Bristol-Myers Squibb Co. (NYSE:BMY)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) experienced considerable volatility, beginning with a substantial loss in 2020, followed by recovery and subsequent decline. Invested capital consistently decreased throughout the period, while the cost of capital remained relatively stable with a slight upward trend initially, then leveling off.

NOPAT Trend

NOPAT began at a loss of US$6,822 million in 2020, improved dramatically to a profit of US$6,656 million in 2021, then decreased to US$4,571 million in 2022 and US$5,869 million in 2023. A significant loss of US$9,292 million was recorded in 2024, representing a substantial downturn.

Cost of Capital Trend

The cost of capital increased from 8.03% in 2020 to 8.92% in 2022, indicating a rising cost of funding. It then decreased slightly to 8.33% in 2023 and remained at 8.36% in 2024, suggesting stabilization in funding costs.

Invested Capital Trend

Invested capital exhibited a consistent downward trend, decreasing from US$90,149 million in 2020 to US$62,654 million in 2024. This suggests a reduction in the company’s asset base over the period.

Economic Profit Trend

Economic profit mirrored the volatility of NOPAT. A substantial loss of US$14,064 million was recorded in 2020. This improved to a loss of only US$121 million in 2021, followed by a larger loss of US$1,826 million in 2022. A modest profit of US$240 million was achieved in 2023, but this was followed by a significant loss of US$14,528 million in 2024. The fluctuations indicate a sensitivity to changes in NOPAT and, to a lesser extent, the cost of capital.

The substantial decline in economic profit in 2020 and 2024, coupled with the decreasing invested capital, warrants further investigation. While the cost of capital remained relatively stable, the significant swings in NOPAT appear to be the primary driver of the observed economic profit performance. The positive economic profit in 2023 was short-lived, highlighting the challenges in sustaining profitability.

Net Earnings (Loss) Attributable to BMS

The net earnings exhibit significant volatility over the five-year period. In 2020, the company experienced a substantial loss of approximately $9.015 billion. This was followed by a strong recovery in 2021, with net earnings turning positive at around $6.994 billion. The positive trend continued through 2022 and 2023, with earnings of $6.327 billion and $8.025 billion, respectively, indicating operational improvements and profitability restoration. However, in 2024, the net earnings again declined sharply to a loss of about $8.948 billion, suggesting potential one-time charges, operational challenges, or market conditions adversely affecting profitability.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values reflect a similar pattern of volatility as net earnings. In 2020, the company reported a significant negative NOPAT of approximately $6.822 billion. The following year showed a substantial positive turnaround with NOPAT reaching $6.656 billion. Despite this improvement, the subsequent years showed a decline in NOPAT, falling to $4.571 billion in 2022 and recovering slightly to $5.869 billion in 2023. In 2024, there was a notable decline to a negative $9.292 billion, aligning with the net earnings loss. This suggests that operational efficiency and tax impacts fluctuated considerably, with a sharp deterioration in 2024 likely driven by operational issues or exceptional expenses.

Overall Trend and Insights

Both net earnings and NOPAT demonstrate a pronounced cyclical pattern, with strong losses in 2020 followed by recovery in the subsequent years up to 2023, and then a substantial reversal back to losses in 2024. This pattern indicates that while the company was able to restore profitability after a difficult 2020, it encountered renewed challenges in 2024. The divergence between earnings and operating profit in some years suggests that non-operating factors, such as extraordinary items or tax effects, may have influenced net profitability. The data points to the necessity for a deeper review of underlying causes behind the 2024 downturn, including potential one-time charges, market dynamics, or changes in operational efficiency.

Income Tax Provision

The income tax provision shows a fluctuating trend over the five-year period. Starting at 2,124 million US dollars in 2020, it declined significantly to 1,084 million in 2021, followed by a moderate increase to 1,368 million in 2022. In the subsequent years, the provision dropped sharply to 400 million in 2023 but experienced a slight rebound to 554 million in 2024. This pattern suggests variability in taxable income or changes in tax strategy or regulations impacting the provision calculation.

Cash Operating Taxes

Cash operating taxes display a different trajectory compared to income tax provisions, indicating potential timing differences or other tax-related factors. The amount nearly doubled from 1,445 million in 2020 to 2,764 million in 2021, followed by a further substantial increase to 4,376 million in 2022. However, in 2023, cash operating taxes declined to 3,947 million and continued to drop to 3,068 million in 2024. Despite the reductions in recent years, cash tax payments remain significantly higher than in 2020. This trend may reflect changes in cash flow management, tax payment scheduling, or adjustments related to tax liabilities and credits.

Overall Insights

The divergence between income tax provision and cash operating taxes is notable. While income tax provisions generally decreased over the period with some volatility, cash operating taxes rose sharply before declining in the last two years but still remained elevated relative to 2020. These contrasting patterns could indicate differences in accounting recognition of tax expenses versus actual cash outflows. The fluctuations in both indicators highlight the importance of analyzing tax-related cash impacts separately from accounting provisions to fully understand the company's tax position and its effect on liquidity and profitability.

Total reported debt & leases

There is a noticeable reduction in total reported debt and leases from 2020 to 2022, falling from approximately $51.7 billion to about $40.7 billion. However, the debt level stabilizes around $41.5 billion in 2023 before increasing significantly to $51.2 billion in 2024, approaching the 2020 debt level once again.

Total BMS shareholders’ equity

The shareholders’ equity shows a consistent declining trend over the five-year period. Starting at around $37.8 billion in 2020, it decreases gradually each year, falling to roughly $16.3 billion in 2024. This decline is particularly pronounced between 2023 and 2024, where equity drops by nearly 45%, indicating potential challenges impacting the company’s net worth.

Invested capital

Invested capital follows a downward trend over the period, beginning at approximately $90.1 billion in 2020 and decreasing steadily every year to around $62.7 billion in 2024. The continuous reduction suggests contraction in the company's asset base or potential divestitures and may relate to the simultaneously falling equity and fluctuating debt levels.

The economic spread ratio exhibited significant fluctuations between 2020 and 2024. Initially negative, the ratio demonstrated improvement before declining sharply again. Invested capital consistently decreased over the five-year period, while economic profit experienced substantial volatility.

Economic Spread Ratio

In 2020, the economic spread ratio was -15.60%, indicating a substantial shortfall in returns relative to the cost of capital. A marked improvement occurred in 2021, with the ratio increasing to -0.15%, suggesting a narrowing of the gap between returns and capital costs. This positive trend continued into 2022, reaching -2.55%, though remaining negative. The ratio turned positive in 2023, reaching 0.35%, signifying that returns exceeded the cost of capital for the first time in the observed period. However, this improvement was short-lived, as the ratio plummeted to -23.19% in 2024, representing the largest negative spread observed throughout the period.

Economic Profit

Economic profit demonstrated considerable volatility. A substantial loss of US$14,064 million was recorded in 2020. This loss was significantly reduced in 2021 to US$121 million, and further diminished in 2022 to US$1,826 million. A positive economic profit of US$240 million was achieved in 2023, coinciding with the positive economic spread ratio. However, economic profit returned to a substantial loss of US$14,528 million in 2024, exceeding the initial loss recorded in 2020.

Invested Capital

Invested capital experienced a consistent downward trend throughout the period. Beginning at US$90,149 million in 2020, it decreased to US$80,284 million in 2021, US$71,720 million in 2022, US$67,562 million in 2023, and finally reached US$62,654 million in 2024. This consistent reduction in invested capital occurred alongside the fluctuations in economic profit and the economic spread ratio.

The combination of decreasing invested capital and fluctuating economic profit resulted in the observed volatility of the economic spread ratio. The return to a significant negative spread in 2024, despite the continued reduction in invested capital, suggests a substantial decline in operational performance relative to the cost of funding those investments.

The economic profit margin exhibited significant fluctuations between 2020 and 2024. Initial values were negative, transitioning to positive territory briefly in 2023 before returning to a substantial negative value in 2024. This volatility suggests considerable shifts in the company’s ability to generate returns exceeding its cost of capital.

Economic Profit Margin (2020-2024)

In 2020, the economic profit margin was -33.08%, indicating a substantial shortfall in returns compared to the cost of capital. A dramatic improvement occurred in 2021, with the margin increasing to -0.26%, suggesting a narrowing of the gap between economic profit and capital costs. This positive trend continued into 2022, where the margin reached -3.96%, though remaining negative.

A brief period of positive economic profit margin was observed in 2023, reaching 0.53%, signifying that the company generated returns exceeding its cost of capital during that year. However, this improvement was short-lived. The economic profit margin declined sharply in 2024 to -30.08%, representing a significant deterioration in economic profitability and a return to a substantial negative margin.

The movement in economic profit margin closely mirrors the trend in economic profit. The large negative economic profit values in 2020 and 2024 directly contribute to the corresponding low margins. The relatively small negative economic profit in 2021 and 2022 resulted in less negative margins. The positive economic profit in 2023 drove the margin into positive territory.

Revenue Trend

Revenues demonstrated a generally increasing trend over the period, rising from US$42,518 million in 2020 to US$48,300 million in 2024. However, revenue growth was not consistent year-over-year, with a slight decrease observed between 2021 and 2022. Despite the overall revenue increase, the substantial decline in economic profit margin in 2024 suggests that revenue growth alone was insufficient to offset rising costs or a higher cost of capital.

The divergence between revenue growth and economic profit margin in 2024 is a key observation. Further investigation would be required to determine the underlying factors contributing to this disparity, such as increased operating expenses, changes in capital structure, or shifts in the competitive landscape.