Walgreens Boots Alliance Inc. (NASDAQ:WBA)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes showed a significant increase from 2014 to 2015, rising from $3,086 million to $5,501 million. This was followed by a slight decline in 2016 to $4,855 million. However, the figure recovered moderately over the next two years, reaching $5,934 million in 2018 before experiencing a minor decrease to $5,719 million in 2019. Overall, NOPAT demonstrated positive growth with some fluctuations during the period.

Cost of Capital

The cost of capital exhibited a relatively stable trend, staying within a narrow range from 9.77% in 2014 to 9.84% in 2017 with a mild peak at 10.18% in 2015. In 2018 and 2019, the cost of capital decreased steadily, reaching 8.77% in 2019. This decline may indicate improved cost efficiency or favorable financial market conditions in the later years.

Invested Capital

Invested capital grew considerably from $55,001 million in 2014 to a peak of $85,356 million in 2016. This was followed by a reduction to $76,485 million in 2017 and slight fluctuations around $76,000 to $77,429 million in the subsequent two years. The initial sharp increase indicates an expansion or acquisition phase, whereas the following decrease and stabilization suggest a period of consolidation or capital restructuring.

Economic Profit

Economic profit was consistently negative throughout the observed period, indicating that the company did not generate returns above its cost of capital. The negative economic profit deepened from -$2,288 million in 2014 to a low point of -$3,583 million in 2016. From 2017 onward, economic losses diminished progressively, improving to -$1,071 million in 2019. This trend suggests an improvement in value creation though the company remained economically unprofitable relative to its capital costs.

Summary

Overall, the company showed growth in operating profit with some volatility, while the cost of capital declined slightly towards the end of the period. Invested capital expanded significantly before retracting and stabilizing. Despite improvements in profitability and reduced negative economic profit, the company consistently failed to generate economic profit, indicating challenges in exceeding its capital costs during these years.

Net earnings attributable to Walgreens Boots Alliance, Inc.

The net earnings exhibit volatility over the six-year period. Starting at 1,932 million USD in 2014, there is a significant increase to 4,220 million USD in 2015. This level is mostly sustained through 2016 and 2017, with values of 4,173 and 4,078 million USD respectively. In 2018, net earnings peak at 5,024 million USD, marking the highest point in the period analyzed. However, a decline occurs in 2019, where earnings fall to 3,982 million USD, indicating a downward shift after the 2018 peak.

Net operating profit after taxes (NOPAT)

The NOPAT shows an overall upward trend with some fluctuations. Beginning at 3,086 million USD in 2014, it rises sharply to 5,501 million USD in 2015. After this peak, it dips to 4,855 million USD in 2016, before increasing again in 2017 and 2018 to 5,246 and 5,934 million USD respectively. The highest NOPAT value is recorded in 2018. In 2019, NOPAT slightly decreases to 5,719 million USD but remains close to the peak level, indicating relatively stable operating profitability in recent years compared to net earnings.

Income Tax Provision

The income tax provision exhibited a general downward trend from 2014 to 2019. Beginning at $1,526 million in 2014, the figure decreased steadily through subsequent years, reaching $588 million in 2019. Notably, the most significant decline occurred between 2017 and 2019.

Cash Operating Taxes

Cash operating taxes remained relatively stable between 2014 and 2018, fluctuating within a narrow range from $1,667 million to $1,856 million. However, in 2019, there was a sharp decrease to $831 million, which represents a substantial reduction compared to the previous years.

Overall Observations

Both income tax provision and cash operating taxes showed significant declines by 2019 compared to earlier periods. While income tax provision steadily decreased over the years, cash operating taxes were stable for several years before dropping markedly in the last year observed. These trends may reflect changes in tax policies, operational adjustments, or shifts in taxable income and cash tax payments.

The financial data reveals several notable trends concerning the company's capital structure and invested capital over the six-year period ending in 2019.

Total reported debt & leases

This figure shows an overall increasing trend from 31,909 million USD in 2014 to 43,464 million USD in 2019, with a peak at 46,508 million USD in 2016. After reaching this peak, there is a decline in 2017 to 39,129 million USD, followed by a gradual increase again through 2018 and 2019. This pattern suggests a significant increase in leveraging activities up to 2016, some deleveraging or repayment in 2017, and subsequent additional borrowings or lease liabilities through 2019.

Total shareholders’ equity

Shareholders' equity exhibits a declining trend over the period. Starting at 20,457 million USD in 2014, the equity rose sharply to 30,861 million USD in 2015 but then continuously decreased each year thereafter to 23,512 million USD by 2019. This reduction over time indicates a depletion of equity capital, which could be attributed to factors such as sustained net losses, dividend distributions exceeding net income, share repurchases, or other equity-reducing activities.

Invested capital

The invested capital closely aligns with the combined effect of debt and equity, representing the total capital used in operations. It increased substantially from 55,001 million USD in 2014 to a peak of 85,356 million USD in 2016. Following this peak, invested capital decreased to 76,485 million USD in 2017 and remained relatively stable, with a slight increase, reaching 77,429 million USD by 2019. This behavior suggests expansion or acquisition activity up to 2016, followed by a period of consolidation or capital optimization in subsequent years.

In summary, the company experienced considerable growth in debt financing and invested capital until 2016, accompanied by an initial rise and then a steady decline in shareholders' equity. The data implies a strategic shift post-2016, characterized by deleveraging and stabilization of invested capital, while equity erosion continued, highlighting potential risks related to capital structure and financial sustainability.

Economic Profit

The economic profit shows a persistent negative value throughout the periods analyzed, indicating that the company has consistently operated below the threshold of value creation. There is a noticeable decline in the magnitude of the negative economic profit from -2,288 million US dollars in 2014, deepening to -3,583 million in 2016. However, from 2017 onwards, the negative economic profit narrows steadily, reaching -1,071 million by 2019. This suggests an improvement in generating value, though economic profit remained negative.

Invested Capital

Invested capital experienced significant growth from 55,001 million US dollars in 2014 to a peak of 85,356 million US dollars in 2016. Subsequently, the invested capital decreased somewhat, stabilizing around the mid-76,000 million US dollar range during 2017 to 2019. This initial increase followed by stabilization may reflect periods of capital expenditure or acquisition followed by consolidation.

Economic Spread Ratio

The economic spread ratio, representing the difference between return on invested capital and cost of capital, consistently remains negative, ranging from -4.16% in 2014 to -1.38% in 2019. Similar to the pattern observed in economic profit, the economic spread ratio shows an improving trend, becoming less negative over time. This indicates that although the company has not reached positive economic spreads, the efficiency in generating returns relative to costs has improved steadily over the years.

Overall Insights

The data reveals a company struggling to achieve positive economic returns during the entire period but demonstrating clear improvement in its financial performance from 2017 onwards. Both economic profit and economic spread ratios move towards less negative values, reflecting better management of invested capital and potentially enhanced operational efficiency. The stabilization of invested capital after a period of growth could also suggest a strategic shift towards optimizing existing resources rather than further expansion.

Sales Trend

Sales exhibited a consistent upward trajectory over the analyzed period. Starting from approximately $76.4 billion in 2014, sales increased each year to reach about $136.9 billion by 2019. This reflects a strong growth pattern with nearly an 80% increase in sales over six years, indicating expansion and increased market presence.

Economic Profit and Margin Trends

Despite growing sales, economic profit figures remained negative throughout the entire period, indicating losses when considering the cost of capital. Economic profit worsened from -$2.3 billion in 2014 to a low of nearly -$3.6 billion in 2016. However, from 2016 onwards, economic profit steadily improved, reaching about -$1.1 billion in 2019, though still negative.

Similarly, the economic profit margin mirrored this pattern. It started at -3.0% in 2014, declined further to approximately -3.05% in 2016, then progressively improved to -0.78% by 2019. This suggests that while the company did not achieve positive economic profit margin during the period, it managed to reduce losses relative to its sales, indicating better profitability management over time.

Overall Financial Performance Interpretation

The data reveals that although the company achieved significant sales growth, it struggled to convert this growth into positive economic profit. The improvement in economic profit and its margin post-2016 signals that the company may have implemented strategies to control costs or improve operational efficiency. Nevertheless, the persistent negative economic profit margin also points to ongoing challenges in generating returns above its cost of capital.