Nike Inc. (NYSE:NKE)

The period demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) exhibited substantial growth initially, followed by a decline in later years. The cost of capital remained relatively stable for much of the period, with a noticeable increase in the final year. Invested capital generally increased, peaking in 2024 before decreasing in 2025. These factors combined to create a pattern of increasing, then decreasing, economic profit.

Economic Profit Trend

Economic profit began at a negative value in 2020, indicating the company’s returns were less than its cost of capital. A significant positive shift occurred in 2021 and 2022, with economic profit reaching 1,797 and 1,890 million US dollars respectively. This suggests improved profitability relative to the capital employed. However, economic profit decreased in 2023 and 2024, settling at 1,469 and 1,396 million US dollars. The final year, 2025, saw a return to negative economic profit, reaching -740 million US dollars, signifying returns falling below the cost of capital once again.

NOPAT Analysis

NOPAT increased considerably from 2,477 million US dollars in 2020 to 5,490 million US dollars in 2021, representing a substantial improvement in operational profitability. Growth continued, albeit at a slower pace, reaching 5,557 million US dollars in 2022. A decline was then observed in 2023 (5,013 million US dollars) and 2024 (5,146 million US dollars). The most significant decrease occurred in 2025, with NOPAT falling to 2,913 million US dollars. This suggests potential challenges in maintaining profitability in the later years of the period.

Cost of Capital Fluctuation

The cost of capital remained relatively consistent between 2020 and 2024, fluctuating between 16.94% and 17.57%. However, a notable increase to 18.37% was observed in 2025. This rise in the cost of capital likely contributed to the negative economic profit experienced in that year, as a higher cost of capital reduces the amount of profit needed to generate a positive economic profit.

Invested Capital Changes

Invested capital generally trended upward from 19,083 million US dollars in 2020 to 22,129 million US dollars in 2024, indicating increased investment in the business. However, a decrease to 19,883 million US dollars was recorded in 2025. This reduction in invested capital could be due to asset sales, reduced investment, or other capital management strategies. The interplay between invested capital and NOPAT is crucial in determining economic profit.

In summary, the company experienced a period of strong economic profit growth followed by a decline, culminating in negative economic profit in the final year. This pattern is attributable to fluctuations in NOPAT, a moderate increase in the cost of capital in the last year, and changes in the level of invested capital.

Net Income

Net income shows a significant increase from 2,539 million USD in 2020 to a peak of 6,046 million USD in 2022. However, this is followed by a decline to 5,070 million USD in 2023. There is a partial recovery to 5,700 million USD in 2024 before a sharp decrease to 3,219 million USD in 2025. Overall, net income demonstrates strong growth until 2022, but subsequent years indicate volatility and a downward trend by the final year.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a similar pattern to net income, increasing from 2,477 million USD in 2020 to 5,557 million USD in 2022. After peaking, it declines to 5,013 million USD in 2023 and slightly improves to 5,146 million USD in 2024. However, in 2025, NOPAT decreases substantially to 2,913 million USD. This trend aligns closely with net income, illustrating parallel fluctuations in profitability after operating costs and taxes.

Overall Trends and Insights

Both net income and NOPAT show a growth phase peaking around 2022, followed by a period of decline and instability. The decrease in values in 2025 suggests challenges impacting profitability, potentially due to operational or market conditions. The close alignment between net income and NOPAT indicates consistent operational efficiency relative to income generation before the decline starts.

Income Tax Expense

The income tax expense shows a fluctuating trend over the six-year period. It increased significantly from 348 million US dollars in 2020 to 934 million US dollars in 2021, followed by a decline to 605 million in 2022. However, it spiked again to 1,131 million in 2023 before gradually decreasing over the next two years, reaching 666 million in 2025. This pattern indicates volatility in the company's tax obligations, potentially influenced by changes in profitability or tax regulations.

Cash Operating Taxes

Cash operating taxes have generally trended upward from 764 million US dollars in 2020 to peak at 1,482 million in 2024. Notably, there was rapid growth between 2020 and 2021, and a stabilization phase followed with values remaining above 1,200 million until 2024. A decline is observed in 2025, dropping to 951 million. This suggests variations in operational cash tax payments, potentially reflecting changes in taxable income, tax planning strategies, or cash management.

Comparative Insight

Comparing income tax expense with cash operating taxes reveals some divergence in trends. While income tax expense is more volatile with pronounced peaks and troughs, cash operating taxes show a more gradual rise and fall. This might indicate differing timing or recognition of tax liabilities versus actual cash outflows related to taxes over the years.

Total reported debt & leases

The total reported debt and leases demonstrate a consistent downward trend over the observed period. Starting at 13,015 million US dollars at the end of May 2020, the figure gradually decreases each year, reaching 11,018 million US dollars by May 2025. This reduction suggests a strategic effort toward lowering financial leverage or refinancing liabilities on possibly more favorable terms.

Shareholders’ equity

Shareholders' equity exhibits considerable growth from May 2020 through May 2022, increasing from 8,055 million to a peak of 15,281 million US dollars. However, post-2022, equity experiences a slight decline, settling at 13,213 million by May 2025. The initial increase may indicate retained earnings accumulation or capital infusions, while the subsequent decrease might reflect distributions such as dividends, share repurchases, or changes in retained earnings.

Invested capital

Invested capital shows a fluctuation pattern throughout the period observed. Starting at 19,083 million in May 2020, it rises to a high of 22,129 million by May 2024 before decreasing to 19,883 million in May 2025. This variability could be due to changes in operational asset base, capital expenditures, or working capital adjustments, indicating shifts in investment strategies or business cycles.

The economic spread ratio demonstrates significant fluctuation over the observed period. Initially negative in 2020, it experienced substantial improvement through 2022 before declining again in subsequent years. Economic profit mirrored this pattern, moving from a loss to positive values and then back towards a loss by 2025. Invested capital generally increased until 2024, followed by a decrease in the final year.

Economic Spread Ratio - Overall Trend

The economic spread ratio began at -4.04% in 2020, indicating that the company’s return on invested capital was less than its cost of capital. A strong positive trend followed, peaking at 8.94% in 2022, signifying a period where the company generated returns exceeding its cost of capital. This positive trend reversed, with the ratio decreasing to 6.31% in 2024 and ultimately falling to -3.72% in 2025, suggesting a return to a position where returns are insufficient to cover the cost of capital.

Economic Profit and Invested Capital Relationship

Economic profit and invested capital generally moved in tandem. As invested capital increased from 2020 to 2022, economic profit shifted from negative to positive and grew substantially. The slight decrease in invested capital in 2023 coincided with a decrease in economic profit. However, the more significant decrease in invested capital in 2025 occurred alongside a substantial decline in economic profit, resulting in a negative value. This suggests that changes in invested capital are correlated with changes in economic profit, but the relationship isn't perfectly linear, and other factors likely influence profitability.

Year-over-Year Changes

The largest year-over-year increase in the economic spread ratio occurred between 2020 and 2021, rising by 12.59 percentage points. The most substantial decrease was observed between 2022 and 2023, falling by 1.74 percentage points. The final year, 2025, experienced a significant decline of 9.03 percentage points, returning the ratio to negative territory. These fluctuations suggest considerable volatility in the company’s ability to generate returns above its cost of capital.

The observed trends indicate a period of improving financial performance followed by a recent downturn. Further investigation would be required to determine the underlying drivers of these changes, including shifts in revenue, costs, and capital allocation strategies.

The economic profit margin exhibited considerable fluctuation over the observed six-year period. Initially negative in 2020, it transitioned to positive values, peaking in 2021 and 2022 before declining again, ultimately returning to a negative value in 2025. This pattern suggests a sensitivity to underlying economic profit drivers and revenue performance.

Economic Profit Margin (2020-2025)

In 2020, the economic profit margin stood at -2.06%, indicating that the company’s economic profit was negative relative to its revenues. A substantial improvement occurred in 2021, with the margin rising to 4.03%, and a similar level was maintained in 2022 at 4.05%. This suggests a period of enhanced profitability and efficient capital allocation during those years.

However, the economic profit margin began to decrease in 2023, registering at 2.87%, and continued this downward trajectory in 2024, reaching 2.72%. The most significant shift occurred in 2025, where the margin fell to -1.60%, signifying a return to negative economic profit relative to revenue. This decline warrants further investigation into the factors impacting profitability and capital efficiency.

The economic profit margin’s movement closely mirrors the trend in economic profit itself. The positive correlation between the two metrics is evident, as increases in economic profit generally corresponded with increases in the margin, and vice versa. The substantial decline in economic profit in 2025 directly resulted in the negative economic profit margin observed for that year.

Relationship to Revenues

Revenues generally increased from 2020 to 2024, peaking at US$51,362 million. However, revenues decreased in 2025 to US$46,309 million. While revenue growth initially supported positive economic profit margins, the revenue decline in 2025, coupled with a significant decrease in economic profit, contributed to the negative margin.

The observed fluctuations highlight the importance of monitoring both economic profit and revenue trends to understand the company’s overall financial performance and capital efficiency. The return to a negative economic profit margin in 2025 suggests potential challenges in generating returns exceeding the cost of capital and warrants a detailed review of operational and financial strategies.