, coupled with the declining economic spread ratio, suggests that the company is deploying more capital with diminishing returns.

The interplay between economic profit and invested capital is reflected in the economic spread ratio. The initial decline in the ratio in 2021 coincided with a decrease in economic profit and a substantial increase in invested capital. While economic profit recovered in 2022, the subsequent decline in the ratio, despite relatively stable economic profit until 2024, suggests that the cost of capital may have increased or that the efficiency of capital deployment has decreased. The sharp decline in the ratio in 2025, alongside a significant increase in invested capital and a decrease in economic profit, indicates a weakening of the company’s ability to generate returns above its cost of capital.

The economic profit margin exhibited fluctuations over the analyzed period, beginning in 2020 and extending through projected figures for 2025. Initial values demonstrated a decrease followed by a recovery, then a subsequent decline. A review of the economic profit and adjusted net sales figures reveals the underlying drivers of these margin changes.

Economic Profit Margin Trend

The economic profit margin began at 6.58% in 2020, representing a strong initial performance. This was followed by a decrease to 4.73% in 2021. A significant recovery was observed in 2022, with the margin increasing to 6.91%. However, this upward momentum did not sustain, as the margin decreased to 6.07% in 2023 and further to 4.85% in 2024. Projections for 2025 indicate a continued downward trend, with the economic profit margin expected to reach 3.31%.

Relationship to Economic Profit

Economic profit generally increased from 2020 to 2022, aligning with the margin’s initial rise. The peak in economic profit in 2022 (US$10,499 million) corresponded with the highest economic profit margin during the period. Subsequent declines in economic profit in 2023 (US$9,527 million) and 2024 (US$7,394 million) correlate with the decreasing margin. The projected decrease in economic profit to US$5,267 million in 2025 further supports the anticipated margin contraction.

Relationship to Adjusted Net Sales

Adjusted net sales increased consistently from 2020 to 2023, growing from US$110,559 million to US$156,871 million. While sales decreased slightly in 2024 to US$152,367 million, a further increase to US$159,362 million is projected for 2025. Despite the overall growth in adjusted net sales, the declining economic profit margin suggests that the rate of profit generation has not kept pace with revenue growth, indicating potential pressures on profitability.

In summary, while the company has experienced growth in adjusted net sales, the economic profit margin has demonstrated a weakening trend, particularly in the most recent periods and as projected into the future. This suggests a need for further investigation into the factors impacting profitability, despite increasing revenue.