Amazon.com Inc. (NASDAQ:AMZN)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited substantial growth initially, followed by a considerable decline and subsequent recovery. Invested capital consistently increased throughout the period, while the cost of capital remained relatively stable. These factors combined to produce a volatile pattern in economic profit.

NOPAT Trend

Net operating profit after taxes increased from US$24,183 million in 2020 to US$37,525 million in 2021, representing a significant improvement in operational profitability. However, 2022 saw a dramatic reversal, with NOPAT falling to a loss of US$5,619 million. A strong recovery occurred in 2023, reaching US$31,856 million, and continued into 2024 with NOPAT reaching US$58,988 million, the highest value in the observed period.

Cost of Capital

The cost of capital experienced a slight decrease from 15.83% in 2020 to 14.97% in 2022. It then increased modestly to 15.62% in 2023 and further to 15.93% in 2024. These changes were relatively small compared to the fluctuations in NOPAT, suggesting that changes in profitability were the primary driver of economic profit variations.

Invested Capital

Invested capital consistently rose throughout the period, increasing from US$150,160 million in 2020 to US$375,421 million in 2024. This indicates ongoing investment in the business, despite the profitability challenges experienced in 2022. The increasing invested capital base likely contributed to the magnitude of the negative economic profit in 2022 and 2023.

Economic Profit

Economic profit initially showed a modest positive value of US$419 million in 2020, increasing substantially to US$5,979 million in 2021. The decline in NOPAT in 2022 resulted in a significant negative economic profit of US$45,930 million. While NOPAT recovered in 2023, the high invested capital base still led to a substantial economic loss of US$19,164 million. Economic profit remained negative in 2024, at US$829 million, despite the increase in NOPAT, indicating that the return on invested capital was still below the cost of capital.

In summary, the period was characterized by substantial volatility in economic profit, primarily driven by fluctuations in NOPAT. While invested capital consistently increased, the cost of capital remained relatively stable. The negative economic profit in 2022 and 2023 highlights a period where returns did not cover the cost of capital, and although NOPAT improved in 2024, economic profit remained negative.

Net Income (Loss)

The net income fluctuated significantly over the five-year period. Beginning at $21,331 million in 2020, there was a substantial increase to $33,364 million in 2021. However, 2022 marked a notable downturn with a net loss of $2,722 million. This negative performance rebounded sharply in the subsequent years, reaching $30,425 million in 2023 and further rising to $59,248 million in 2024. The data indicates a strong recovery and growth trajectory after the loss experienced in 2022.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a similar pattern to net income, starting at $24,183 million in 2020 and rising to $37,525 million in 2021. It then experienced a sharp decline to a negative $5,619 million in 2022, deeper than the net income loss in the same year, indicating challenges in operating profitability. However, a significant recovery occurred in 2023 with NOPAT increasing to $31,856 million, followed by a strong increase to $58,988 million in 2024. This suggests an improvement in the company's core operational efficiency and profitability in the last two years.

Overall Analysis

The financial results reveal volatility, with a peak in 2021, a pronounced downturn in 2022, and substantial recovery and growth by 2024. The presence of negative figures in 2022 for both net income and NOPAT indicates operational and profitability challenges during that year. The subsequent rebound in 2023 and 2024 demonstrates strong adaptive or strategic measures resulting in enhanced earnings and operating profit, achieving new highs at the end of the evaluated period.

Provision (benefit) for income taxes, net

The net provision for income taxes showed considerable volatility over the observed periods. In 2020 and 2021, the provision increased significantly from 2,863 million USD to 4,791 million USD. However, the year 2022 presented an unusual pattern with a net tax benefit of -3,217 million USD, indicating a reversal or tax benefit situation rather than a conventional tax expense. Subsequently, the provision rose again sharply to 7,120 million USD in 2023 and further to 9,265 million USD in 2024, reflecting a substantial increase in tax obligations or adjustments during these years.

Cash operating taxes

Cash operating taxes exhibited a steadily increasing trend from 3,844 million USD in 2020 to 5,646 million USD in 2021, followed by a more moderate rise to 5,689 million USD in 2022. In 2023, there was a notable surge to 13,583 million USD, nearly doubling the previous year's amount. This upward momentum continued in 2024 with cash operating taxes reaching 14,023 million USD. The substantial increase observed in the last two years suggests significant growth in actual tax payments, potentially correlated with rising taxable income or changes in tax rates and regulations.

Total reported debt & leases

Over the five-year period, total reported debt and leases exhibited an overall increasing trend from 100,504 million US dollars in 2020 to a peak of 154,972 million in 2022. This increase suggests a significant rise in the company's leverage or obligations during these years. However, this peak level of debt was relatively maintained in 2023, with a slight decrease to 154,556 million, followed by a further moderate reduction to 147,838 million in 2024. The slight decline in the last two years might indicate strategic deleveraging or improved debt management efforts.

Stockholders’ equity

Stockholders' equity demonstrated strong and consistent growth throughout the period under review. Starting at 93,404 million US dollars in 2020, equity levels increased markedly year over year, reaching 138,245 million in 2021 and continuing upward to 146,043 million in 2022. This growth accelerated significantly during 2023 and 2024, culminating in a sizable equity base of 285,970 million by the end of 2024. The substantial rise in equity in the final years suggests enhanced retained earnings, possible equity issuances, or asset revaluations, which strengthen the company's net asset position and financial stability.

Invested capital

Invested capital showed a continuous and pronounced increase across the five years. Beginning at 150,160 million US dollars in 2020, it increased substantially to 202,836 million in 2021, then accelerated its upward trajectory to 269,358 million in 2022. The growth sustained momentum through 2023 and 2024, reaching 326,668 million and 375,421 million respectively. This pattern indicates significant expansion in the company's total capital employed in operations, possibly due to investments in long-term assets, acquisitions, or business growth initiatives.

The economic spread ratio exhibited significant fluctuations between 2020 and 2024. Initially positive, the ratio transitioned to negative values, indicating a declining ability to generate returns exceeding the cost of capital. A detailed examination of the trends reveals a complex performance pattern.

Economic Spread Ratio Trend

In 2020, the economic spread ratio stood at 0.28%, representing a modest return on invested capital above the cost of capital. This ratio experienced substantial growth in 2021, reaching 2.95%, suggesting a considerable improvement in profitability relative to invested capital. However, a dramatic reversal occurred in 2022, with the ratio plummeting to -17.05%. This indicates that returns generated were significantly lower than the cost of capital. The ratio remained negative in 2023 at -5.87%, although it showed some improvement compared to the prior year. The trend continued with a further decrease in 2024, reaching -0.22%, suggesting a continued, albeit lessened, shortfall in returns relative to the cost of capital.

Relationship to Economic Profit

The economic spread ratio’s trajectory closely mirrors the fluctuations in economic profit. The positive economic spread ratios in 2020 and 2021 corresponded with positive economic profit values of US$419 million and US$5,979 million, respectively. Conversely, the substantial negative economic spread ratios in 2022, 2023, and 2024 aligned with negative economic profit figures of US$-45,930 million, US$-19,164 million, and US$-829 million. This correlation highlights the direct link between the economic spread ratio and the absolute economic profit generated.

Invested Capital Growth

Invested capital consistently increased throughout the period, rising from US$150,160 million in 2020 to US$375,421 million in 2024. While increasing invested capital can drive growth, the declining economic spread ratio suggests that these investments did not consistently generate sufficient returns to offset their cost, particularly in 2022 and 2023. The slight improvement in the economic spread ratio in 2024, despite continued growth in invested capital, indicates a potential stabilization, but further monitoring is warranted.

Overall, the analysis reveals a deteriorating trend in the economic spread ratio, despite consistent growth in invested capital. The substantial negative values observed in recent years suggest a need for careful evaluation of investment strategies and operational efficiency to improve returns and ensure capital is deployed effectively.

The economic profit margin exhibited significant fluctuations between 2020 and 2024. Initially positive, the margin transitioned to substantial negative values before showing limited improvement. A detailed examination of the trends is presented below.

Economic Profit Margin Trend

In 2020, the economic profit margin stood at 0.11%. This represents a modest, but positive, return on adjusted net sales. A substantial increase was observed in 2021, with the margin rising to 1.27%. However, this positive trend reversed dramatically in 2022, as the margin plummeted to -8.90%. The negative trend continued into 2023, although the decline moderated, with the margin reaching -3.31%. By 2024, the margin remained negative, but showed a slight improvement to -0.13%.

Relationship to Adjusted Net Sales

Adjusted net sales consistently increased throughout the period, moving from US$387,482 million in 2020 to US$641,635 million in 2024. Despite this consistent growth in sales, the economic profit margin did not follow suit. The widening gap between increasing sales and declining/negative economic profit suggests that the cost of capital, or other factors impacting economic profit, are increasing at a faster rate than revenue growth.

Economic Profit

The absolute economic profit values mirror the margin trends. A positive economic profit of US$419 million was recorded in 2020, increasing significantly to US$5,979 million in 2021. However, 2022 saw a substantial loss of US$45,930 million, followed by a loss of US$19,164 million in 2023. The loss was reduced in 2024 to US$829 million, aligning with the slight improvement in the economic profit margin.

The observed pattern indicates a growing disconnect between revenue generation and the ability to generate economic profit. While sales are increasing, the company is struggling to cover its cost of capital, resulting in substantial economic losses in 2022 and 2023, with only marginal improvement in 2024.