Broadcom Inc. (NASDAQ:AVGO)

Net Operating Profit After Taxes (NOPAT)

The NOPAT exhibited a generally increasing trend from 2019 to 2023, rising from 3003 million USD in 2019 to a peak of 14440 million USD in 2023. However, there was a notable decline in 2024, with NOPAT decreasing to 11075 million USD. This indicates strong operational profitability growth through most of the period followed by a significant downturn in the latest year.

Cost of Capital

The cost of capital showed a steady upward trend over the six-year period. Starting at 13.27% in 2019, it gradually increased each year to reach 15.51% by 2024. This consistent rise suggests a growing expense associated with acquiring capital, which could impact investment decisions and valuation.

Invested Capital

Invested capital remained relatively stable between 2019 and 2023, fluctuating within a narrow range around 60,000 to 65,000 million USD. In 2024, however, there was a substantial increase to 140,990 million USD, more than doubling the previous years' figures. This sharp rise likely reflects significant new investments or acquisitions.

Economic Profit

Economic profit was negative in four out of six years, with the deepest deficits observed in 2019 (-4963 million USD), 2020 (-5664 million USD), and 2024 (-10799 million USD). The company turned positive in 2022 and 2023 with economic profits of 3809 million USD and 4743 million USD, respectively, indicating periods of value creation. However, the return to a large negative economic profit in 2024 signals a deterioration in value generation relative to the cost of capital, possibly due to increased invested capital and higher cost of capital.

Summary of Trends and Insights

The company demonstrated strong operational performance growth up until 2023, supported by rising NOPAT and positive economic profits in the later years of the period. Nevertheless, escalating cost of capital and a dramatic increase in invested capital in 2024 coincide with a sharp decline in both NOPAT and economic profit that year. This suggests challenges in generating sufficient returns on the increased capital employed under a higher capital cost environment. The negative economic profit in the latest period implies that the company may need to reassess its investment strategy or improve operational efficiency to enhance value creation 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.

Economic Profit

The economic profit exhibited significant volatility over the observed periods. Initially, it was negative at -4963 million USD and further declined to -5664 million USD the following year. In the subsequent years, a remarkable recovery occurred, turning positive to 3809 million USD and increasing slightly to 4743 million USD. However, the latest period shows a drastic reversal, with economic profit plunging to a substantial negative value of -10799 million USD, indicating a significant decline in value creation.

Invested Capital

Invested capital showed moderate fluctuations between 2019 and 2023, ranging from approximately 60,032 million USD to 62,670 million USD, reflecting relatively stable asset base management. Notably, there was a pronounced increase in the final period to 140,990 million USD, more than doubling the invested capital from earlier years. This surge suggests substantial capital deployment, possibly due to acquisitions, investments, or asset expansions.

Economic Spread Ratio

The economic spread ratio mirrors the trend in economic profit, initially negative and worsening from -8.27% to -8.59%. It then improved significantly, turning positive at 6.13% and rising to 7.57%, indicating effective utilization of invested capital during that period. However, the ratio sharply decreased to -7.66% in the latest period, reflecting a negative return on invested capital relative to the cost of capital, consistent with the decline observed in economic profit.

The analysis of the annual financial data reveals notable fluctuations in both economic profit and revenue over the observed periods.

Net Revenue

Net revenue shows a consistent upward trend throughout the years. It increased from approximately 22.6 billion US dollars in 2019 to over 51.5 billion US dollars in the latest period of 2024. This steady growth indicates successful revenue generation and market expansion efforts.

Economic Profit

Economic profit exhibits significant volatility. From a negative value of roughly -4.96 billion US dollars in 2019, the economic loss deepened in 2020 to about -5.66 billion US dollars. However, a sharp improvement occurred in 2022 and 2023 when economic profit turned positive, reaching 3.8 billion and then 4.7 billion US dollars respectively. The most recent data point for 2024, however, shows a substantial reversal, with economic profit plunging to an approximate loss of -10.8 billion US dollars.

Economic Profit Margin

The economic profit margin mirrors the fluctuations observed in economic profit. Initially negative around -22% in 2019, it worsened to almost -24% in 2020. A recovery trend followed, with the margin becoming positive in 2022 and 2023, peaking at roughly 13.2%. The 2024 period then shows a stark decline back into negative territory, near -21%, reflecting the considerable economic loss recorded.

Overall, while net revenue has strengthened markedly over the years, economic profit and its margin have demonstrated considerable variability. The periods of positive economic profitability in 2022 and 2023 suggest improved operational efficiency or favorable conditions, yet the sharp downturn in 2024 indicates challenges that heavily impacted profitability despite high revenue. This divergence between revenue growth and economic profit underscores the importance of cost management and strategic investment decisions to sustain long-term profitability.