NXP Semiconductors N.V. (NASDAQ:NXPI)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited considerable volatility, while the cost of capital remained relatively stable. Invested capital experienced a general decreasing trend, though with some stabilization in the most recent year. Consequently, economic profit consistently remained negative throughout the analyzed timeframe.

NOPAT Trend

NOPAT increased substantially from 2017 to 2018, reaching US$2,196 million. However, a dramatic decline followed in 2019, falling to US$303 million, and continued to a low of US$40 million in 2020. A significant recovery was observed in 2021, with NOPAT rising to US$2,126 million, approaching the 2018 level.

Cost of Capital

The cost of capital fluctuated between 17.98% and 19.27% over the period. It began at 19.19% in 2017, decreased to 17.98% in 2018, increased to 18.34% in 2019, peaked at 19.27% in 2020, and then decreased slightly to 18.54% in 2021. These changes were relatively modest compared to the swings in NOPAT.

Invested Capital

Invested capital decreased from US$20,519 million in 2017 to US$16,335 million in 2020. The rate of decline slowed in 2021, with invested capital increasing to US$16,745 million. This suggests a potential stabilization of capital deployment.

Economic Profit

Economic profit was negative in each year of the period. The largest negative economic profit occurred in 2020, at US$-3,108 million, coinciding with the lowest NOPAT. The least negative economic profit was recorded in 2021, at US$-978 million, reflecting the substantial increase in NOPAT. The negative values indicate that the company’s returns on invested capital were consistently below its cost of capital.

The substantial volatility in NOPAT appears to be the primary driver of the fluctuations in economic profit. While invested capital decreased over the period, the impact of this decrease on economic profit was secondary to the changes in operating profitability. The recovery in NOPAT during 2021 resulted in a notable, though still negative, improvement in economic profit.

The financial data reveals notable fluctuations in both net income attributable to stockholders and net operating profit after taxes (NOPAT) over the five-year period.

Net Income Attributable to Stockholders

From 2017 to 2018, net income remained relatively stable, showing a slight decline from 2215 million US dollars to 2208 million US dollars. In 2019, a significant drop occurred, with net income decreasing sharply to 243 million US dollars. This downward trend continued into 2020, reaching a low of 52 million US dollars. However, in 2021, there was a strong recovery, with net income rising substantially to 1871 million US dollars, approaching earlier peak levels.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed a somewhat parallel trend to net income. It increased from 1630 million US dollars in 2017 to 2196 million US dollars in 2018. In 2019, NOPAT declined considerably to 303 million US dollars and further dropped to 40 million US dollars in 2020, highlighting a period of operational challenges. A notable rebound occurred in 2021, with NOPAT climbing to 2126 million US dollars, indicating significant operational improvement.

Overall, the data indicates a period of stability in the initial years, followed by a marked deterioration in financial performance in 2019 and 2020. The pronounced recovery in 2021 for both net income and NOPAT suggests a recovery phase, possibly driven by operational enhancements or favorable market conditions. The volatility observed could be indicative of external disruptions or internal restructuring efforts during the observed timeframe.

The financial data for income tax expense (benefit) and cash operating taxes over the five-year period reveals notable fluctuations and trends.

Income Tax Expense (Benefit)

The income tax expense (benefit) displays significant variability. Starting with a benefit of $483 million in 2017, the company experienced a positive tax expense of $176 million in 2018, followed by a smaller expense of $20 million in 2019. In 2020, the tax expense reverted to a benefit of $83 million, before increasing sharply to an expense of $272 million in 2021. This volatility indicates fluctuations in taxable income or changes in tax strategies and could reflect variations in profitability or one-time tax adjustments across the years.

Cash Operating Taxes

Cash operating taxes show a relatively stable trend from 2017 to 2021, with values ranging from $275 million to $445 million. There was an increase from $386 million in 2017 to a peak of $445 million in 2018, followed by a decline to $275 million in 2019. The tax paid then rose again to $355 million in 2020 and $384 million in 2021. This pattern suggests that while the accounting income tax expense experienced fluctuations, the actual cash taxes paid remained consistently substantial, with some variability potentially influenced by operational results or tax payment timing.

Total reported debt & leases

There is a noticeable upward trend in total reported debt and leases from 2017 to 2021. The figure increased steadily from $6,683 million in 2017 to $7,846 million in 2020, followed by a significant jump to $10,809 million in 2021. This represents a substantial rise in the company's leverage, particularly in the last reported year.

Stockholders’ equity

Stockholders’ equity shows a consistent decline over the five-year period. Starting at $13,527 million in 2017, equity decreased each year, reaching $6,528 million in 2021. This reduction suggests a diminishing net asset base, possibly impacted by accumulated losses, dividends, or repurchases, which may be cause for deeper examination into retained earnings and other equity changes.

Invested capital

Invested capital decreased from $20,519 million in 2017 to $16,335 million in 2020, indicating a reduction in the company’s total funds invested in operations. However, 2021 saw a slight increase to $16,745 million, which could reflect either asset acquisition or other forms of reinvestment. Despite the modest recovery, the overall trend indicates contraction in invested capital over the period analyzed.

The period under review demonstrates a volatile performance in economic profit, coupled with a generally decreasing trend in invested capital, and a consistently negative economic spread ratio. The economic spread ratio, in particular, exhibits significant fluctuations, indicating inconsistent value creation relative to the capital employed.

Economic Profit

Economic profit begins at negative US$2,307 million in 2017, improves to negative US$1,042 million in 2018, then deteriorates significantly to negative US$2,805 million in 2019 and further to negative US$3,108 million in 2020. A notable improvement is observed in 2021, with economic profit reaching negative US$978 million. This suggests periods of substantial underperformance followed by a partial recovery in the most recent year.

Invested Capital

Invested capital shows a consistent downward trend from US$20,519 million in 2017 to US$16,335 million in 2020. A slight increase is noted in 2021, reaching US$16,745 million, but remains below the level observed in earlier years. This decrease in invested capital could be due to asset sales, reduced capital expenditures, or changes in working capital management.

Economic Spread Ratio

The economic spread ratio is consistently negative throughout the period, indicating that the company’s return on invested capital is less than its cost of capital. The ratio fluctuates considerably, starting at -11.25% in 2017, improving to -5.79% in 2018, then worsening to -16.55% in 2019 and -19.02% in 2020. A substantial improvement is seen in 2021, with the ratio reaching -5.84%, approaching the 2018 level. The magnitude of the negative spread suggests a significant shortfall in value creation, although the 2021 result indicates a potential stabilization or improvement in this area.

The interplay between these three metrics suggests that while the company has attempted to optimize its capital base, it has consistently struggled to generate returns exceeding its cost of capital. The improvement in 2021, reflected in both economic profit and the economic spread ratio, warrants further investigation to determine the underlying drivers and assess the sustainability of this positive trend.

The economic profit margin exhibited significant fluctuation between 2017 and 2021. Initially negative, the margin worsened considerably over the period before showing improvement in the most recent year. A review of the underlying figures reveals a complex relationship between economic profit and revenue.

Economic Profit Margin

The economic profit margin began at -24.93% in 2017. This indicates that, in that year, the company’s economic profit was approximately 24.93% lower than its revenue. The margin improved to -11.07% in 2018, suggesting a reduction in the disparity between economic profit and revenue. However, a substantial decline was observed in 2019, with the margin reaching -31.60%. This deterioration continued into 2020, hitting a low of -36.08%. A notable positive shift occurred in 2021, as the economic profit margin improved to -8.84%, representing the highest value over the analyzed period.

Economic Profit

Economic profit itself was consistently negative throughout the five-year period. The largest negative economic profit occurred in 2020, at -3,108 US$ millions. While economic profit remained negative in 2021, it was significantly lower in absolute value at -978 US$ millions, aligning with the improvement in the economic profit margin.

Revenue

Revenue demonstrated a generally upward trend, although not consistently. It increased from 9,256 US$ millions in 2017 to 9,407 US$ millions in 2018, before decreasing to 8,877 US$ millions in 2019 and further to 8,612 US$ millions in 2020. A substantial increase was then recorded in 2021, with revenue reaching 11,063 US$ millions. The improvement in the economic profit margin in 2021 coincides with this significant revenue growth, suggesting that increased sales contributed to a lessening of the negative economic profit.

The observed pattern suggests that while revenue growth is occurring, the cost of capital or other factors impacting economic profit are also significant. The substantial improvement in the economic profit margin in 2021, despite continued negative economic profit, indicates that revenue growth is having a positive, though incomplete, effect on economic performance.