Teradyne Inc. (NASDAQ:TER)

The financial data presents key performance indicators over a five-year period ending in 2023. The analysis centers on net operating profit after taxes (NOPAT), cost of capital, invested capital, and economic profit to evaluate the company’s operational efficiency and value creation.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a marked upward trend from 2019 through 2021, increasing from approximately 499 million USD to just over 1 billion USD. However, a notable decline occurs in 2022, where NOPAT falls to around 659 million USD, continuing to drop significantly in 2023 to about 314 million USD. This suggests a deterioration in operational profitability during the final two years.

Cost of Capital

The cost of capital steadily increases throughout the period, rising from 19.03% in 2019 to 20.55% in 2023. This upward trend indicates an increasing hurdle rate for the company, which could pressure profit requirements and economic value generation.

Invested Capital

Invested capital grows consistently from 2019 to 2022, rising from approximately 1.85 billion USD to about 2.59 billion USD, suggesting ongoing investments in assets or operational capacity. However, 2023 sees a decrease to approximately 2.42 billion USD, indicating possible divestitures or asset reductions.

Economic Profit

Economic profit mirrors the trend observed with NOPAT. The company shows a strong increase in economic profit from 148 million USD in 2019 to a peak of over 521 million USD in 2021. Following this peak, economic profit sharply declines to around 132 million USD in 2022 and turns negative in 2023 with a loss of approximately 182 million USD. This reversal implies the company’s returns have fallen below its cost of capital, signifying value destruction in the most recent year.

Overall, the data reflect a period of growth in profitability and capital investment through 2021, followed by a downturn marked by deteriorating profits and economic losses in the subsequent two years. The increasing cost of capital further exacerbates this challenge by elevating the required return threshold. The contraction in invested capital in the final year may be a response to these operational and financial pressures.

Net Income

Net income demonstrated a strong upward trend from 2019 through 2021, rising from approximately 467 million US dollars in 2019 to over 1 billion US dollars in 2021. However, this pattern reversed in the subsequent two years, with net income declining to about 715 million in 2022 and further decreasing to approximately 449 million in 2023.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a similar trajectory, increasing notably from around 499 million US dollars in 2019 to approximately 1.03 billion US dollars in 2021. After this peak, NOPAT experienced a significant decrease to roughly 659 million in 2022 and almost halved to 314 million in 2023.

Overall Trend Analysis

Both net income and NOPAT showed strong growth over the first three years before entering a period of marked contraction in the last two years. The declines in 2022 and 2023 suggest a reduced profitability from operations and overall earnings, potentially indicating operational challenges or external factors adversely affecting financial performance during this period.

Provision for Income Taxes

The provision for income taxes exhibited an overall increasing trend from 2019 through 2021, rising from 58,304 thousand US dollars in 2019 to a peak of 146,366 thousand US dollars in 2021. This increase suggests higher taxable income or possibly less favorable tax conditions during this period. However, from 2021 onward, there was a decline in the provision, falling to 124,884 thousand US dollars in 2022 and further to 76,820 thousand US dollars in 2023, indicating a reduction in income tax expense or changes in tax strategy or rates.

Cash Operating Taxes

Cash operating taxes also followed a rising trajectory from 2019 to 2021, with amounts increasing from 66,842 thousand US dollars in 2019 to 166,173 thousand US dollars in 2021. This upward movement corresponded with the trend seen in the provision for income taxes, reflecting potentially higher tax payments aligned with reported taxable earnings. After 2021, cash operating taxes remained relatively stable in 2022, slightly decreasing to 165,914 thousand US dollars, before a more pronounced reduction to 108,845 thousand US dollars in 2023.

Comparative Insights

Both the provision for income taxes and cash operating taxes indicate growth during 2019–2021, peaking in 2021, followed by notable declines in the subsequent years. The gap between provision and cash taxes narrows slightly by 2023, implying a convergence between estimated tax liabilities and actual cash outflows. The trends suggest possible fluctuations in taxable income levels, tax planning measures, or regulatory environments affecting the company’s tax expenses and payments during the observed timeframe.

Total Reported Debt & Leases

The total reported debt and leases demonstrate a significant downward trend throughout the analyzed period. Beginning at $460,012 thousand as of December 31, 2019, the amount slightly increased to $472,757 thousand in 2020, then sharply decreased to $184,581 thousand in 2021. This declining trajectory continued in subsequent years, reaching $132,885 thousand in 2022 and further reducing to $82,614 thousand by the end of 2023. This pattern indicates a strategic reduction in leverage over time, suggesting efforts to lower financial risk or improve debt management.

Shareholders’ Equity

Shareholders’ equity shows an overall increasing trend with slight fluctuations. Starting at $1,480,158 thousand in 2019, it substantially grew to $2,207,018 thousand in 2020, followed by a continued rise to $2,562,444 thousand in 2021. However, in 2022, equity slightly decreased to $2,451,294 thousand before recovering to $2,525,897 thousand in 2023. This overall growth points towards retained earnings accumulation or capital infusions, enhancing the company's net worth and financial stability.

Invested Capital

Invested capital displays a gradual increase in the earlier years, moving from $1,845,838 thousand in 2019 to $2,183,213 thousand in 2020, and then to $2,564,053 thousand in 2021. After peaking in 2022 at $2,587,403 thousand, it slightly contracted to $2,415,179 thousand in 2023. The steady increase through most of the periods indicates ongoing investments in operational assets and business growth, while the recent decline may reflect asset disposals, depreciation effects, or a strategic contraction.

Economic Profit

The economic profit showed a significant increase from 2019 through 2021, rising from approximately 148 million USD to over 521 million USD. However, in 2022 there was a sharp decline to around 132 million USD, followed by a negative economic profit of approximately -182 million USD in 2023. This indicates a recent deterioration in profitability after a period of strong growth.

Invested Capital

The invested capital exhibited a general upward trend from 2019 to 2022, increasing from near 1.85 billion USD to approximately 2.59 billion USD. In 2023, there was a slight reduction to roughly 2.42 billion USD, suggesting a modest divestment or asset reduction during that year.

Economic Spread Ratio

This ratio, which represents the return on invested capital above the cost of capital, mirrored the pattern seen in economic profit. It increased substantially from 8.02% in 2019 to a peak of over 20% in 2021. Afterward, it declined markedly to 5.08% in 2022 and turned negative to -7.55% in 2023. This reversal indicates that the company’s returns have fallen below its cost of capital in the most recent year, raising concerns about the creation of shareholder value.

Overall Insights

The data shows that the company experienced robust financial performance and capital growth from 2019 to 2021. However, there has been a pronounced decline in economic profit and return effectiveness since 2022, leading to a negative economic profit and economic spread in 2023. The slight decrease in invested capital in 2023 may be associated with efforts to mitigate these declines, but the negative trends suggest challenges in sustaining profitable capital deployment in the recent period.

The analysis of the financial data over the five-year period reveals notable fluctuations in key performance metrics. The adjusted revenues show an initial upward trend from 2019 to 2021, increasing from approximately 2.34 billion US dollars to nearly 3.71 billion US dollars. However, this growth trajectory reverses beginning in 2022, with revenues declining to about 3.15 billion US dollars and further decreasing to roughly 2.62 billion US dollars by the end of 2023.

Economic profit follows a similar pattern, with a significant rise from 148 million US dollars in 2019 to a peak of over 521 million US dollars in 2021. After this peak, economic profit declines sharply in the subsequent years, dropping to around 132 million US dollars in 2022 and turning negative by 2023, reaching a loss of approximately 182 million US dollars.

Consistent with the trends in economic profit and revenues, the economic profit margin also exhibits significant variability. The margin more than doubles from 6.34% in 2019 to 14.05% in 2021, indicating improved profitability relative to revenue. However, it sharply decreases to 4.18% in 2022 and further to a negative margin of -6.96% in 2023, reflecting operating inefficiencies or increased costs exceeding revenue growth.

Revenue Trends

Growing steadily until 2021, followed by two consecutive years of notable decline.

Economic Profit Trends

Strong increase peaking in 2021, thereafter a steep decline resulting in losses by the end of 2023.

Economic Profit Margin Trends

Substantial improvement through 2021 with margins more than doubling, then sharply deteriorating to a negative margin by 2023.

Overall, the data suggest a period of robust growth and profitability through 2021, succeeded by challenges that substantially impacted financial performance in 2022 and 2023. The negative economic profit and margin in the latest year indicate that the company encountered significant adverse conditions, possibly including increased costs, reduced demand, or other operational difficulties leading to diminished profitability.