Broadcom Inc. (NASDAQ:AVGO)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes shows a general upward trend from 2019 through 2023, increasing from 3,003 million US dollars to a peak of 14,440 million US dollars. However, in 2024, there is a notable decline to 11,075 million US dollars, indicating a reduction in operating profitability after taxes despite previous growth.

Cost of Capital

The cost of capital exhibits a gradual increase over the years, moving from 13.31% in 2019 to 15.56% in 2024. This consistent rise suggests increasing capital costs, which may impact the firm’s investment decisions and overall valuation.

Invested Capital

The invested capital remained relatively stable from 2019 to 2023, fluctuating slightly between approximately 60,000 million and 62,670 million US dollars. However, there is a significant jump in 2024 to 140,990 million US dollars, indicating a substantial increase in the capital invested in the business within that year.

Economic Profit

Economic profit was negative from 2019 through 2021, though the magnitude of the loss decreased, improving from -4,985 million to -2,076 million US dollars. The company achieved positive economic profit in 2022 and 2023, with values of 3,782 million and 4,714 million US dollars respectively, reflecting value creation above the cost of capital. However, 2024 shows a drastic reversal with an economic loss of -10,865 million US dollars, the largest in the observed period, signaling challenges in generating returns exceeding capital costs despite increased invested capital.

Overall Analysis

The financial data reveals a period of growth in profitability and economic profit from 2019 to 2023, accompanied by rising capital costs and relatively steady invested capital. The abrupt rise in invested capital in 2024, coupled with a decrease in net operating profit and a sharp decline into negative economic profit, indicates a significant deterioration in financial efficiency or returns on the substantial capital employed during that year. This outcome suggests potential issues in leveraging investments effectively or increasing capital costs overshadowing profit generation in the most recent period.

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 substantial fluctuations over the examined periods. Initially, the company experienced negative economic profit, reaching approximately -4985 million USD in the first period and deepening to -5689 million USD in the subsequent period. This negative trend improved notably by the fourth and fifth periods, with positive economic profits of 3782 million USD and 4714 million USD, respectively. However, in the latest period analyzed, economic profit dramatically declined to -10865 million USD, reflecting a significant reversal from the prior years' positive results.

Invested Capital

Invested capital showed a generally stable pattern between the first and fifth periods, fluctuating modestly between approximately 60000 million USD and 63000 million USD. A notable exception occurs in the final period, where invested capital more than doubled, escalating to 140990 million USD—an increase significantly higher than in prior years. This surge may indicate substantial new investments or acquisitions during this period.

Economic Spread Ratio

The economic spread ratio mirrored the trends in economic profit, beginning with negative spreads averaging around -8% in the initial periods. It improved considerably during the middle years, turning positive with rates near 6% and 7.5%, demonstrating enhanced profitability relative to capital costs. Nevertheless, in the final period, the ratio plummeted sharply back into negative territory at -7.71%, indicating a deteriorated return on invested capital compared to earlier positive outcomes.

Summary of Trends

The financial data indicates volatility in the company's economic profitability over the years, with clear periods of recovery followed by a substantial downturn in the most recent year. The large increase in invested capital in the last period, coupled with a steep decline in economic profit and spread ratio, suggests challenges in generating returns on this expanded capital base. This pattern may warrant further investigation into operational performance, investment effectiveness, or market conditions impacting profitability.

The analysis of the financial data over the six-year period reveals several notable trends and shifts in key performance indicators.

Net Revenue

There is a consistent upward trajectory in net revenue from 2019 through 2024. The net revenue increased from approximately $22.6 billion in 2019 to $51.6 billion in 2024. This reflects robust growth, with particularly sharp increases observed in the last two years of the period, signaling strong sales performance or expansion efforts.

Economic Profit

The economic profit metric demonstrates significant variability across the years. From 2019 to 2021, the company experienced negative economic profits, with losses deepening from about -$5.0 billion in 2019 to -$5.7 billion in 2020, before improving to around -$2.1 billion in 2021. In 2022 and 2023, there was a marked turnaround, with economic profits turning positive to $3.8 billion and $4.7 billion respectively. However, in 2024, there is a pronounced reversal, with economic profit plunging sharply to approximately -$10.9 billion, indicating a significant decline in value creation during that year.

Economic Profit Margin

The economic profit margin aligns closely with the trends in economic profit. Initially negative in 2019 and 2020 at -22.06% and -23.82%, the margin improved notably in 2021 to -7.56%, turning positive in 2022 and 2023 at 11.39% and 13.16% respectively. Despite these positive outcomes, the margin falls sharply again in 2024 to -21.07%, mirroring the large negative economic profit and pointing to a decline in the efficiency of profit generation relative to revenue.

Overall, while the company exhibited a strong growth in revenue over the analyzed period, the economic profit and its margin reveal significant volatility. The turnaround to positive economic profit and margin in 2022 and 2023 suggests that operational improvements or strategic initiatives were temporarily effective. Nonetheless, the steep negative reversal in 2024 highlights potential challenges such as increased costs, diminished returns on invested capital, or other adverse factors impacting shareholder value creation. This pattern warrants a closer examination of the underlying causes for the abrupt decline in economic profitability despite high revenue levels.