Synopsys Inc. (NASDAQ:SNPS)

Net Operating Profit After Taxes (NOPAT)

The NOPAT has generally shown an upward trend over the analyzed years, increasing significantly from 489,829 thousand US dollars in 2019 to a peak of 1,357,350 thousand US dollars in 2022. However, it experienced a notable decline in 2023 to 891,268 thousand US dollars before rising again to 1,062,721 thousand US dollars in 2024. This pattern suggests a period of substantial growth followed by fluctuations in profitability.

Cost of Capital

The cost of capital has remained relatively stable, with minor increases from 15.13% in 2019 to 15.56% in 2023 and a slight decrease to 15.55% in 2024. This stability indicates consistent investor expectations and financing costs during the period, with minimal volatility.

Invested Capital

Invested capital has shown a steady upward trajectory, rising from 5,864,612 thousand US dollars in 2019 to 10,307,049 thousand US dollars in 2024. The increase is particularly notable between 2023 and 2024, with an approximate 27.5% increase, suggesting significant capital deployment or acquisitions during this time frame.

Economic Profit

Economic profit has been predominantly negative across the years, reflecting that the returns on invested capital have not been sufficient to cover the cost of capital in most periods. Specifically, economic profit started at negative 397,258 thousand US dollars in 2019, improved to a positive 158,160 thousand US dollars in 2022, but then declined sharply in the subsequent years to negative 366,840 thousand US dollars in 2023 and further to negative 540,283 thousand US dollars in 2024. This volatility and predominance of negative economic profit indicate challenges in value creation relative to capital costs.

Summary

In summary, while the company demonstrated growth in operating profit and invested capital, the consistent high cost of capital and predominantly negative economic profits suggest that the returns generated have often fallen short of expectations set by capital costs. The positive economic profit recorded only in 2022 appears to be an isolated instance amid several years of value destruction, signaling a need for more effective capital management and operational efficiency to enhance shareholder value.

The financial data reveals notable trends in profitability measures over the six-year period ending October 31, 2024. Both net income attributable to the company and net operating profit after taxes (NOPAT) exhibit overall growth, albeit with differing patterns across the years.

Net Income Attributed to the Company

This metric demonstrates a consistent year-over-year increase from 2019 through 2024. Starting at approximately $532 million in 2019, net income rose steadily each year, reaching about $2.26 billion by 2024. This represents a more than fourfold increase over the six-year span, indicating substantial growth in bottom-line profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT generally maintains an upward trend but reflects more volatility compared to net income. Beginning at roughly $490 million in 2019, NOPAT nearly doubles by 2020 to $774 million, followed by a modest increase in 2021. In 2022, there is a significant jump to approximately $1.36 billion, likely reflecting improved operating efficiency or operational scale. However, in 2023, NOPAT decreases sharply to about $891 million before partially recovering to $1.06 billion in 2024. This fluctuation suggests changes in operating performance or tax impacts that merit further investigation.

Overall, net income growth appears robust and consistently positive, signaling strong profitability and potentially effective cost management or revenue expansion. Meanwhile, the variations in NOPAT highlight some potential operational challenges or one-time adjustments impacting operating earnings during the period, especially in the last two years.

Provision (Benefit) for Income Taxes

The provision for income taxes showed considerable volatility over the six-year period under review. Initially, there was a benefit recorded in 2020, reflected by a negative provision of approximately -25.3 million USD, following a provision of around 13.1 million USD in 2019. This was succeeded by a significant increase in the provision, reaching 49.2 million USD in 2021 and further rising sharply to 137.1 million USD in 2022. Subsequently, the provision decreased to 83.7 million USD in 2023 and showed a slight increase again to approximately 99.7 million USD in 2024. The fluctuations suggest varying tax strategies or changes in taxable income and tax rates over the years.

Cash Operating Taxes

Cash operating taxes exhibited a steady and substantial upward trend throughout the period. Starting from 96.8 million USD in 2019, there was a slight decline to 89.4 million USD in 2020, followed by a marked increase to 180.3 million USD in 2021. This upward trajectory continued with a slight reduction to 175.5 million USD in 2022, then a significant surge to 290.8 million USD in 2023, and further escalation to 473.0 million USD in 2024. The increasing cash outflows for operating taxes indicate higher taxable earnings or changes in tax payment policies, highlighting growing tax expenses in actual cash terms.

The financial data presents a multi-year view of key capital structure components, including total reported debt and leases, total stockholders' equity, and invested capital. The trends reflect notable developments in the company's financing and capitalization over the examined periods.

Total reported debt & leases

The total reported debt and leases exhibit a generally stable trend with minor fluctuations. Starting from approximately $760 million in 2019, the figure decreased to around $663 million in 2020 before slightly rising and then fluctuating marginally between $656 million and $688 million in subsequent years. By 2024, the debt level registers at about $684 million, indicating a relatively consistent leverage position without significant volatility or large changes in debt financing.

Total stockholders’ equity

The total stockholders’ equity demonstrates a strong upward trajectory across the years. Commencing at roughly $4.08 billion in 2019, equity increased steadily each year, reaching about $9 billion by 2024. This nearly doubles the equity base over the time frame, highlighting substantial growth in the company's net worth and potentially reflecting retained earnings, issuance of new equity, or appreciation in asset values. The consistent increase in equity suggests an improving financial foundation and possibly enhanced investor confidence.

Invested capital

Invested capital also follows an upward trend, beginning at approximately $5.86 billion in 2019 and increasing annually to surpass $10.3 billion by 2024. This indicates an expansion in the total capital employed in the business, combining equity and debt components. The growth in invested capital exceeds that of debt, aligning with the observed equity increases and suggesting that the company has been funding growth primarily through internal resources or equity financing rather than markedly increasing debt levels.

Overall, the company’s capital structure reveals disciplined management of debt with a stable leverage profile, alongside robust and steady growth in equity and invested capital. This pattern indicates a strengthening financial position supported by increased shareholder investment and a growing asset base.

The financial data indicates fluctuating economic profit figures over the analyzed periods. Initially, economic profit exhibits significant negative values, decreasing from approximately -397 million US dollars in 2019 to about -253 million in 2020, suggesting an improvement in operational efficiency or profitability. However, it slightly worsens again to around -276 million in 2021. In 2022, a notable positive shift occurs, with economic profit increasing to approximately 158 million US dollars, indicating a period of profitability and value creation. This positive trend, however, is not sustained, as economic profit declines dramatically in the following years, registering negative values of -367 million in 2023 and further declining to -540 million in 2024.

Invested capital demonstrates a consistent upward trajectory throughout the entire period analyzed. Beginning at approximately 5.86 billion US dollars in 2019, it steadily rises each year, reaching about 10.31 billion US dollars by 2024. This growth suggests ongoing or increased investments in assets or projects over time, indicating expansion or increased operational scale.

The economic spread ratio, which reflects the difference between return on invested capital and the cost of capital, mirrors the economic profit trends closely. It remains negative from 2019 through 2021, improving slightly from -6.77% in 2019 to -3.8% in 2020, but then worsening marginally to -3.98% in 2021. In 2022, the ratio turns positive at 2.04%, aligning with the positive economic profit observed during that year. However, this improvement is short-lived, as the spread ratio declines again to negative values of -4.54% in 2023 and further to -5.24% in 2024, indicating a return to situations where the company’s returns on invested capital are below its cost of capital.

Overall, the firm's economic performance exhibits volatility, with a notable but brief period of value creation in 2022 amid consistent capital investment growth. The recurring negative economic profit and spread in most years highlight challenges in generating returns exceeding the cost of capital, despite expanding invested capital bases.

Revenue Growth

The adjusted revenue demonstrates a consistent upward trend over the six-year period. Starting from approximately 3.39 billion US dollars in 2019, it increases each year, reaching over 6.15 billion US dollars by 2024. The rate of increase appears to accelerate notably between 2021 and 2022, with continued growth thereafter, indicating expanding sales or service volumes.

Economic Profit

The economic profit figures fluctuate significantly during the period. Initially, the company experiences negative economic profit in 2019 and 2020, with losses decreasing from roughly -397 million to about -253 million US dollars. However, in 2022, a positive economic profit of 158 million US dollars is recorded, representing an improvement in operational efficiency or profitability. This positive result is not sustained, as economic profit returns to negative values in 2023 and worsens further in 2024 to approximately -540 million US dollars. This pattern suggests challenges in maintaining profitability despite growing revenues.

Economic Profit Margin

The economic profit margin follows a trajectory that mirrors the economic profit values. It begins with a substantial negative margin near -11.7% in 2019, which improves to about -6.3% in 2021. In 2022, the margin turns positive to nearly 2.9%, reflecting the company's brief period of economic profit. However, the subsequent years show a reversion to negative margins, declining to nearly -8.8% by 2024. This volatility in profit margins highlights fluctuations in the cost structure or capital efficiency relative to revenue generation.

Summary Insight

Overall, while adjusted revenue exhibits robust and consistent growth, the economic profit and corresponding margin reveal challenges in translating this revenue expansion into sustainable profitability. The temporary recovery in 2022 suggests potential operational improvements or one-time factors that enhanced profitability, but these gains were not maintained in later years. Attention to cost control, capital allocation, or other profitability drivers may be necessary to achieve sustained positive economic profit despite increasing revenues.