First Solar Inc. (NASDAQ:FSLR)

The financial performance, as measured by economic profit, demonstrates a consistent, though incomplete, improvement over the observed period. While net operating profit after taxes (NOPAT) increased significantly, economic profit remained negative throughout the five years, albeit with a decreasing magnitude.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a substantial turnaround from a loss of US$94.46 million in 2019 to a profit of US$1.54 billion in 2023. This represents a significant positive trend, indicating improved operational efficiency and profitability. The largest year-over-year increase occurred between 2022 and 2023.

Cost of Capital

The cost of capital fluctuated modestly between 20.86% and 22.70% over the period. It generally increased from 2019 to 2022, peaking at 22.70% in 2022, before decreasing slightly to 22.26% in 2023. These changes, while present, were less dramatic than those observed in NOPAT.

Invested Capital

Invested capital increased from US$4.89 billion in 2019 to US$7.84 billion in 2023. There was a decrease in invested capital between 2021 and 2022, but it rebounded strongly in 2023. This growth suggests expansion of operations or increased investment in assets.

Economic Profit

Economic profit, calculated as NOPAT less the cost of capital applied to invested capital, remained negative throughout the period, ranging from a loss of US$1.12 billion in 2019 to a loss of US$203.29 million in 2023. Despite the substantial increase in NOPAT, the cost of capital applied to the growing invested capital base continued to exceed operational profits. The magnitude of the loss decreased each year, indicating that the company is moving closer to generating returns that cover its cost of capital. The most significant reduction in economic loss occurred between 2022 and 2023.

In summary, while operational profitability improved considerably, the company has not yet achieved positive economic profit. The increasing invested capital base, coupled with a relatively stable cost of capital, continues to result in a negative economic profit, although the trend suggests a narrowing gap between returns and the cost of those returns.

Net Income (Loss)

The net income data over the five-year period exhibits notable volatility and a marked improvement towards the end of the timeline. In 2019, the company recorded a significant net loss of approximately $114.9 million. This was followed by a substantial turnaround in 2020 with net income reaching nearly $398.4 million, indicating a strong recovery. The positive trend continued in 2021, with net income increasing modestly to about $468.7 million. However, 2022 saw a reversal, with net income again falling into a loss of approximately $44.2 million. Importantly, 2023 demonstrated a dramatic rebound, achieving a peak net income of about $830.8 million, the highest in the observed period.

Net Operating Profit After Taxes (NOPAT)

The Net Operating Profit After Taxes shows a consistent upward trend throughout the period under review, reflecting improving operating efficiency. Starting from a negative value of roughly $94.5 million in 2019, NOPAT turned positive by 2020 at approximately $214.3 million. It continued to grow significantly, reaching around $568.0 million in 2021, demonstrating effective operational performance. The growth accelerated in 2022, with NOPAT rising to about $826.9 million. The most substantial increase occurred in 2023 where NOPAT almost doubled from the previous year to approximately $1.54 billion, indicating strong underlying profitability and likely improvements in operational control or revenue generation capabilities.

Overall Trends and Insights

The financial performance shows a notable improvement in operational profitability (NOPAT) across the entire time span, suggesting enhanced core business efficiency. Meanwhile, net income figures indicate more volatility, particularly with losses in 2019 and 2022 interrupting an otherwise positive trend. The drastic increase in net income and NOPAT in 2023 points to a possible significant positive development impacting profitability, such as operational expansions, cost reductions, or favorable market conditions. The divergence between the smoother upward trend in NOPAT and the fluctuations in net income implies that non-operating items or extraordinary events may be influencing the net income results in certain years.

Income Tax Expense (Benefit)

The income tax expense shows significant fluctuations over the analyzed period. In 2019 and 2020, the company recorded negative values indicating income tax benefits of -5,480 and -107,294 thousand US dollars respectively. However, beginning in 2021, there was a reversal to positive income tax expenses, with the company incurring 103,469 thousand US dollars in 2021, followed by slightly reduced expenses of 52,764 and 60,513 thousand US dollars in 2022 and 2023 respectively. This pattern indicates a shift from benefiting from tax credits or other tax advantages to a tax expense liability, stabilizing somewhat in the last two years but remaining significantly above the 2019 figure.

Cash Operating Taxes

Cash operating taxes also exhibited considerable volatility during the period. In 2019, the company paid 42,935 thousand US dollars in cash taxes. In 2020, this figure dropped sharply to a negative 119,248 thousand US dollars, indicating possible tax refunds or credits realized in that year. From 2021 onwards, cash operating taxes returned to positive figures, with 23,041 thousand US dollars in 2021, rising to 54,928 and 56,472 thousand US dollars in 2022 and 2023 respectively. The upward trend in cash taxes paid in the latter years suggests increasing taxable income or reduced available tax credits.

Total reported debt & leases

The total reported debt and leases exhibited a fluctuating trend over the five-year period. It decreased steadily from approximately 595 million US dollars at the end of 2019 to around 234 million US dollars by the end of 2022. However, there was a significant increase in 2023, with this figure rising sharply to about 624 million US dollars, exceeding the initial level recorded in 2019.

Stockholders’ equity

Stockholders’ equity showed a consistent upward trend throughout the period under review. Starting at roughly 5.1 billion US dollars in 2019, it increased gradually each year, reaching approximately 6.7 billion US dollars by the end of 2023. Despite a slight dip between 2021 and 2022, the overall movement indicates strengthening equity and possibly retained earnings or capital injections over time.

Invested capital

Invested capital also displayed variability across the years. From about 4.9 billion US dollars in 2019, it rose modestly to approximately 5.7 billion US dollars in 2021, followed by a decrease to roughly 5.05 billion US dollars in 2022. Notably, there was a marked surge in 2023, with invested capital reaching nearly 7.84 billion US dollars, representing the highest level in the observed period and suggesting increased resource deployment or asset acquisition during that year.

The economic spread ratio demonstrates a consistent, albeit decelerating, improvement over the five-year period. Initially negative, the ratio moved closer to zero, indicating a reduction in the disparity between the company’s return on invested capital and its cost of capital.

Economic Spread Ratio

In 2019, the economic spread ratio was -22.79%, representing the largest negative spread during the observed timeframe. This indicates a substantial shortfall between the return generated from invested capital and the minimum acceptable return required by investors.

The ratio improved to -17.59% in 2020, suggesting a narrowing of the gap. This improvement continued in subsequent years, reaching -11.95% in 2021, -6.34% in 2022, and finally -2.59% in 2023.

The trend suggests increasing efficiency in capital allocation or improved operational performance, allowing the company to generate returns closer to its cost of capital. The rate of improvement, however, slowed between 2022 and 2023.

The invested capital figures show an increase from 2019 to 2021, followed by a decrease in 2022, and a substantial increase in 2023. This fluctuation in invested capital needs to be considered alongside the economic spread ratio to fully understand the company’s financial performance.

Economic Profit

Economic profit remained negative throughout the period, although the magnitude of the loss decreased each year. This aligns with the improving economic spread ratio, as a smaller negative spread contributes to a smaller economic loss.

The reduction in economic loss from -1,115,498 thousand US dollars in 2019 to -203,293 thousand US dollars in 2023 indicates a positive trend in value creation, even though the company is not yet generating positive economic profit.

The combined trends suggest the company is becoming more effective at utilizing its invested capital, but still faces challenges in generating returns that exceed its cost of capital. The significant increase in invested capital in 2023 warrants further investigation to determine its impact on future economic spread and profitability.

The economic profit margin exhibited a consistent, though moderating, improvement over the five-year period. Initially negative and substantial, the margin moved closer to zero, indicating a reduction in the economic loss experienced by the entity.

Economic Profit Margin Trend

In 2019, the economic profit margin stood at -34.01%. This represented the largest economic loss relative to sales during the observed timeframe. A subsequent increase in the loss was noted in 2020, reaching -35.25%, despite a decrease in adjusted net sales.

From 2021 onward, a clear upward trend in the economic profit margin is evident. The margin improved to -22.77% in 2021, then to -9.07% in 2022, and further to -4.94% in 2023. This suggests that while still representing an economic loss, the magnitude of that loss is diminishing with each passing year.

The improvement in the economic profit margin correlates with increases in adjusted net sales, particularly from 2022 to 2023. While economic profit remained negative throughout the period, the decreasing negative margin suggests that the entity is becoming more efficient at generating returns above its cost of capital, or that the cost of capital is decreasing relative to profits.

Relationship to Adjusted Net Sales

Adjusted net sales decreased from 2019 to 2020, coinciding with a worsening economic profit margin. However, sales recovered in 2021 and continued to increase through 2023. This increase in sales appears to be a key driver of the improving economic profit margin, as the economic loss is being distributed across a larger revenue base.

The rate of improvement in the economic profit margin decelerated between 2022 and 2023. While still positive, the change from -9.07% to -4.94% is smaller than the changes observed in the prior two years. This suggests that further improvements in the margin may become increasingly difficult to achieve without significant changes to either sales growth or cost of capital.