Thermo Fisher Scientific Inc. (NYSE:TMO)

The period under review demonstrates a consistent pattern of negative economic profit. Net operating profit after taxes (NOPAT) fluctuated over the five-year span, while the cost of capital remained relatively stable. Invested capital generally increased before declining in the most recent year. The combination of these factors resulted in a worsening economic profit position throughout the analyzed timeframe.

Economic Profit Trend

Economic profit exhibited a clear downward trend, moving from a loss of US$1,342 million in 2020 to a loss of US$5,797 million in 2023. While the loss moderated slightly in 2024 to US$5,160 million, it remained substantially negative. This indicates that the company’s returns on invested capital consistently fell short of its cost of capital.

NOPAT Performance

NOPAT increased from US$6,545 million in 2020 to US$7,465 million in 2021, representing a period of improved operational profitability. However, NOPAT then decreased to US$6,425 million in 2022 and further declined to US$5,117 million in 2023. A modest recovery to US$5,400 million was observed in 2024, but it did not reach previous levels. This volatility in NOPAT contributed significantly to the negative economic profit.

Cost of Capital Stability

The cost of capital remained relatively consistent throughout the period, fluctuating between 12.46% and 12.90%. This suggests that changes in economic profit were primarily driven by variations in NOPAT and invested capital, rather than shifts in the company’s required rate of return.

Invested Capital Dynamics

Invested capital increased significantly from US$61,158 million in 2020 to US$85,573 million in 2023, indicating substantial investment in the business. However, invested capital decreased to US$82,071 million in 2024. The increasing invested capital, coupled with declining NOPAT, exacerbated the negative economic profit trend. The slight decrease in invested capital in 2024 offered limited improvement to economic profit.

In summary, the company experienced a sustained period of economic loss, driven by a combination of fluctuating NOPAT and increasing invested capital, despite a stable cost of capital. The negative trend in economic profit warrants further investigation into the underlying drivers of profitability and capital allocation efficiency.

Net Income Attributable to Thermo Fisher Scientific Inc.

The net income shows an overall fluctuating trend during the analyzed period. It increased significantly from 6375 million US dollars in 2020 to a peak of 7725 million US dollars in 2021. However, this was followed by a decline over the next two years, reaching 5995 million US dollars in 2023. A modest recovery is observed in 2024, with net income rising to 6335 million US dollars, though it remains below the 2021 peak.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values illustrate a pattern consistent with net income, with initial growth from 6545 million US dollars in 2020 to 7465 million US dollars in 2021. Subsequently, there is a notable decrease to 6425 million US dollars in 2022, followed by a sharper decline to 5117 million US dollars in 2023. A recovery phase occurs in 2024, where NOPAT increases to 5400 million US dollars, yet it still remains considerably lower than the earlier years.

Summary of Trends

The financial performance, as measured by both net income and NOPAT, peaked in 2021 and then experienced a downward adjustment for two consecutive years. Despite some recovery in 2024, neither metric returned to the highs seen in 2021. This pattern suggests a period of robust profitability followed by challenges that impacted the company’s earnings and operating efficiency, with partial improvement toward the end of the period.

The financial data reveals notable fluctuations in tax-related expenses over the five-year period ending in 2024. Two key categories, provision for income taxes and cash operating taxes, demonstrate distinct trends.

Provision for Income Taxes

The provision for income taxes exhibits significant volatility. Starting at 850 million USD in 2020, it increased sharply to 1,109 million USD in 2021. However, in 2022, the provision decreased substantially to 703 million USD, followed by a further decline to 284 million USD in 2023. A notable rebound occurs in 2024, with the provision rising again to 657 million USD. This pattern suggests variability in the company's tax liabilities or effective tax rate, possibly influenced by changes in pre-tax earnings, tax regulations, or one-time adjustments.

Cash Operating Taxes

Cash operating taxes show a generally upward trend with some minor fluctuations. Beginning at 1,227 million USD in 2020, these taxes increased substantially to 1,866 million USD in 2021. The level then remained relatively stable through 2022 at 1,806 million USD and slightly decreased to 1,701 million USD in 2023. In 2024, cash operating taxes resumed growth, reaching 1,946 million USD, the highest in the observed period. This steady increase indicates rising cash outflows for tax payments, which may reflect higher taxable income, changes in tax rates, or both.

In summary, while cash operating taxes demonstrate a mostly consistent upward trajectory, the provision for income taxes is marked by pronounced variability. The divergence in trends between these two items could imply timing differences between tax expenses recorded and actual cash paid or adjustments related to deferred taxes or tax planning strategies.

Total Reported Debt & Leases

The total reported debt and leases showed a significant increase from 22,545 million USD at the end of 2020 to 36,339 million USD in 2021. Subsequently, it remained relatively stable, with slight fluctuations around the 36,000 million USD mark through 2023, before decreasing to 32,775 million USD by the end of 2024. This pattern suggests a major debt acquisition or lease increase occurred between 2020 and 2021, followed by stabilization and moderate deleveraging in the final year observed.

Total Shareholders’ Equity

Shareholders’ equity demonstrated a consistent upward trend throughout the period, increasing from 34,507 million USD in 2020 to 49,584 million USD in 2024. The growth rate appears steady year-over-year, indicating sustained value creation and possible retained earnings or capital injections contributing to strengthening the equity base.

Invested Capital

Invested capital experienced a marked increase from 61,158 million USD at the end of 2020 to a peak of 85,573 million USD in 2023. However, in 2024, it declined to 82,071 million USD. The growth in invested capital through most of the period indicates expansion or investment activities, while the slight downturn in the final year could reflect divestitures, asset write-downs, or a moderation in capital expenditures.

The economic spread ratio demonstrates a consistent decline over the five-year period. Simultaneously, economic profit remains negative throughout the observed timeframe, and its absolute value increases before showing a slight decrease in the most recent year. Invested capital generally increases, though a slight decrease is noted in the final year.

Economic Spread Ratio

The economic spread ratio exhibits a clear downward trend, moving from -2.19% in 2020 to -6.77% in 2023. While the rate of decline slows in 2024, the ratio remains negative at -6.29%. This indicates a widening gap between the company’s return on invested capital and its weighted average cost of capital. The consistently negative values suggest the company is not generating returns sufficient to cover its cost of capital.

Economic Profit

Economic profit is negative for each year presented. The magnitude of the loss increases from US$1,342 million in 2020 to US$5,797 million in 2023, representing a substantial deterioration in value creation. A modest reduction in the absolute value of the loss is observed in 2024, with economic profit reported as US$5,160 million. This suggests a potential stabilization, but value destruction continues.

Invested Capital

Invested capital generally trends upward, increasing from US$61,158 million in 2020 to US$85,573 million in 2023. This indicates continued investment in the business. However, a decrease to US$82,071 million is recorded in 2024, potentially reflecting divestitures, reduced capital expenditures, or changes in working capital. The increasing invested capital, coupled with negative economic profit, contributes to the declining economic spread ratio.

The combined trends suggest that while the company continues to invest in its operations, it is struggling to generate returns that exceed its cost of capital. The slight improvement in economic profit in 2024, alongside the stabilization of the economic spread ratio, may warrant further investigation to determine if this represents a turning point or a temporary fluctuation.

The economic profit margin demonstrates a consistent decline over the five-year period. Economic profit itself exhibits a deepening negative trend, and this is reflected in the progressively worsening economic profit margin.

Economic Profit Margin

In 2020, the economic profit margin stood at -4.17%. This margin deteriorated to -6.30% in 2021, indicating a widening gap between the company’s cost of capital and the returns generated from revenue. The decline continued through 2022, reaching -9.24%, and further worsened to -13.53% in 2023. While the rate of decline slowed in the most recent year, 2024, the economic profit margin remained negative at -12.03%.

The consistent negativity and increasing magnitude of the economic profit margin suggest that the company’s revenues are not generating sufficient returns to cover its cost of capital. Although revenues increased from 2020 to 2022, the economic profit margin worsened, indicating that the increase in revenue was not enough to offset rising costs or a higher cost of capital. The slight revenue increase from 2023 to 2024 did not translate into an improvement in economic profit margin, suggesting underlying structural issues impacting profitability relative to capital employed.

Trend Analysis

A clear downward trend is observed in the economic profit margin throughout the period. The most significant deterioration occurred between 2022 and 2023, with the margin nearly doubling in negativity. The 2024 figure indicates a potential stabilization, but the margin remains substantially lower than the 2020 level.

The sustained negative economic profit margin warrants further investigation into the factors driving the company’s cost of capital and its ability to generate returns on its revenue base. A deeper analysis of the components of economic profit – net operating profit after tax and capital employed – would be necessary to pinpoint the specific areas requiring attention.