Broadcom Inc. (NASDAQ:AVGO)

Net Operating Profit After Taxes (NOPAT)

The NOPAT demonstrates a significant upward trend from 2019 through 2023, increasing from 3,003 million USD to a peak of 14,440 million USD in 2023. However, in 2024, there is a noticeable decline to 11,075 million USD, indicating a reversal after years of consistent growth.

Cost of Capital

The cost of capital steadily rises over the observed period, starting at 13.08% in 2019 and reaching 15.29% in 2024. This gradual increase reflects higher financing costs or risk expectations associated with the company’s investments.

Invested Capital

Invested capital shows a relatively stable pattern between 2019 and 2023, fluctuating moderately around 60,000 to 62,000 million USD. However, in 2024, invested capital surges substantially to 140,990 million USD, more than doubling compared to previous years. This sharp increase may indicate significant new investments or acquisitions.

Economic Profit

Economic profit is negative in the early years, indicating that the company was not covering its cost of capital during this period, with losses widening slightly from -4,852 million USD in 2019 to -5,540 million USD in 2020. Starting in 2021, economic profit shows an improvement, turning positive in 2022 with 3,940 million USD and further increasing to 4,885 million USD in 2023. However, despite the growth in prior years, economic profit sharply declines to -10,479 million USD in 2024, reflecting that the increased invested capital was not generating sufficient returns to cover the higher cost of capital.

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 Trend

The economic profit demonstrates significant fluctuations throughout the periods. Initially, it records substantial negative values, declining from -4852 million USD in 2019 to a deeper negative of -5540 million USD in 2020. Subsequently, there is an improvement, with economic profit moving closer to break-even and achieving positive figures in 2022 and 2023, reaching 3940 million and 4885 million USD respectively. However, in 2024, economic profit sharply reverts to a substantial negative value of -10479 million USD, indicating a major decline.

Invested Capital Trend

Invested capital shows a generally stable pattern between 2019 and 2023, fluctuating modestly between 60032 million USD and 62670 million USD. In 2024, there is a pronounced increase, with invested capital more than doubling to 140990 million USD. This substantial rise suggests a significant expansion in the asset base or capital employed by the company.

Economic Spread Ratio Trend

The economic spread ratio initially is negative and deteriorates from -8.08% in 2019 to -8.4% in 2020, signaling declining returns on invested capital. This ratio then improves substantially, turning positive in 2022 and further increasing to 7.8% in 2023, reflecting enhanced profitability relative to invested capital. Nonetheless, the ratio declines sharply once again in 2024 to -7.43%, indicating a reversal in financial performance and reduced efficiency.

Overall Insights

The data reveals a volatile financial performance characterized by a negative economic profit and spread ratio through the initial years, a recovery phase in 2022-2023 with positive profitability and returns, followed by deterioration in 2024 despite a significant rise in invested capital. The sharp increase in invested capital combined with the negative economic profit and economic spread in 2024 suggests challenges in effectively generating returns on the expanded capital base during that period.

Economic Profit

The economic profit shows significant fluctuations over the analyzed periods. Initially, there are substantial negative values of -4852 million US dollars in 2019 and -5540 million US dollars in 2020, indicating losses. In 2021, the loss decreases sharply to -1918 million US dollars, suggesting improvement. This trend reverses notably in 2022 and 2023, with positive economic profits of 3940 million and 4885 million US dollars respectively, reflecting robust profitability. However, in 2024, the economic profit drops dramatically to -10479 million US dollars, indicating considerable losses once again.

Net Revenue

Net revenue demonstrates a consistent upward trajectory throughout the periods, rising from 22597 million US dollars in 2019 to 51574 million US dollars in 2024. Notable growth is observed year-on-year, with the most significant jump occurring between 2023 and 2024, where net revenue increases by approximately 44%. This suggests strong sales expansion or increased pricing power over the years.

Economic Profit Margin

The economic profit margin mirrors the trend observed in economic profit values. It starts with negative margins of -21.47% in 2019 and slightly worsens to -23.19% in 2020, indicating inefficiency or losses relative to revenue. There is a marked improvement in 2021 when the margin improves to -6.99%, followed by a transition to positive margins of 11.87% in 2022 and 13.64% in 2023, signaling profitable operations. In 2024, the margin sharply declines to -20.32%, which is closely aligned with the sharp drop in economic profit, indicating operational or cost control challenges despite increased revenue.

Overall Insights

The data reveals a volatile profitability pattern amid steady revenue growth. The company experienced losses in the early years but achieved a phase of profitability in 2022 and 2023. However, the sudden decline in economic profit and margin in 2024, despite record-high revenues, suggests issues possibly related to increased costs, investment expenses, or other financial pressures affecting profitability. Close attention should be paid to cost management and operational efficiency to stabilize and improve economic profit in future periods.