Pfizer Inc. (NYSE:PFE)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited substantial volatility, beginning at US$6,095 million in 2020, increasing dramatically to US$18,394 million in 2021, and peaking at US$31,018 million in 2022. A sharp decline followed in 2023, resulting in a net loss of US$1,277 million, before a partial recovery to US$7,374 million in 2024.

The cost of capital showed a generally increasing trend from 10.80% in 2020 to 11.58% in 2022, before decreasing to 9.86% in 2023 and slightly increasing again to 10.07% in 2024. Invested capital also experienced considerable variation, decreasing from US$103,898 million in 2020 to US$87,670 million in 2021, then increasing to US$110,746 million in 2022. A substantial rise was observed in 2023, reaching US$154,882 million, followed by a decrease to US$135,777 million in 2024.

Economic Profit Trend

Economic profit mirrored the volatility in NOPAT. It began as a negative value of US$-5,128 million in 2020, shifted to a positive US$8,448 million in 2021, and reached a high of US$18,190 million in 2022. The most significant change occurred in 2023, with economic profit plummeting to a loss of US$-16,551 million, before moderating to a loss of US$-6,292 million in 2024. This suggests a strong correlation between NOPAT and overall economic performance.

Relationship between NOPAT and Economic Profit

The substantial decline in NOPAT in 2023 directly contributed to the significant negative economic profit observed in that year. While NOPAT recovered somewhat in 2024, it was insufficient to offset the impact of the higher invested capital and cost of capital, resulting in a continued, albeit reduced, economic loss.

Invested Capital and Cost of Capital Impact

The increase in invested capital in 2023, coupled with a relatively stable cost of capital, amplified the negative impact of the NOPAT decline on economic profit. Even with a decrease in the cost of capital in 2023, the substantial increase in invested capital contributed to the large economic loss. The subsequent decrease in invested capital in 2024 partially mitigated the negative economic profit, but it remained negative.

The financial data reveals notable fluctuations in profitability measures over the five-year period under review. Both net income attributable to common shareholders and net operating profit after taxes (NOPAT) exhibit significant variability, indicating shifts in operational efficiency and overall financial performance.

Net Income Attributable to Pfizer Inc. Common Shareholders

The net income increased substantially from 9,616 million USD in 2020 to a peak of 31,372 million USD in 2022. This growth signals a period of heightened profitability. However, the figure declined sharply to 2,119 million USD in 2023, representing a significant downturn. The net income rebounded in 2024 to 8,031 million USD, yet remained well below the peak levels observed in 2021 and 2022.

Net Operating Profit After Taxes (NOPAT)

The NOPAT followed a similar trajectory as net income. It rose from 6,095 million USD in 2020 to a maximum of 31,018 million USD in 2022, demonstrating improved operational performance and effective tax management during this period. In 2023, NOPAT turned negative to -1,277 million USD, reflecting operational challenges and possibly extraordinary items impacting profitability. The measure recovered moderately in 2024, reaching 7,374 million USD, yet still significantly lower compared to the peak years.

Overall, the data indicates a strong growth trend in profitability through 2022, followed by a pronounced decline in 2023, and a partial recovery in 2024. The volatile pattern suggests the presence of external or internal factors causing fluctuations in earnings and operating profitability, which could merit further investigation to understand the underlying drivers and sustainability of recent earnings levels.

Provision (benefit) for taxes on income

The provision for taxes on income demonstrated significant volatility over the observed periods. Initially, it increased notably from 477 million USD in 2020 to a peak of 3,328 million USD in 2022. Subsequently, it shifted to a negative value, indicating a tax benefit, with -1,115 million USD recorded in 2023, followed by a marginal negative provision of -28 million USD in 2024. This pattern suggests a possible influence of tax credits, adjustments, or one-time events impacting the effective tax expense.

Cash operating taxes

Cash operating taxes exhibited a rising trend from 2,090 million USD in 2020 to a peak of 7,967 million USD in 2022. After reaching this high point, there was a pronounced decline to 2,113 million USD in 2023. The figure modestly increased again to 2,426 million USD in 2024. This fluctuation indicates variability in the company’s cash tax obligations, potentially reflecting changes in taxable income, tax planning strategies, or timing differences in tax payments.

The data reveals significant fluctuations across the reported financial items over the five-year period from 2020 to 2024.

Total reported debt & leases

This figure remained relatively stable between 2020 and 2022, with values around 41,000 million US dollars. However, it increased substantially in 2023 to over 75,000 million US dollars, representing almost a doubling compared to the previous year. In 2024, there was a decrease to approximately 67,000 million US dollars, though this figure remained markedly higher than the levels seen from 2020 to 2022.

Total Pfizer Inc. shareholders’ equity

Shareholders’ equity exhibited a generally increasing trend from 63,238 million US dollars in 2020, rising steadily to a peak of 95,661 million US dollars in 2022. Following this apex, the equity declined moderately in the succeeding two years, reaching 88,203 million US dollars by the end of 2024. Despite the decrease post-2022, the equity values in 2023 and 2024 remained higher than the initial 2020 level.

Invested capital

Invested capital presents a more volatile trend. Starting at 103,898 million US dollars in 2020, it decreased to 87,670 million US dollars in 2021, indicating a contraction. This was followed by a substantial increase in 2022 to 110,746 million US dollars and an even sharper rise in 2023 to 154,882 million US dollars. By 2024, invested capital receded to 135,777 million US dollars but remained significantly above the 2020 level.

Overall, the data highlights a phase of increased leverage in 2023, as reflected by the sharp rise in total reported debt and leases, coupled with a significant buildup of invested capital during the same period. Shareholders’ equity expanded robustly through 2022, peaking before experiencing moderate declines, suggesting possible distribution of earnings or adjustments in retained earnings. The trends indicate dynamic financial management actions influencing capital structure and investment intensity, especially from 2022 through 2024.

The economic spread ratio exhibited significant fluctuations over the five-year period. Initially negative in 2020, it demonstrated substantial improvement through 2022 before declining sharply in 2023 and experiencing a partial recovery in 2024. This pattern mirrors the volatility observed in economic profit, which drives the calculation of this ratio.

Economic Spread Ratio Trend

In 2020, the economic spread ratio was -4.94%, indicating that the company’s return on invested capital was less than its cost of capital. A dramatic shift occurred in 2021, with the ratio increasing to 9.64%, signifying a positive economic spread and value creation. This positive trend continued into 2022, reaching a peak of 16.42%, representing the highest level of value creation within the observed period. However, 2023 saw a substantial decline to -10.69%, indicating a significant underperformance relative to the cost of capital. The ratio partially recovered in 2024 to -4.63%, but remained negative, suggesting continued value destruction, albeit at a lessened rate compared to 2023.

The economic spread ratio’s movement is closely tied to changes in both economic profit and invested capital. While invested capital generally increased over the period, the substantial swings in economic profit appear to be the primary driver of the ratio’s volatility. The negative ratios in 2020 and 2023 suggest periods where the cost of capital exceeded the returns generated from invested funds.

Relationship to Economic Profit

The economic spread ratio directly reflects the relationship between economic profit and invested capital. The substantial increase in economic profit from 2020 to 2022 directly correlates with the improvement in the economic spread ratio. Conversely, the significant decrease in economic profit in 2023 resulted in a sharp decline in the ratio. The partial recovery in 2024, alongside a modest increase in economic profit, led to a slight improvement in the ratio, though it remained negative.

The observed fluctuations warrant further investigation into the factors influencing economic profit, including revenue growth, operating margins, and the cost of capital. Understanding these drivers is crucial for assessing the company’s long-term value creation potential.

The economic profit margin exhibited significant fluctuations over the five-year period. Initial observations reveal a substantial swing from a negative value in 2020 to positive values in 2021 and 2022, followed by a return to negative values in 2023 and 2024.

Economic Profit Margin Trend

In 2020, the economic profit margin stood at -12.01%. This indicates that the company’s economic profit was negative relative to its revenues. A dramatic improvement occurred in 2021, with the margin increasing to 10.28%, signifying a positive economic profit. The margin continued to rise in 2022, reaching a peak of 17.98%, demonstrating a strong generation of economic profit. However, this positive trend reversed in 2023, with the margin plummeting to -27.79%, representing a substantial economic loss relative to revenue. The margin partially recovered in 2024 to -9.89%, but remained negative, indicating continued economic underperformance.

The economic profit margin’s volatility appears closely linked to the fluctuations in economic profit itself. The largest negative economic profit in 2020 corresponds with the most negative margin, and the largest positive economic profit in 2022 corresponds with the highest margin. The significant decline in economic profit in 2023 directly resulted in the most negative margin observed during the period.

Revenue Relationship

Revenues increased substantially from 2020 to 2022, growing from US$42,678 million to US$101,175 million. This revenue growth coincided with the improvement in economic profit margin. However, revenues decreased significantly in 2023 to US$59,553 million, and experienced only modest growth in 2024 to US$63,627 million. This revenue decline likely contributed to the negative economic profit margin observed in 2023 and 2024, despite the partial recovery in revenue during the latter year.

The observed pattern suggests a strong correlation between revenue levels and the ability to generate economic profit. While revenue growth does not guarantee a positive economic profit margin, its decline appears to exacerbate negative economic profit and result in a more negative margin.