EMC Corp. (NYSE:EMC)

The financial performance, as measured by economic profit, demonstrates a consistent decline over the five-year period. Net operating profit after taxes (NOPAT) initially showed modest growth before experiencing a substantial decrease, while invested capital steadily increased throughout the period. The cost of capital remained relatively stable, fluctuating within a narrow range. These factors combined to produce increasingly negative economic profit figures.

NOPAT Trend

Net operating profit after taxes increased from US$4,267 million in 2011 to US$4,279 million in 2012, representing a slight increase. A further increase was observed in 2013, reaching US$4,442 million. However, NOPAT then decreased significantly to US$3,737 million in 2014 and continued to decline to US$2,862 million in 2015. This represents a substantial reduction in profitability over the latter part of the analyzed period.

Cost of Capital

The cost of capital exhibited minor fluctuations. It began at 18.89% in 2011, rose to 19.09% in 2012, then decreased to 17.79% in 2013. A slight increase to 18.25% occurred in 2014, followed by a decrease to 17.74% in 2015. The cost of capital remained relatively consistent, suggesting that changes in economic profit were not primarily driven by variations in the required rate of return.

Invested Capital

Invested capital demonstrated a consistent upward trend throughout the period. It increased from US$24,594 million in 2011 to US$27,392 million in 2012, US$31,439 million in 2013, US$32,268 million in 2014, and finally to US$33,788 million in 2015. This continuous growth in invested capital, coupled with declining NOPAT, contributed to the worsening economic profit.

Economic Profit

Economic profit was negative for each year analyzed and exhibited a worsening trend. Starting at a loss of US$380 million in 2011, the economic loss increased to US$950 million in 2012, US$1,150 million in 2013, US$2,150 million in 2014, and reached US$3,131 million in 2015. The increasing magnitude of the negative economic profit indicates that the company’s returns are falling short of its cost of capital, and the gap is widening.

The combination of increasing invested capital and decreasing NOPAT, against a relatively stable cost of capital, resulted in a significant and sustained decline in economic profit. This suggests a potential issue with capital allocation or operational efficiency.

The financial data over the five-year period reveals notable shifts in profitability metrics for the company.

Net Income Attributable to EMC Corporation

This indicator demonstrates an initial upward trajectory from 2011 to 2013, increasing from 2,461 million US dollars to a peak of 2,889 million US dollars. Subsequently, net income declined in the following years, dropping to 2,714 million US dollars in 2014 and falling more sharply to 1,990 million US dollars by the end of 2015. This downward trend in the latter years suggests challenges affecting net profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a relatively stable pattern in the first three years, with a slight increase from 4,267 million US dollars in 2011 to 4,442 million US dollars in 2013. However, in 2014, NOPAT decreased significantly to 3,737 million US dollars and continued to decline to 2,862 million US dollars in 2015. The decline in NOPAT aligns with the reduction in net income, indicating reduced operating efficiency or higher operating expenses.

Overall, the financial trends indicate a strengthening in profitability during the initial years, followed by a period of contraction in both net income and operating profit after taxes. The data suggests the company faced operational or market challenges after 2013 that adversely impacted earnings and operating performance.

Provision for Income Taxes

The provision for income taxes demonstrates a fluctuating pattern over the five-year period. It increased notably from US$640 million in 2011 to a peak of US$918 million in 2012. This was followed by a decline to US$772 million in 2013. Subsequently, the provision rose again in 2014 to US$868 million, before decreasing to US$710 million in 2015. Overall, the provision shows variability without a consistent upward or downward trend, suggesting changes in taxable income or tax rates during the analyzed years.

Cash Operating Taxes

Cash operating taxes display a general increasing trend from 2011 to 2014, rising from US$739 million to US$1309 million. This represents a significant growth in actual cash payments for income taxes. However, in 2015, cash operating taxes decrease to US$992 million. Despite this drop, the values for 2015 remain considerably higher than the initial amount in 2011. The rising trend through 2014 followed by a decline in 2015 could indicate changes in the timing of tax payments, tax planning strategies, or variations in taxable income.

Comparison Between Provision for Income Taxes and Cash Operating Taxes

Throughout the period, cash operating taxes consistently exceed the provision for income taxes each year. The gap between cash taxes and provisions widens in 2012 and remains substantial through 2014, suggesting that actual tax payments were higher than the accounting estimates reflected in the provisions. By 2015, while both items decreased, cash payments still remained well above provisions. This pattern may indicate timing differences between tax accruals and payments, or adjustments in working capital related to tax obligations.

Total Reported Debt & Leases

The total reported debt and leases exhibit significant fluctuations over the analyzed periods. There is a notable decrease from 4,450 million USD at the end of 2011 to 2,942 million USD at the end of 2012, indicating a substantial reduction in debt within that year. However, this trend reverses sharply in 2013, with debt increasing to 8,530 million USD. Subsequently, it declines in 2014 to 7,199 million USD before rising again in 2015 to 8,562 million USD. Overall, the company experienced volatile debt levels with an upward tendency in the latter years.

Total EMC Corporation’s Shareholders’ Equity

Shareholders’ equity shows a generally stable trend across the five-year period. It increased from 18,959 million USD in 2011 to 22,357 million USD in 2012, followed by minor fluctuations in subsequent years: a slight decrease to 22,301 million USD in 2013, a further small decline to 21,896 million USD in 2014, and another decrease to 21,140 million USD in 2015. This pattern suggests a modest erosion of equity after a strong initial increase.

Invested Capital

Invested capital demonstrates consistent growth throughout the period. Starting at 24,594 million USD in 2011, it rises steadily each year, reaching 27,392 million USD in 2012, then moving up to 31,439 million USD in 2013, 32,268 million USD in 2014, and finally peaking at 33,788 million USD in 2015. This continual increase indicates ongoing investment and resource allocation expansion within the company.

Summary of Financial Trends

The contrasting movements between debt levels and shareholders’ equity reflect changing financing strategies. The initial reduction in debt was followed by sharp increases, whereas equity experienced a peak early on and then a gradual decline. Invested capital's steady rise suggests active growth or asset acquisition. The data imply that the company may have shifted toward greater leverage in later years to support its investments. These trends highlight a dynamic approach to capital structure management with a balanced focus on growth and financing costs.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent decline over the five-year period from 2011 to 2015. Economic profit exhibits an increasingly negative trend, while invested capital shows a general increase. Consequently, the economic spread ratio worsens significantly throughout the observed timeframe.

Economic Profit

Economic profit decreased steadily from a loss of US$380 million in 2011 to a loss of US$3,131 million in 2015. The magnitude of the negative economic profit nearly tripled over the period, indicating a growing disparity between returns generated and the cost of capital employed.

Invested Capital

Invested capital increased from US$24,594 million in 2011 to US$33,788 million in 2015. While the company continued to invest in its operations, the increasing capital base did not translate into improved economic profitability.

Economic Spread Ratio

The economic spread ratio moved from -1.54% in 2011 to -9.27% in 2015. This represents a substantial deterioration in the company’s ability to generate returns exceeding its cost of capital. The ratio’s increasing negativity suggests that the company is destroying economic value with each passing year.

The combined trends suggest that while the company is growing its invested capital, it is becoming less efficient at generating returns from that capital. The widening gap between the cost of capital and the returns generated is a significant concern and warrants further investigation into the underlying drivers of this performance.

The financial performance, as indicated by economic profit and its margin, demonstrates a consistent decline over the five-year period from 2011 to 2015. Economic profit exhibits an increasingly negative trend, while the economic profit margin reflects a worsening of profitability relative to revenue.

Economic Profit

Economic profit decreased steadily from a loss of US$380 million in 2011 to a loss of US$3,131 million in 2015. The magnitude of the loss more than tripled over this timeframe, indicating a substantial erosion in value creation. The rate of decline accelerated, particularly between 2013 and 2015.

Adjusted Revenues

Adjusted revenues generally increased from US$21,518 million in 2011 to US$25,626 million in 2014. However, a slight decrease in adjusted revenues was observed in 2015, falling to US$25,341 million. While revenue growth occurred for the majority of the period, it did not offset the increasing economic losses.

Economic Profit Margin

The economic profit margin moved from -1.77% in 2011 to -12.36% in 2015. This represents a significant deterioration in the company’s ability to generate economic profit from each dollar of revenue. The margin became progressively more negative each year, mirroring the trend in economic profit and suggesting that the cost of capital is not being adequately covered by operational performance. The largest single-year decrease in the margin occurred between 2014 and 2015.

In summary, the observed trends suggest a weakening financial position. Despite some growth in adjusted revenues, the company’s economic profit has consistently declined, resulting in a substantially lower economic profit margin. This indicates a growing disparity between the returns generated and the cost of capital employed.