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 consistently registers as a negative value across all periods, ranging from a low of -5,328 US$ million to a high of -3,760 US$ million. The most substantial negative economic profit occurred in 2021, followed closely by 2023 and 2024. A slight improvement is projected for 2025, though economic profit remains negative.

NOPAT Performance

Net operating profit after taxes initially decreased from 4,408 US$ million in 2020 to 4,049 US$ million in 2021. It then increased to 4,888 US$ million in 2022 before declining again to 4,151 US$ million in 2023 and further to 3,736 US$ million in 2024. A significant increase to 4,980 US$ million is forecasted for 2025, representing the highest NOPAT value in the observed period.

Cost of Capital Stability

The cost of capital demonstrates relative stability, fluctuating between 12.42% and 12.95% over the period. The highest cost of capital was observed in 2021 (12.95%), while the lowest is projected for 2025 (12.42%). This suggests that the company’s financing costs have remained relatively consistent.

Invested Capital Movement

Invested capital experienced a slight increase from 71,146 US$ million in 2020 to 72,405 US$ million in 2021. It then decreased to 69,629 US$ million in 2022, followed by a modest increase to 70,505 US$ million in 2023 and a decrease to 68,670 US$ million in 2024. A projected increase to 70,365 US$ million is anticipated for 2025.

The consistent negative economic profit indicates that the company’s investments are not generating returns exceeding its cost of capital. While the projected increase in NOPAT for 2025 is positive, it remains to be seen whether this will be sufficient to achieve positive economic profit. Continued monitoring of NOPAT, cost of capital, and invested capital is recommended to assess the company’s ability to generate value for its investors.

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 fluctuating pattern over the observed period. While there are periods of improvement, the ratio generally indicates a negative spread, suggesting that the company’s returns on invested capital are less than its cost of capital.

Economic Spread Ratio Trend

The economic spread ratio began at -6.36% in 2020 and deteriorated to -7.36% in 2021, representing the lowest point in the observed timeframe. A subsequent improvement was noted in 2022, with the ratio increasing to -5.70%. However, this positive trend was short-lived, as the ratio declined again to -6.95% in 2023 and further to -7.15% in 2024, reaching a new low. A projected improvement is indicated for 2025, with the ratio expected to reach -5.34%.

The economic spread ratio’s movement closely mirrors the trend in economic profit. Larger negative economic profit values generally correspond with more negative economic spread ratios, and vice versa. This relationship is consistent throughout the period.

Relationship with Invested Capital

Invested capital remained relatively stable throughout the period, fluctuating between US$68.67 billion and US$72.40 billion. The changes in the economic spread ratio are therefore primarily driven by changes in economic profit, rather than significant shifts in the capital base. The slight decrease in invested capital from 2023 to 2024 coincides with the ratio’s lowest point.

The consistent negative economic spread ratio suggests ongoing challenges in generating returns that exceed the cost of capital. The projected improvement in 2025, while positive, still indicates a negative spread, implying continued underperformance relative to capital costs.

Overall Assessment

The company’s ability to generate economic profit remains a concern. While the projected improvement in the economic spread ratio for 2025 is encouraging, sustained efforts are needed to improve profitability and achieve a positive economic spread, indicating value creation for investors.

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 -15.65% in 2020 and deteriorated to -17.65% in 2021, representing the lowest point in the analyzed timeframe. A subsequent improvement was noted in 2022, with the margin increasing to -12.51%. However, this positive movement was interrupted in 2023, as the margin decreased to -15.69%. The latest reported value for 2024 is -15.15%, indicating a slight recovery. Projections for 2025 suggest further improvement, with the economic profit margin expected to reach -11.22%.

The 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 fluctuates alongside the economic profit margin.

Relationship between Economic Profit and Adjusted Net Sales

Adjusted net sales generally increased over the period, moving from US$28,901 million in 2020 to a projected US$33,530 million in 2025. Despite this growth in sales, the negative economic profit persisted, suggesting that increases in sales revenue have not been sufficient to offset the cost of capital. The economic profit margin’s fluctuations suggest that the relationship between sales growth and cost of capital is dynamic.

The projected improvement in the economic profit margin for 2025 is a positive indicator, but continued monitoring is necessary to determine if this trend will be sustained. Further investigation into the factors driving the cost of capital and their impact on economic profit is recommended.