Broadcom Inc. (NASDAQ:AVGO)

The data reveals several key financial trends over the six-year period from 2019 to 2024.

Net Operating Profit After Taxes (NOPAT)

There is a notable increase in NOPAT from 2019 through 2023, rising from approximately $3.0 billion to a peak of around $14.4 billion in 2023. This reflects a strong upward trajectory in operating profitability before a decline to approximately $11.1 billion in 2024, indicating some recent contraction in operating earnings.

Cost of Capital

The cost of capital steadily increased from 13.26% in 2019 to 15.5% in 2024. This consistent upward trend suggests a rising hurdle rate for investments, possibly due to changing market conditions or higher perceived risk. The increase is gradual but persistent, reflecting a more expensive capital environment over time.

Invested Capital

Invested capital remained relatively stable between 2019 and 2023, fluctuating narrowly between approximately $60 billion and $62.7 billion. However, in 2024, there is a dramatic increase to about $141 billion, more than doubling the previous levels. This significant jump represents a major capital deployment or acquisition late in the period, fundamentally changing the asset base.

Economic Profit

The economic profit metric displays considerable volatility across the years. From negative values in 2019 and 2020 (-$4.96 billion and -$5.66 billion, respectively), economic profit improved substantially, turning positive in 2022 and 2023 ($3.8 billion and $4.75 billion). Nevertheless, in 2024, economic profit sharply deteriorated to a negative $10.8 billion despite the high level of invested capital. This suggests that the recent large increase in invested capital did not generate commensurate returns exceeding the cost of capital, thereby eroding underlying economic value.

In summary, while the company experienced growth in operating profitability and successfully turned around economic profit during the middle years, the increasing cost of capital and the large recent investment significantly impacted economic profitability in the last reported year. The sharp rise in invested capital combined with a decline in economic profit indicates that recent investments have yet to produce sufficient returns relative to their cost, highlighting potential challenges in capital efficiency going forward.

The financial data reveals significant variability in the company's profitability over the analyzed periods.

Net Income

There is a general upward trend in net income from 2019 through 2023, increasing from 2,724 million US dollars to a peak of 14,082 million US dollars in 2023. However, in the most recent period ending November 3, 2024, net income has sharply declined to 5,895 million US dollars. This pattern suggests that while the company experienced strong growth in profitability over the four years, the latest year indicates a substantial reduction in net earnings.

Net Operating Profit After Taxes (NOPAT)

NOPAT follows a similar trajectory, rising steadily from 3,003 million US dollars in 2019 to a high of 14,440 million US dollars in 2023. The data for 2024 shows a decrease to 11,075 million US dollars. Although this represents a fall compared to the prior year, the operating profit after taxes remains at an elevated level relative to the initial years, indicating that the company maintains strong core profitability despite the recent decline.

Overall, the company demonstrated impressive growth in both net income and operating profit from 2019 through 2023, reaching substantial earnings highs in the 2023 period. The subsequent decrease in 2024, particularly notable in net income, may warrant further investigation to understand underlying causes such as market conditions, operational challenges, or one-time events affecting profitability. Regardless, the sustained high NOPAT level in 2024 compared to earlier years indicates ongoing operational strength.

Provision for (benefit from) income taxes

The provision for income taxes shows a significant upward trend over the reported periods. Initially, there were negative values indicating a tax benefit, with -$510 million in 2019 and -$518 million in 2020. Starting from 2021, the provision shifted to positive values, recording $29 million in 2021, followed by a substantial increase to $939 million in 2022. This upward trajectory continued with $1,015 million in 2023 and further surged to $3,748 million in 2024. This pattern suggests a major change in tax expense recognition or profitability leading to higher tax provisions in recent years.

Cash operating taxes

Cash operating taxes exhibit a consistent and pronounced increase throughout the periods reviewed. The amount rose from $534 million in 2019 to $925 million in 2020. This upward movement continued steadily to $1,402 million in 2021 and remained relatively stable at $1,367 million in 2022. More recently, the figure increased to $1,745 million in 2023 and further escalated significantly to $2,534 million in 2024. This trend reflects growing cash outflows for tax payments, possibly associated with higher taxable income or changes in tax regulations.

Total reported debt & leases

The total reported debt and leases showed an increasing trend from 33,447 million USD in 2019 to 41,689 million USD in 2020. It then slightly decreased over the next three years, reaching 39,648 million USD in 2023. However, in 2024, there was a significant jump to 68,916 million USD, nearly doubling compared to the previous year. This sharp increase suggests a substantial rise in borrowing or lease obligations in the most recent period.

Stockholders’ equity

Stockholders' equity fluctuated modestly between 24,941 million USD in 2019 and 23,874 million USD in 2020, followed by a recovery to 24,962 million USD in 2021. Thereafter, it declined again to a low of 22,709 million USD in 2022, before slightly increasing to 23,988 million USD in 2023. A notable increase occurred in 2024, with equity rising sharply to 67,678 million USD. This surge aligns with the pattern of increased invested capital and may indicate equity financing or revaluation effects during the period.

Invested capital

Invested capital displayed a steady increase from 60,032 million USD in 2019 to a peak of 65,921 million USD in 2020, followed by a minor decline to 62,670 million USD in 2023. A dramatic rise in invested capital was observed in 2024, reaching 140,990 million USD, more than doubling the prior year value. This significant growth suggests substantial investment activities or acquisitions, possibly funded by the increased debt and equity seen in the same period.

Overall analysis

The financial data reveals relative stability in debt, equity, and invested capital from 2019 through 2023, with moderate fluctuations. The year 2024, however, marked a considerable shift characterized by sharp increases in all three key metrics: debt, equity, and invested capital. The simultaneous escalation of these figures points to a major capital restructuring, expansion, or acquisition event during this period. Such changes warrant further investigation to understand the underlying drivers and implications for financial risk and company strategy.

The financial data reveals significant fluctuations in key performance indicators over the observed periods. The economic profit exhibits a volatile trend, starting with negative values, showing some improvement mid-cycle, turning positive for two consecutive years, and finally declining sharply into a substantial negative figure in the latest period. This pattern suggests that profitability relative to the invested capital experienced periods of recovery and decline.

The invested capital steadily increased from the initial period through most of the observed years, with a slight decrease in the latter half, but then experienced a notable surge in the most recent period. Such a marked increase in invested capital could imply significant new investments or acquisitions.

The economic spread ratio, which measures the difference between return on invested capital and cost of capital, closely mirrors the economic profit trend. It starts and remains negative in the early years before turning positive for two years, indicating improved efficiency and value creation during those times. However, this ratio falls back into negative territory in the latest period, indicating that the returns on invested capital did not cover the cost of capital, potentially contributing to the negative economic profit observed at that time.

Economic Profit Trends

Initial periods show losses, followed by a recovery phase with positive figures in 2022 and 2023, then a substantial decline in 2024.

Invested Capital Trends

Generally increasing with a peak in 2024, indicating expansion or new investments.

Economic Spread Ratio Trends

Negative early on, turning positive briefly, then reverting to negative, reflecting changes in operational efficiency and capital cost coverage.

Overall, the data suggests that despite substantial investments and intermittent positive returns, the latest financial year reflects challenges in value generation and profitability, which may warrant further investigation into operational efficiency and capital allocation strategies.

Net Revenue Trend

Net revenue demonstrated a consistent upward trend throughout the periods analyzed. The figure grew from $22,597 million in 2019 to $51,574 million by 2024, more than doubling over this six-year span. This steady increase suggests strong top-line growth, particularly significant between 2023 and 2024 where the revenue jumped sharply from $35,819 million to $51,574 million.

Economic Profit Movement

Economic profit exhibited considerable volatility over the years. Initially, the company recorded negative economic profit values, starting at -$4,955 million in 2019 and worsening to -$5,655 million in 2020. Improvement followed in 2021, reducing losses to -$2,040 million. In 2022 and 2023, economic profit turned positive, reaching $3,818 million and $4,753 million respectively. However, this positive momentum reversed sharply in 2024, with economic profit plummeting to -$10,777 million, the lowest point in the series.

Economic Profit Margin Pattern

The economic profit margin mirrored the economic profit’s volatility, reflecting initial negative margins of -21.93% in 2019 and further deterioration to -23.67% in 2020. A recovery trend appeared by 2021, with the margin improving to -7.43%, before turning positive in the subsequent two years—11.5% in 2022 and 13.27% in 2023. Nonetheless, this positive trend sharply reversed in 2024, dropping to -20.9%, indicating a significant decline in profitability relative to revenue in the most recent period.

Overall Insights

Despite consistent revenue growth across the analyzed years, profitability metrics, as reflected by economic profit and its margin, reveal significant fluctuations. The company managed to attain positive economic profits in 2022 and 2023, coinciding with improved margins, signaling a period of effective cost control or enhanced operational efficiency. However, the substantial economic loss and margin decline in 2024 suggest emerging challenges that may have adversely affected profitability, possibly due to increased costs, investments, or other financial pressures, despite the continued growth in net revenue.