Raytheon Co. (NYSE:RTN)

The financial performance, as measured by economic profit, demonstrates a fluctuating pattern over the five-year period. While net operating profit after taxes generally increased, the economic profit itself improved only modestly, indicating a potential challenge in generating returns exceeding the cost of capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited an overall upward trend, increasing from US$2,171 million in 2015 to US$3,427 million in 2019. However, the growth was not consistent year-over-year, with a slight decrease observed between 2016 and 2017. This suggests potential operational or market factors influencing profitability.

Cost of Capital

The cost of capital experienced a gradual increase from 13.49% in 2015 to 14.31% in 2019. This rise could be attributed to changes in market interest rates, increased risk perception, or adjustments to the company’s capital structure. The increasing cost of capital presents a greater hurdle for generating positive economic profit.

Invested Capital

Invested capital consistently increased over the period, rising from US$22,413 million in 2015 to US$26,688 million in 2019. This indicates ongoing investment in the business, potentially to support growth initiatives or maintain competitive positioning. The growth in invested capital, coupled with the rising cost of capital, contributes to the challenge of achieving positive economic profit.

Economic Profit

Economic profit remained negative throughout the observed period, ranging from -US$945 million in 2017 to -US$394 million in 2019. While the magnitude of the loss decreased in the later years, indicating improvement, the company did not generate returns sufficient to cover its cost of capital. The reduction in economic loss from 2018 to 2019 aligns with the increase in NOPAT and a relatively stable cost of capital, suggesting that improved operational performance is beginning to close the gap between profit and capital costs.

In summary, the company experienced growth in both NOPAT and invested capital. However, the increasing cost of capital and consistently negative economic profit suggest a need to evaluate capital allocation strategies and operational efficiency to improve returns and generate shareholder value.

Net income attributable to Raytheon Company

The net income shows a generally positive trend over the five-year period. Starting at 2,074 million US dollars in 2015, there was a modest increase in 2016 to 2,211 million. However, the net income slightly declined in 2017 to 2,024 million. From 2017 onwards, the net income rose significantly, reaching 2,909 million in 2018 and further increasing to 3,343 million by the end of 2019. This pattern indicates recovery and robust growth in profitability in the latter years.

Net operating profit after taxes (NOPAT)

NOPAT also demonstrates an upward trajectory across the reported years. The value grew steadily from 2,171 million US dollars in 2015 to 2,456 million in 2016. A slight decline occurred in 2017, with NOPAT at 2,393 million, mirroring the dip seen in net income for that year. In 2018, NOPAT increased sharply to 3,010 million and continued its upward movement to 3,427 million in 2019. This trend underscores improving operational efficiency and effective tax management contributing to profit growth over the period.

Overall Trend Analysis

The data reveals a consistent improvement in both net income and NOPAT from 2015 to 2019, notwithstanding the minor setbacks in 2017. The stronger gains after 2017 suggest enhanced operational performance and possibly favorable market or internal conditions. The parallel movement between net income and NOPAT implies that the operating profits, after accounting for taxes, significantly drive the net profitability of the company.

The financial data indicates a fluctuating pattern in the provisions for federal and foreign income taxes over the five-year period. Starting at 733 million US dollars in 2015, the provision increased steadily to reach a peak of 1,114 million in 2017. However, in 2018, the provision experienced a significant decline to 264 million, followed by a recovery to 658 million in 2019. This trend suggests variability in the company's taxable income or changes in tax rates or policies during these years.

Regarding cash operating taxes, the figures show a less consistent trend. The amount decreased slightly from 881 million in 2015 to 840 million in 2016, then rose to 939 million in 2017. Similar to the provision for income taxes, cash operating taxes dropped considerably in 2018 to 327 million before increasing again to 721 million in 2019. The parallel movements in both provision and cash taxes in 2018 and 2019 indicate an underlying correlation in tax strategies or tax liabilities paid.

Provision for Federal and Foreign Income Taxes

General upward trend from 2015 to 2017, followed by a sharp decline in 2018 and partial rebound in 2019

Reflects volatility possibly due to changes in earnings before tax, tax regulations, or deferred tax assets/liabilities adjustments

Cash Operating Taxes

Slight fluctuations with a significant drop in 2018 and a recovery in 2019

Movements suggest impact from operational cash flows and timing differences in tax payments

Comparison and Insights

Both tax-related figures exhibit synchronized declines in 2018, indicating potential operational or fiscal events affecting tax computations or payments during that year

The rebound in 2019 points to normalization or adjustments after an anomalous fiscal period

Total reported debt & leases

The total reported debt and leases demonstrate a gradual declining trend over the analyzed period. Starting from 6,306 million US dollars in 2015, the figure increased slightly in 2016 to 6,421 million but began to decrease thereafter. By 2019, the total reported debt and leases had reduced to 5,679 million, reflecting a consistent effort to manage and reduce debt levels over time.

Total Raytheon Company stockholders’ equity

The stockholders’ equity shows a generally positive upward trend from 2015 to 2019. It started at 10,128 million US dollars in 2015 and experienced a minor decline through 2017, reaching 9,963 million. However, a significant recovery occurred in 2018 and 2019, with equity increasing to 11,472 million and then to 12,223 million respectively. This growth suggests an improvement in the company’s net asset base and potential retention of earnings or capital injection during these latter years.

Invested capital

Invested capital shows a steady increase over the period examined. Beginning at 22,413 million US dollars in 2015, it rose each year, attaining 23,509 million in 2016 and edging slightly upward to 23,548 million in 2017. Subsequently, there was a more pronounced increase in 2018 to 26,081 million, continuing to grow in 2019 to 26,688 million. This upward trend indicates ongoing capital investment or asset expansion, potentially supporting future growth initiatives.

The period between 2015 and 2019 demonstrates a fluctuating, but generally improving, financial performance as measured by economic value added metrics. While economic profit remained negative throughout the analyzed timeframe, its magnitude decreased, and the economic spread ratio exhibited a positive trend towards the end of the period.

Economic Profit

Economic profit consistently registered as a negative value across all five years. Initial values were substantial, at -853 US$ million in 2015 and -768 US$ million in 2016. A peak negative value of -945 US$ million was recorded in 2017, followed by reductions to -663 US$ million in 2018 and further to -394 US$ million in 2019. This indicates a diminishing shortfall between returns generated and the cost of capital, although the company did not generate positive economic profit during this period.

Invested Capital

Invested capital showed a generally increasing trend. Starting at 22,413 US$ million in 2015, it rose to 23,509 US$ million in 2016 and 23,548 US$ million in 2017. A more significant increase was observed between 2017 and 2018, reaching 26,081 US$ million, and continued to 26,688 US$ million in 2019. This suggests ongoing investment in the business operations.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, mirrored the trend in economic profit. It began at -3.81% in 2015, improved to -3.27% in 2016, then deteriorated to -4.01% in 2017. A notable improvement occurred in 2018, with the ratio reaching -2.54%, and continued in 2019, ending at -1.48%. This positive trend suggests that the company’s returns on invested capital are gradually approaching, but still remain below, the cost of capital.

In summary, while the company experienced negative economic profit throughout the period, the decreasing magnitude of the loss and the improving economic spread ratio suggest a positive trajectory in value creation. The increasing invested capital indicates continued business expansion and investment.

The economic profit margin exhibited fluctuations over the five-year period. While consistently negative, the magnitude of the negative margin decreased from 2015 to 2019, indicating an improving, though still unprofitable, economic performance.

Economic Profit Margin Trend

The economic profit margin began at -3.67% in 2015. A slight improvement was noted in 2016, with the margin increasing to -3.19%. However, the margin deteriorated in 2017, reaching -3.73%, representing the lowest point in the observed period. A positive trend emerged in the subsequent two years, with the margin improving to -2.45% in 2018 and further to -1.35% in 2019. This suggests a gradual reduction in the economic loss associated with each dollar of sales.

Net sales demonstrated a consistent upward trend throughout the period. This increase in sales did not immediately translate into positive economic profit, but it appears to have contributed to the diminishing negative economic profit margin in later years.

Relationship between Net Sales and Economic Profit Margin

Net sales increased from US$23,247 million in 2015 to US$29,176 million in 2019. Despite the consistent growth in net sales, economic profit remained negative throughout the period. However, the rate of improvement in the economic profit margin accelerated as net sales increased, suggesting a potential operating leverage effect. The company appears to be scaling its revenue base while simultaneously improving its economic efficiency, though further improvement is needed to achieve positive economic profit.

The decreasing negative economic profit margin, coupled with increasing net sales, suggests a positive, albeit incomplete, shift in the company’s financial performance. Continued monitoring of these metrics is warranted to assess whether this trend will lead to sustained economic profitability.