Broadcom Inc. (NASDAQ:AVGO)

The period under review demonstrates significant fluctuations in economic profit. Initially, the company experienced economic losses, followed by a period of profitability, and then a return to economic loss before projecting a substantial increase in economic profit towards the end of the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a strong upward trend from 2020 to 2023, increasing from US$3,151 million to US$14,443 million. A decrease to US$11,082 million is observed in 2024, followed by a considerable increase to US$23,367 million in 2025. This suggests potential volatility in core operational profitability.

Cost of Capital

The cost of capital consistently increased throughout the period, rising from 15.66% in 2020 to 18.55% in 2025. This indicates a growing cost of funding for the company, potentially due to changing market conditions or increased risk perception.

Invested Capital

Invested capital decreased from US$65,949 million in 2020 to US$62,112 million in 2022, remaining relatively stable at US$62,674 million in 2023. A substantial increase is then noted in 2024 (US$141,001 million) and 2025 (US$150,047 million), suggesting significant capital deployment in those years.

Economic Profit

Economic profit was negative in 2020 and 2021, at -US$7,174 million and -US$3,657 million respectively. It turned positive in 2022 and 2023, reaching US$2,223 million and US$3,028 million. However, it became negative again in 2024 (-US$14,662 million) before a projected improvement to -US$4,472 million in 2025. The fluctuations in economic profit correlate with the changes in NOPAT, cost of capital, and invested capital, but the significant increase in invested capital in 2024 appears to be a primary driver of the substantial economic loss in that year, despite the increase in NOPAT in 2025.

The interplay between NOPAT, cost of capital, and invested capital significantly influences economic profit. While NOPAT generally increased over the period, the rising cost of capital and, particularly, the substantial increase in invested capital in 2024 and 2025, impacted the company’s ability to generate economic profit. The projected increase in NOPAT in 2025 partially offsets the impact of the higher invested capital, but economic profit remains negative.

Net Income

The net income exhibited a generally upward trend from 2020 through 2023, increasing from $2,960 million in 2020 to $14,082 million in 2023. However, there was a notable decline in 2024, where net income dropped substantially to $5,895 million. In 2025, net income rebounded markedly to $23,126 million, representing a strong recovery and the highest value in the observed period.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values also showed a consistent upward trajectory from 2020 to 2023, rising from $3,151 million to $14,443 million. In 2024, a decrease to $11,082 million was observed, indicating a dip in operating profitability after taxes during this period. By 2025, NOPAT surged significantly to $23,367 million, surpassing previous highs and highlighting improved operational efficiency or profitability.

Overall Trends and Insights

Both key profitability metrics, net income and NOPAT, followed a similar pattern over the six-year period. Initial years saw strong growth, followed by a dip in 2024, and a strong recovery in 2025. The temporary decline in 2024 may suggest the presence of extraordinary expenses, market challenges, or operational issues that impacted performance. The recovery in 2025 to new highs implies effective corrective measures, improved market conditions, or successful business strategies implemented to restore and enhance profitability.

Provision for (benefit from) income taxes

The provision for income taxes exhibited significant fluctuation over the analyzed periods. Initially, there was a notable tax benefit recorded, reflected by a negative value, indicating a tax gain of US$ 518 million. This shifted dramatically to a modest tax expense of US$ 29 million in the following year. Subsequently, the provision increased sharply, reaching US$ 939 million and further rising to US$ 1,015 million. A pronounced peak occurred in the year ending November 3, 2024, with a provision amounting to US$ 3,748 million. The latest period shows a reversal back to a tax benefit, with a negative provision of US$ 397 million. This volatility suggests a varying effective tax rate, possibly influenced by changes in pre-tax income, tax planning strategies, or one-time tax events.

Cash operating taxes

Cash operating taxes demonstrated a consistent upward trend across the reported periods. Starting from US$ 925 million, these taxes increased steadily each year, reaching US$ 1,402 million, then slightly declining to US$ 1,367 million before ascending again to US$ 1,745 million and then to US$ 2,534 million by the penultimate period. The most recent data point reveals a slight decrease to US$ 2,254 million. This trend indicates an overall growth in taxable income or changes in tax regulations leading to higher cash tax payments, despite some fluctuations.

Total Reported Debt & Leases

The total reported debt and leases showed a slight decline from 41,689 million USD in 2020 to 39,648 million USD in 2023, indicating a modest reduction in liabilities during these years. However, a significant increase occurred in 2024, with debt rising sharply to 68,916 million USD, followed by a small decrease to 66,461 million USD in 2025. This pattern suggests a substantial increase in leverage starting in 2024.

Stockholders’ Equity

Stockholders' equity experienced fluctuations over the analyzed period. It increased modestly from 23,874 million USD in 2020 to 24,962 million USD in 2021, then decreased to 22,709 million USD in 2022. By 2023, equity recovered slightly to 23,988 million USD. A pronounced surge occurred in 2024, with equity nearly tripling to 67,678 million USD, followed by a further increase to 81,292 million USD in 2025. This trend implies strong growth in the company’s net worth during the last two years.

Invested Capital

Invested capital declined gradually from 65,949 million USD in 2020 to 62,674 million USD in 2023, reflecting a conservative capital base during these years. However, in 2024, invested capital surged dramatically to 141,001 million USD and continued to increase in 2025 to 150,047 million USD. The sharp rise aligns with increases in both debt and equity, pointing to substantial capital deployment or asset acquisition within the recent period.

Overall Insights

The data indicates a relatively stable financial position from 2020 through 2023, with minor variations in debt and equity levels. Beginning in 2024, there is a marked expansion in the balance sheet components, characterized by significant increases in debt, equity, and invested capital. This shift may be indicative of strategic investments, acquisitions, or capital raising activities executed in the latest reported years. The simultaneous rise in both liabilities and equity suggests that the company has leveraged multiple sources of financing to support its growth or operational objectives.

The economic spread ratio exhibited considerable fluctuation over the observed period. Initially negative, the ratio improved to positive territory before declining again, indicating a shifting relationship between profitability and capital employed.

Economic Spread Ratio Trend

The economic spread ratio began at -10.88% on November 1, 2020, and improved significantly to -5.66% on October 31, 2021. This suggests a narrowing gap between the cost of capital and returns generated from invested capital. Further improvement was observed on October 30, 2022, reaching 3.58%, indicating that returns exceeded the cost of capital. The ratio continued to increase to 4.83% on October 29, 2023, representing the peak performance within the analyzed timeframe. However, a substantial decline occurred on November 3, 2024, with the ratio falling to -10.40%, followed by a partial recovery to -2.98% on November 2, 2025.

The economic spread ratio’s movement correlates with changes in economic profit. Periods of negative economic spread ratios align with negative economic profit, and vice versa. The most significant shift occurred between 2023 and 2024, where a positive economic spread ratio transitioned to a substantially negative one.

Invested Capital and Economic Spread Relationship

Invested capital generally increased throughout the period, with a notable surge between 2022 and 2024. While invested capital increased from US$62,674 million in 2023 to US$141,001 million in 2024, the economic spread ratio simultaneously experienced its largest decline. This suggests that the increase in invested capital did not translate into a proportional increase in returns, leading to the diminished ratio. The continued increase in invested capital to US$150,047 million in 2025 was accompanied by a partial recovery in the economic spread ratio, but it remained negative.

The fluctuations in the economic spread ratio suggest potential shifts in the company’s operational efficiency, investment strategies, or the cost of capital. The substantial decline in the ratio during 2024 warrants further investigation to determine the underlying causes and potential corrective actions.

The economic profit margin exhibited significant fluctuations over the observed period. Initially negative, it transitioned to positive values before declining again. A detailed examination of the trends reveals key insights into the company’s profitability from an economic value perspective.

Economic Profit Margin Trend

The economic profit margin began at -30.03% in 2020, indicating substantial economic losses relative to revenue. A marked improvement occurred in subsequent years, with the margin increasing to -13.32% in 2021 and further to 6.69% in 2022. This positive trend continued into 2023, reaching a peak of 8.45%. However, a substantial reversal is evident in 2024, with the margin plummeting to -28.43%. This negative trend persists into 2025, though at a less severe level of -7.00%.

Relationship to Net Revenue

The economic profit margin’s trajectory does not appear directly correlated with the consistent growth in net revenue. While net revenue increased steadily from $23,888 million in 2020 to $63,887 million in 2025, the economic profit margin did not follow a similar upward path. The significant decline in the margin in 2024, despite substantial revenue growth to $51,574 million, suggests that the cost of capital or operational expenses increased disproportionately to revenue gains.

Economic Profit Fluctuations

The absolute economic profit values mirror the margin trends. Negative economic profits were recorded in 2020 and 2021, transitioning to positive values in 2022 and 2023. The substantial negative economic profit of -$14,662 million in 2024 aligns with the sharp decline in the economic profit margin, indicating a significant shortfall in generating returns exceeding the cost of capital. The economic profit in 2025, while still negative, is considerably less severe than in 2024, at -$4,472 million.

The observed volatility in the economic profit margin warrants further investigation. The substantial decline in 2024, despite revenue growth, suggests potential issues with cost management, capital allocation, or changes in the company’s cost of capital. Continued monitoring of these trends is crucial for assessing the company’s long-term financial health and value creation.