Broadcom Inc. (NASDAQ:AVGO)

The period under review demonstrates a fluctuating pattern in economic profit. Initially negative, economic profit transitioned to positive values before declining again, ultimately ending with a negative result. This analysis details the observed trends in net operating profit after taxes, cost of capital, invested capital, and their combined effect on economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited substantial growth from 2020 to 2023, increasing from US$3,151 million to US$14,443 million. A decrease to US$11,082 million was observed in 2024, followed by a significant rebound to US$23,367 million in 2025. This indicates a volatile, but ultimately positive, trajectory in operational profitability.

Cost of Capital

The cost of capital consistently increased throughout the period, rising from 13.66% in 2020 to 16.09% in 2025. This steady increase suggests a growing risk profile or changing market conditions impacting the company’s funding costs.

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 was then noted in 2024, reaching US$141,001 million, and continued to rise to US$150,047 million in 2025. This suggests significant capital deployment in the later years of the period.

Economic Profit

Economic profit was negative in 2020 and 2021, at -US$5,858 million and -US$2,266 million respectively. It became positive in 2022 and 2023, reaching US$3,617 million and US$4,539 million. However, economic profit turned negative again in 2024, with a substantial loss of -US$11,259 million, and remained negative, though less pronounced, at -US$775 million in 2025. The fluctuations in economic profit correlate with the combined effects of NOPAT, cost of capital, and invested capital. The significant decline in 2024 appears to be driven by the large increase in invested capital coupled with a moderate decrease in NOPAT, despite the rising cost of capital.

In summary, while operational profitability demonstrated overall growth, the increasing cost of capital and substantial capital investments in the later periods negatively impacted economic profit. The company generated economic value in 2022 and 2023, but failed to do so in 2020, 2021, 2024, and 2025.

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, it transitioned to positive values before reverting to negative territory. This analysis details the observed trends in economic spread ratio, economic profit, and invested capital.

Economic Spread Ratio

The economic spread ratio began at -8.88% in 2020 and improved significantly to -3.50% in 2021, indicating a lessening of underperformance relative to the cost of capital. A substantial positive shift occurred in 2022, with the ratio reaching 5.82%, suggesting the company generated returns exceeding its cost of capital. This positive trend continued into 2023, with the ratio peaking at 7.24%. However, a sharp decline was observed in 2024, resulting in a ratio of -7.99%, and a slight improvement to -0.52% in 2025, though remaining negative.

Economic Profit

Economic profit mirrored the trend of the economic spread ratio. Negative economic profit was recorded in 2020 (-$5,858 million) and 2021 (-$2,266 million). A positive economic profit of $3,617 million was achieved in 2022, increasing to $4,539 million in 2023. A significant decrease in economic profit was then observed in 2024 (-$11,259 million), followed by a partial recovery to -$775 million in 2025.

Invested Capital

Invested capital generally decreased from $65,949 million in 2020 to $62,112 million in 2022. A slight increase to $62,674 million occurred in 2023. However, a substantial increase was observed in 2024, reaching $141,001 million, and continued to rise to $150,047 million in 2025. The increase in invested capital in the later years does not appear to correlate directly with the decline in economic profit and economic spread ratio, suggesting other factors may be influencing profitability.

The divergence between the increasing invested capital and the declining economic spread ratio in 2024 and 2025 warrants further investigation. While invested capital grew considerably, the ability to generate returns exceeding the cost of capital diminished, resulting in negative economic profit in 2024 and a near-negative economic spread ratio in 2025. This suggests potential inefficiencies in capital allocation or a decline in operational performance.

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 performance.

Economic Profit Margin Trend

The economic profit margin began at -24.52% in 2020, indicating that the company’s economic profit was substantially negative relative to its net revenue. This negative margin improved considerably to -8.25% in 2021, suggesting a reduction in the gap between economic profit and revenue.

A positive inflection point was reached in 2022, with the economic profit margin rising to 10.89%. This indicates the company generated economic profit exceeding its cost of capital. Further improvement was observed in 2023, with the margin reaching 12.67%, representing the peak performance within the analyzed timeframe.

However, the economic profit margin experienced a sharp decline in 2024, falling to -21.83%. This substantial decrease suggests a significant deterioration in economic profitability relative to revenue. The margin remained negative in 2025, albeit less pronounced at -1.21%, indicating some recovery but still falling short of generating positive economic profit.

The economic profit margin’s trajectory mirrors the fluctuations in economic profit itself. The initial negative economic profit values in 2020 and 2021 corresponded to negative margins. The positive economic profit reported in 2022 and 2023 aligned with positive margins. The substantial negative economic profit in 2024 directly resulted in the significant decline in the economic profit margin. The partial recovery in economic profit in 2025 is reflected in the reduced, though still negative, margin.

Net Revenue Correlation

Net revenue consistently increased throughout the period, rising from US$23,888 million in 2020 to US$63,887 million in 2025. Despite this consistent revenue growth, the economic profit margin did not consistently improve. The decline in margin in 2024, despite increased revenue, suggests that the cost of capital and/or operational costs grew at a faster rate than revenue, eroding economic profitability.

In summary, while the company demonstrated an ability to generate economic profit for a period, the recent trend indicates a weakening of economic profitability relative to revenue. Further investigation into the factors driving the cost of capital and operational expenses is warranted to understand the reasons behind the margin’s decline in 2024 and its limited recovery in 2025.