Becton, Dickinson & Co. (NYSE:BDX)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not consistently reach levels sufficient to offset the cost of capital applied to the invested capital base.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a substantial increase from 2016 to 2017, more than doubling. However, it then decreased significantly in 2018 before recovering in 2019 and 2020. A marked increase is observed in 2021, reaching the highest value within the analyzed period. Despite this increase, NOPAT remains insufficient to generate a positive economic profit.

Cost of Capital

The cost of capital exhibits relative stability throughout the period, ranging between 10.53% and 11.30%. A slight upward trend is discernible, indicating a marginally increasing cost of funding over time. This incremental increase in cost contributes to the sustained negative economic profit.

Invested Capital

Invested capital shows a consistent upward trend from 2016 to 2018, nearly doubling over this timeframe. Following 2018, invested capital plateaus, with fluctuations remaining within a relatively narrow range between approximately US$45 billion and US$47 billion. The high level of invested capital, coupled with the cost of that capital, significantly impacts economic profit.

Economic Profit

Economic profit remains negative across all years examined. The magnitude of the negative economic profit is substantial, ranging from approximately US$1.7 billion to US$4.6 billion. While the negative economic profit decreases in 2021 compared to prior years, it remains a significant shortfall. The largest negative economic profit occurred in 2018, coinciding with the lowest NOPAT and highest invested capital.

In summary, the organization consistently destroys economic value as indicated by the persistent negative economic profit. While NOPAT shows some volatility and eventual improvement, it has not been sufficient to overcome the cost of the substantial invested capital base and the associated cost of capital. The trend suggests a need to either improve operational efficiency to increase NOPAT, optimize capital allocation to reduce invested capital, or both, to achieve positive economic profit.

Net Income

The net income figures exhibit considerable fluctuation over the reported periods. Starting at 976 million US dollars in 2016, it increased moderately to 1100 million in 2017. However, 2018 saw a sharp decline to 311 million, representing a significant downturn. This was followed by a strong recovery in 2019, where net income rose to 1233 million. A decline occurred again in 2020, as net income dropped to 874 million. The latest figure in 2021 indicates a substantial increase to 2092 million, marking the highest value in the dataset and demonstrating a notable overall upward trend despite earlier volatility.

Net Operating Profit After Taxes (NOPAT)

NOPAT trends are somewhat aligned with net income, but they reflect less volatility. It started at 717 million US dollars in 2016 and sharply increased to 1300 million in 2017, marking a significant improvement. In 2018, NOPAT declined to 570 million, though this drop was less severe in relative terms compared to the net income decline in the same year. Subsequently, NOPAT recovered to 1105 million in 2019 and saw a slight decrease to 991 million in 2020. The year 2021 shows a dramatic increase to 2155 million, the highest point in the period, underscoring strong operational profitability improvements.

Summary Insights

Both net income and NOPAT demonstrate cyclical patterns characterized by steep declines followed by significant recoveries. The year 2018 stands out as an outlier with notably lower profitability, suggesting possible operational or market challenges during that period. The firm’s overall financial performance shows strong resilience and upward momentum by 2021, indicating effective management of costs and revenue growth leading to enhanced profitability. The 2021 figures exceeding previous highs imply robust financial health and operational efficiency.

The financial data reveals significant fluctuations in the income tax provision (benefit) over the observed periods. Initially, the income tax provision shows a negative value in 2017 (-124 million USD), indicating a benefit rather than an expense. This contrasts with the positive provisions in 2016 (97 million USD) and the substantial increase to 862 million USD in 2018. The value dips again in 2019 to a negative figure (-57 million USD), signaling another tax benefit, followed by a recovery to positive values in 2020 and 2021, reaching 111 million USD and 150 million USD, respectively. This volatility suggests variability in taxable income or tax planning strategies affecting provisions for income taxes.

Cash operating taxes also exhibit variability but with somewhat less drastic changes. The cash tax payment starts at 748 million USD in 2016, sharply decreases to 109 million USD in 2017, then peaks dramatically at 1,285 million USD in 2018. After this peak, there is a decline to 711 million USD in 2019, followed by further decreases and stabilization around 508 million USD in 2020, and a slight increase to 537 million USD in 2021. This pattern may reflect changes in operational profitability, timing differences in tax payments, or varying tax obligations year over year.

Income Tax Provision (Benefit)

Displayed considerable volatility with alternating positive and negative values, suggesting fluctuations in reported taxable income or tax expense recognition.

Peak observed in 2018, with a significant tax expense recorded.

Negative values in 2017 and 2019 suggest periods where tax benefits or credits were recognized.

The latter years (2020 and 2021) show moderate positive provisions, indicating a potential stabilization.

Cash Operating Taxes

Experienced sharp variations, with the highest cash tax paid in 2018 aligning with the peak in income tax provision.

Following the 2018 peak, the cash tax outlay declined and stabilized at a lower level by 2020 and 2021.

This may suggest shifts in operational profitability, timing issues in tax payments, or changes in tax liabilities over these years.

The financial data presented reveals notable trends in the company's capital structure and financing over the six-year period ending September 30, 2021.

Total Reported Debt & Leases

This item shows a significant increase from 2016 to 2018, rising from $11,801 million to a peak of $21,951 million in 2018. Subsequently, there is a consistent downward trend from 2018 through 2021, decreasing to $18,080 million. This decline may suggest efforts to reduce leverage or refinance obligations with lower levels of debt.

Shareholders’ Equity

Shareholders’ equity exhibits strong growth throughout the period. Starting at $7,633 million in 2016, it more than doubles by 2018 to $20,994 million, then continues increasing steadily to nearly $23,677 million by 2021. This upward trajectory indicates sustained profitability or capital infusions supporting the equity base.

Invested Capital

Invested capital reflects the combined financing through debt and equity and follows a similar pattern as debt, increasing from $22,258 million in 2016 to a peak of $47,282 million in 2018. Afterward, invested capital experiences a moderate decline, ending at $45,278 million in 2021. This suggests that while the total capital invested in the business grew substantially initially, it has somewhat plateaued or been optimized in recent years.

Overall, the data indicates an initial period of expansion or increased financing up to 2018, followed by a phase of debt reduction and stability in total invested capital. The continuous growth in shareholders’ equity through this period highlights strengthening financial resilience and potential value creation for shareholders.

The economic spread ratio exhibited a generally declining trend over the observed period, though with some fluctuation. Initially negative, the ratio became more negative from 2016 to 2018 before showing some improvement in the subsequent years. Economic profit consistently remained negative throughout the period, while invested capital generally increased, contributing to the observed ratio behavior.

Economic Spread Ratio

The economic spread ratio began at -7.78% in 2016 and decreased to -9.67% in 2018, representing the most negative value within the observed timeframe. A slight improvement was noted in 2019, with the ratio moving to -8.72%, followed by a further decline to -9.09% in 2020. The ratio experienced a notable positive shift in 2021, increasing to -6.54%. This suggests a lessening of the gap between the return on invested capital and the cost of capital in the most recent year.

Economic Profit

Economic profit demonstrated a consistent negative value across all years. The magnitude of the loss increased from US$1,732 million in 2016 to US$4,571 million in 2018, mirroring the worsening economic spread ratio. While remaining negative, the absolute value of economic profit decreased in 2019 and 2021, to US$3,940 million and US$2,960 million respectively, aligning with the improvement observed in the economic spread ratio during those periods.

Invested Capital

Invested capital generally increased over the period, rising from US$22,258 million in 2016 to a peak of US$47,282 million in 2018. Following 2018, invested capital remained relatively stable, fluctuating between US$45,181 million and US$46,312 million before decreasing slightly to US$45,278 million in 2021. The increase in invested capital, coupled with consistently negative economic profit, likely contributed to the negative and, at times, worsening economic spread ratio.

The observed trends suggest that while the company has been increasing its invested capital, it has not generated sufficient returns to cover its cost of capital. The improvement in the economic spread ratio in 2021 indicates a potential positive shift, but continued monitoring is necessary to determine if this represents a sustained trend.

The economic profit margin exhibited a consistently negative trend over the observed period, though with some fluctuation. Initial values indicate substantial economic losses, which generally increased before showing signs of improvement in the most recent year. Revenues demonstrated an overall upward trajectory, contrasting with the persistent negative economic profit.

Economic Profit

Economic profit remained negative throughout the six-year period. The magnitude of the loss increased from US$1,732 million in 2016 to US$4,571 million in 2018, representing the largest recorded loss. A slight decrease in the loss was observed in 2019, followed by a further increase in 2020. The most recent year, 2021, showed a reduction in the economic loss to US$2,960 million, indicating a potential shift in performance.

Revenues

Revenues experienced a minor decrease between 2016 and 2017. However, from 2017 onwards, revenues consistently increased, reaching US$20,248 million in 2021. This growth in revenue did not translate into positive economic profit during the period.

Economic Profit Margin

The economic profit margin began at -13.87% in 2016 and deteriorated to -28.60% in 2018, coinciding with the peak in economic loss. The margin improved to -22.79% in 2019, but then worsened again to -24.58% in 2020. A notable improvement was observed in 2021, with the margin increasing to -14.62%, suggesting a potential increase in efficiency or a change in the cost of capital relative to earnings. Despite this improvement, the margin remained negative, indicating that the company’s returns were still below its cost of capital.

The divergence between revenue growth and consistently negative economic profit suggests that while the company is increasing sales, it is not effectively translating those sales into economic value. The improvement in the economic profit margin in 2021 warrants further investigation to determine the underlying drivers and whether this trend is sustainable.