Advanced Micro Devices Inc. (NASDAQ:AMD)

The financial data reveals notable fluctuations in key performance indicators over the five-year period. Net operating profit after taxes (NOPAT) exhibited a significant increase from 1,330 million US dollars in 2020 to a peak of 3,517 million US dollars in 2021. However, this positive trend reversed sharply in subsequent years, with NOPAT turning negative at -138 million in 2022 and further declining to -201 million in 2023 before showing a slight recovery to 621 million in 2024.

Invested capital expanded substantially, rising from 4,364 million US dollars in 2020 to over 58,000 million US dollars in the later years. This dramatic increase indicates considerable growth in the asset base or investment in operations.

Despite the growth in invested capital, the cost of capital remained relatively stable, hovering around 21.5% throughout the period. This consistent rate suggests a stable required return on investment or financing costs.

The economic profit metric, which reflects value creation beyond the cost of capital, followed a pattern similar to that of NOPAT but with more pronounced negative outcomes in the later years. While economic profit started positively at 387 million in 2020 and surged to 2,175 million in 2021, it subsequently plunged into deep negative territory, with losses exceeding 12,600 million in both 2022 and 2023 and remaining substantially negative at approximately 11,900 million in 2024.

The divergence between increasing invested capital and the steep decline in economic profit suggests that the additional capital invested did not generate sufficient returns to cover the cost of capital during the latter period. This may indicate operational challenges, inefficiencies, or adverse market conditions impacting profitability and value creation.

Summary of Trends

- NOPAT experienced a peak in 2021, followed by a significant downturn and partial recovery in 2024.

- Invested capital increased dramatically over the period, showing considerable expansion in asset base or investments.

- Cost of capital remained consistently high but stable, around 21.5%.

- Economic profit moved from positive to severely negative values, indicating value destruction in recent years despite greater investment.

- The data highlights a period of robust profitability followed by operational or market difficulties that impaired returns on invested capital.

The financial data reveals fluctuating profitability and operational efficiency over the five-year period under review.

Net Income

Net income experienced growth from 2020 to 2021, increasing from 2,490 million US dollars to 3,162 million US dollars. However, it sharply declined in 2022 to 1,320 million US dollars, and further decreased in 2023 to 854 million US dollars. In 2024, there was a recovery with net income rising to 1,641 million US dollars, though it remained below the peak values seen in 2020 and 2021.

Net Operating Profit After Taxes (NOPAT)

NOPAT displayed a volatile pattern during the same period. It increased significantly from 1,330 million US dollars in 2020 to 3,517 million US dollars in 2021, indicating strong operational performance. However, in 2022 and 2023, NOPAT turned negative, with losses of 138 million US dollars and 201 million US dollars respectively, suggesting operational inefficiencies or extraordinary expenses. In 2024, NOPAT returned to a positive figure of 621 million US dollars, though this value remained substantially lower than the earlier years.

Overall, the data indicates that while the company demonstrated solid profitability growth through 2021, it subsequently faced challenges in maintaining operational profitability, as seen in the negative NOPAT values for two consecutive years. The partial recovery in 2024 suggests improvements but does not yet reflect a full return to previous performance levels. The divergence between net income and NOPAT in the recent years may warrant further examination to understand underlying causes such as non-operating items or tax impacts.

Income Tax Provision (Benefit)

The income tax provision exhibited considerable volatility over the reported periods. It began with a significant tax benefit of -$1,210 million in 2020, indicating a tax gain or credit. This shifted to a tax expense of $513 million in 2021. Subsequently, the tax provision returned to a benefit state in 2022 and 2023, with figures of -$122 million and -$346 million respectively, before moving back to a tax expense of $381 million in 2024. These fluctuations suggest variability in taxable income or changes in tax strategies and regulations, impacting the company’s tax obligations year over year.

Cash Operating Taxes

The cash operating taxes demonstrated an overall upward trend during the period under review. Starting from a relatively low base of $24 million in 2020, the amount escalated to $214 million in 2021. This increase continued sharply to $1,392 million in 2022, followed by a decline to $658 million in 2023. However, in the final period, cash taxes rose again to $1,531 million in 2024, marking the highest value recorded in the series. This pattern indicates increased cash tax payments despite the oscillation in reported tax provisions, which could reflect timing differences between accounting tax expense and actual tax payments or changes in the company’s taxable income and cash flows.

Total reported debt & leases

The total reported debt and leases experienced a moderate increase from 572 million USD in 2020 to 732 million USD in 2021. However, there was a significant surge in 2022, reaching 2956 million USD, more than quadrupling the previous year's amount. Following this peak, the debt slightly increased to 3109 million USD in 2023 before declining to 2321 million USD in 2024. Overall, despite fluctuations, the values remain substantially elevated relative to the initial years, indicating increased financial leverage or obligations.

Stockholders’ equity

Stockholders' equity showed steady growth from 5837 million USD in 2020 to 7497 million USD in 2021. A substantial rise occurred in 2022, jumping dramatically to 54750 million USD, with continued growth in subsequent years reaching 55892 million USD in 2023 and 57568 million USD in 2024. This marked increase in equity suggests either significant retained earnings, capital infusions, or revaluation adjustments with an emphasis on strengthening the company's financial foundation over time.

Invested capital

Invested capital followed a similar trend to stockholders' equity, beginning at 4364 million USD in 2020 and increasing to 6195 million USD in 2021. A notable surge occurred in 2022, reaching 58525 million USD, which was maintained with a slight decrease to 57883 million USD in 2023 and a minor uptick to 58227 million USD in 2024. The fluctuations suggest strategic capital allocation or acquisitions that contributed to a substantial increase in the total capital invested in the business.

The financial data reveals significant fluctuations in key performance indicators over the analyzed periods.

Economic Profit

There is a notable increase in economic profit from 387 million USD in 2020 to a peak of 2,175 million USD in 2021. However, a sharp decline follows, with economic profit turning negative starting in 2022, amounting to a loss of approximately 12,627 million USD. This negative trend persists through 2023 and 2024, with losses slightly decreasing but remaining high at about 11,914 million USD in 2024.

Invested Capital

The invested capital shows substantial growth from 4,364 million USD in 2020 to a peak of 61,925 million USD in 2022. After this peak, the invested capital slightly decreases but remains relatively stable around 57,883 million USD in 2023 and 58,227 million USD in 2024. This indicates a large increase in capital deployment over the period with minor fluctuations in later years.

Economic Spread Ratio

The economic spread ratio, which measures the difference between return on invested capital and cost of capital, follows a similar trajectory to economic profit. The ratio increases from 8.86% in 2020 to a high of 35.11% in 2021, indicating strong value creation during that period. However, from 2022 onward, the ratio plunges to negative territory, recording -21.58% and maintaining a persistently negative level of around -20% through 2023 and 2024. This negative spread reflects that the company was generating returns below its cost of capital.

Overall, the data shows an initial period of growth and value creation up to 2021, followed by a drastic reversal characterized by heavy economic losses and negative returns relative to cost of capital from 2022 onwards. The large increase in invested capital during this time frame does not correspond with profitable outcomes, suggesting challenges in deploying capital efficiently or adverse changes in the business environment impacting profitability.

The financial data indicates notable fluctuations in the company's economic profit and revenue over the analyzed period. Net revenue shows a generally increasing trend from 2020 through 2024, rising from $9,763 million in 2020 to $25,785 million in 2024. This reflects significant growth in the company's top-line performance.

Despite the upward trajectory in net revenue, the economic profit exhibits a different pattern. Initially, economic profit increased sharply from $387 million in 2020 to $2,175 million in 2021, indicating improved operational efficiency or profitability. However, from 2022 onward, the economic profit turned negative and remained substantially below zero, with losses exceeding $11 billion each year from 2022 to 2024. This drastic decline suggests a substantial increase in costs, investments, or adjustments affecting economic profit adversely during these years.

Similarly, the economic profit margin follows the trend of economic profit, peaking at 13.24% in 2021 but then plummeting to negative values beyond -46% through 2022 to 2024. This sharp deterioration in economic profit margin contrasts with the steady revenue growth, indicating that despite higher revenues, the company's profitability relative to revenue has significantly weakened.

In summary, while revenue growth has been robust and consistent, the company experienced a severe downturn in economic profitability starting in 2022. This divergence points to underlying challenges in cost management, investment returns, or other factors that have negatively impacted economic profit and its margin over recent years.