Medtronic PLC (NYSE:MDT)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not generate sufficient returns to cover the cost of capital employed. Invested capital exhibits relative stability with minor variations, while the cost of capital remains within a narrow range throughout the observed timeframe.

Economic Profit Trend

Economic profit remains negative across all reported periods. The most substantial negative economic profit is observed in April 2021, at -5,324 US$ millions. While there is a slight improvement in the final two periods, with economic profit reaching -3,757 US$ millions in April 2025, it remains considerably below zero. This indicates that the company’s returns on invested capital are consistently less than its cost of capital.

NOPAT Performance

Net operating profit after taxes shows variability. It decreased from 4,408 US$ millions in April 2020 to 4,049 US$ millions in April 2021, then increased to 4,888 US$ millions in April 2022. A subsequent decline to 4,151 US$ millions occurred in April 2023, followed by a further decrease to 3,736 US$ millions in April 2024. A projected increase to 4,980 US$ millions is anticipated by April 2025. Despite this projected increase, the level of NOPAT is not sufficient to offset the cost of capital.

Cost of Capital Stability

The cost of capital demonstrates relative stability, fluctuating between 12.55% and 12.95% from April 2020 to April 2023. A slight decrease to 12.58% is noted in April 2024, with a further reduction to 12.42% projected for April 2025. This suggests consistent financing costs over the period.

Invested Capital

Invested capital experiences minor fluctuations. It increased from 71,146 US$ millions in April 2020 to 72,405 US$ millions in April 2021, then decreased to 69,629 US$ millions in April 2022. A slight increase to 70,505 US$ millions is observed in April 2023, followed by a decrease to 68,670 US$ millions in April 2024. A projected increase to 70,365 US$ millions is anticipated by April 2025. These changes in invested capital do not appear to significantly impact the overall negative economic profit trend.

In summary, the consistent negative economic profit suggests a need to evaluate strategies for improving returns on invested capital, reducing the cost of capital, or optimizing capital allocation. The projected increase in NOPAT in April 2025 may offer some improvement, but further analysis is required to determine if it will be sufficient to generate positive economic profit.

Net Income Attributable to Medtronic

The net income figures demonstrated variability over the reported periods. Starting at 4,789 million US dollars in April 2020, the net income decreased significantly to 3,606 million by April 2021. It rebounded to 5,039 million in April 2022, indicating a strong recovery. However, a subsequent decline occurred, with net income falling to 3,758 million in April 2023 and slightly decreasing again to 3,676 million in April 2024. The latest period, April 2025, shows an improvement to 4,662 million, suggesting a positive turnaround in profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a somewhat similar pattern to net income, but with slightly less fluctuation. It decreased from 4,408 million in April 2020 to 4,049 million in April 2021. Then, it increased again to 4,888 million by April 2022. Thereafter, it declined to 4,151 million in April 2023 and further down to 3,736 million in April 2024. The most recent figure in April 2025 reached 4,980 million, representing the highest value among the periods analyzed and indicating improved operational profitability.

Overall Trend Analysis

Both net income and NOPAT exhibited cyclical patterns with notable decreases in 2021 and 2023-2024, followed by recoveries in 2022 and 2025. The volatility suggests the company faced varying operational and market challenges throughout the periods. The recent rise in both metrics in 2025 points towards an enhanced financial performance and operational efficiency. Furthermore, the highest NOPAT value in the final period underscores an improvement in profitability after taxes on operating income, which is a positive indicator for core business performance.

The financial data reveals notable trends in the tax-related expenses over the observed period.

Income Tax Provision (Benefit)

The income tax provision shows significant fluctuations from 2020 to 2025. Initially, in 2020, there was a tax benefit of -$751 million, indicating a negative tax provision. However, from 2021 onwards, there is a reversal to positive tax provisions, increasing from $265 million in 2021 to a peak of $1,580 million in 2023. Thereafter, the provision decreases to $1,133 million in 2024 and further to $936 million in 2025. This pattern suggests an initial tax advantage followed by growing tax liabilities that begin to moderate in the final years of the period.

Cash Operating Taxes

Cash operating taxes demonstrate a consistent upward trend throughout the period from 2020 to 2023, increasing from $761 million to $1,979 million. In 2024, there is a slight decline to $1,820 million, followed by a further decrease to $1,436 million in 2025. This rise and subsequent decline in cash taxes could reflect operational performance fluctuations or changes in tax strategies and cash management.

Overall, the data indicates evolving tax expenses with an initial tax benefit turning into substantial tax provisions and an increasing trend in cash operating taxes until 2023, followed by a moderate decline in the last two reporting periods.

The financial data shows several notable trends over the six-year period under review.

Total reported debt & leases

The total reported debt and leases have generally increased, growing from 25,742 million US dollars in April 2020 to 29,626 million US dollars in April 2025. Despite some fluctuations, such as a decrease in 2022, the overall trend is upward, indicating a gradual rise in leverage or financing through debt and leases.

Shareholders’ equity

Shareholders’ equity experienced a slight increase from 50,737 million US dollars in April 2020 to a peak of 52,551 million US dollars in April 2022. However, from that peak, equity declined steadily to 48,024 million US dollars by April 2025. This downward trajectory in equity may reflect distributions to shareholders, asset impairments, or other factors reducing net asset value.

Invested capital

Invested capital saw a modest increase from 71,146 million US dollars in April 2020 to a peak near 72,405 million US dollars in April 2021. Subsequently, it declined to a low of 68,670 million US dollars in April 2024 before rising again to 70,365 million US dollars in April 2025. This pattern suggests some variability in the company's capital investment or asset base, with a general trend of moderate fluctuation rather than sustained growth or contraction.

The economic spread ratio exhibits a generally negative trend over the observed period, indicating that the company’s returns on invested capital are consistently below its cost of capital. While fluctuations occur, the ratio remains in negative territory throughout the six-year timeframe.

Economic Spread Ratio Trend

The economic spread ratio began at -6.35% in 2020 and deteriorated to -7.35% in 2021, representing the lowest point in the observed period. A slight improvement was noted in 2022, with the ratio increasing to -5.69%. However, this improvement was short-lived, as the ratio declined again in 2023 to -6.94% and further to -7.14% in 2024. The most recent projection for 2025 suggests a modest recovery to -5.34%, though still negative.

The invested capital figures demonstrate relative stability, fluctuating between US$68.67 billion and US$72.40 billion. This suggests that changes in the economic spread ratio are primarily driven by variations in economic profit rather than significant shifts in the capital base.

Economic Profit and Invested Capital Relationship

Economic profit consistently registers as a negative value, ranging from -US$3.757 billion to -US$5.324 billion. The magnitude of the negative economic profit generally aligns with the fluctuations in the economic spread ratio; larger negative economic profits correlate with more negative spread ratios. The relatively stable invested capital base suggests that the company is not significantly altering its capital structure, and the persistent negative economic profit is the primary driver of the consistently negative economic spread.

The projected improvement in the economic spread ratio for 2025, while still negative, indicates a potential positive shift in the company’s ability to generate returns exceeding its cost of capital. Further monitoring will be necessary to determine if this trend continues and whether the company can achieve positive economic profit in subsequent periods.

The economic profit margin demonstrates a volatile pattern over the observed period. While fluctuations exist, a general trend towards improvement is apparent in the most recent projections.

Economic Profit Margin Trend

The economic profit margin began at -15.64% in 2020 and deteriorated to -17.64% in 2021, representing the lowest point in the analyzed timeframe. A substantial improvement followed in 2022, with the margin increasing to -12.50%. However, this positive momentum was interrupted in 2023, as the margin decreased to -15.68%. The latest reported value for 2024 is -15.14%, a slight improvement from the prior year. Projections for 2025 indicate a further positive shift, with the economic profit margin expected to reach -11.21%.

Economic profit itself consistently remains negative throughout the period, indicating that the company’s returns are not exceeding its cost of capital. However, the magnitude of the negative economic profit appears to be lessening, as reflected in the improving economic profit margin.

Relationship to Adjusted Net Sales

Adjusted net sales show a consistent upward trend, increasing from US$28,901 million in 2020 to a projected US$33,530 million in 2025. Despite this revenue growth, the negative economic profit margin suggests that increases in sales have not been sufficient to offset the cost of capital. The projected improvement in the economic profit margin in 2025, alongside continued sales growth, suggests a potential for future profitability improvements.

The observed fluctuations in the economic profit margin warrant further investigation to understand the underlying drivers. Factors such as changes in the cost of capital, operational efficiency, and investment decisions likely contribute to these variations.