Synopsys Inc. (NASDAQ:SNPS)

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows a generally increasing trend from 2019 through 2024, with a notable peak in 2022 at approximately $1.36 billion. After reaching this high point, there is a decline in 2023 to around $891 million, followed by a rebound in 2024 to about $1.06 billion. This indicates some volatility in profitability, with a strong recovery in the most recent year.

Cost of Capital

The cost of capital remains relatively stable over the analyzed period, hovering around 15%. There is a slight upward movement from 14.94% in 2019 to a peak of 15.37% in 2023, and a marginal decrease to 15.36% in 2024. The stability suggests consistent capital costs despite market or company-specific changes.

Invested Capital

Invested capital steadily increased throughout the entire period, rising from approximately $5.86 billion in 2019 to over $10.3 billion by 2024. The most significant jump occurs between 2023 and 2024, indicating substantial additional investments or asset accumulation in the most recent year.

Economic Profit

Economic profit displays notable fluctuations and remains negative for the majority of the years. Starting from a negative $386 million in 2019, it improves somewhat to a less negative $240 million in 2020, before declining again in 2021. There is a positive economic profit recorded in 2022 at $173 million, signaling a period of value creation. However, this improvement is short-lived, with economic profit turning negative again in 2023 and worsening in 2024 to a deficit of over $520 million. This pattern suggests challenges in consistently generating returns above the cost of capital.

Overall Insights

The overall financial performance exhibits a mixed dynamic: while profitability (NOPAT) and invested capital have steadily grown, economic profit has struggled, indicating that the company is often not generating returns that exceed its capital costs. The peak in economic profit in 2022 stands out as an isolated instance of value creation, followed by a decline that raises concerns about sustainable financial performance. The stability of the cost of capital implies that these profitability challenges are more likely related to operational efficiency or investment decisions rather than changes in financing costs.

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.

Economic Profit

The economic profit displayed significant volatility over the analysis period. Initially, there was a substantial negative economic profit of -386,314 thousand USD in 2019, which improved to -240,121 thousand USD in 2020. However, this improvement was not sustained as economic profit again declined to -262,980 thousand USD in 2021. A noteworthy reversal occurred in 2022 when economic profit turned positive to 172,935 thousand USD, indicating a period of value creation. This positive performance was short-lived as economic profit sharply deteriorated to -351,333 thousand USD in 2023 and further declined to -520,530 thousand USD in 2024. Overall, the company faced considerable challenges in maintaining consistent economic profitability.

Invested Capital

The invested capital showed a consistent upward trend throughout the period. It increased steadily from 5,864,612 thousand USD in 2019 to 6,656,460 thousand USD in 2020, then to 6,945,230 thousand USD in 2021. The growth accelerated from 2022 onwards, rising to 7,739,574 thousand USD, then to 8,083,758 thousand USD in 2023, and reaching 10,307,049 thousand USD in 2024. This continual increase suggests ongoing investments or asset accumulation, indicating a possible expansion or scale-up strategy.

Economic Spread Ratio

The economic spread ratio reflected a pattern closely aligned with economic profit movements, initially exhibiting negative values indicative of returns below the cost of capital. It improved from -6.59% in 2019 to -3.61% in 2020 but worsened slightly to -3.79% in 2021. In 2022, the ratio transitioned to a positive 2.23%, marking a period where returns exceeded capital costs, which corresponds to the positive economic profit observed in the same year. However, this was followed by a return to negative figures of -4.35% in 2023 and -5.05% in 2024, reflecting decreasing efficiency in generating returns over invested capital in recent periods.

Adjusted Revenue

The adjusted revenue exhibits a consistent upward trend over the six-year period. Starting at approximately 3.39 billion USD in 2019, it increased each year, reaching about 6.15 billion USD in 2024, almost doubling its initial amount. The growth appears steady and accelerates notably between 2021 and 2022.

Economic Profit

The economic profit data presents volatility across the years. Initially, the economic profit was negative at around -386 million USD in 2019 and improved notably in 2020 and 2021 though remaining negative. An exceptional positive economic profit occurred in 2022, amounting to approximately 173 million USD. However, this improvement was short-lived as economic profit turned negative again in 2023 and further declined substantially in 2024 to about -521 million USD, the lowest in the observed period.

Economic Profit Margin

The economic profit margin follows a pattern similar to economic profit. Starting from a negative value of -11.38% in 2019, it improved significantly to around -6.2% in 2020 and remained stable near -6% in 2021. It then turned positive to 3.15% in 2022, coinciding with the positive economic profit of the same year. Subsequently, the margin declined again to negative figures in 2023 and 2024, reaching -8.46% in 2024.

Overall Analysis

Despite the consistent growth in adjusted revenue, the economic profit and economic profit margin exhibit a cyclical pattern with significant fluctuations. The positive economic profit and margin in 2022 suggest a brief period of operational efficiency or favorable conditions, which was not sustained in the subsequent years. The return to negative economic profit and margin levels in 2023 and 2024 indicates underlying challenges in translating revenue growth into sustained economic profitability.