Amgen Inc. (NASDAQ:AMGN)

The period under review demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) exhibited initial stability, followed by significant variation, ultimately concluding with a substantial increase. Invested capital experienced a notable rise before decreasing in the later years. The cost of capital remained relatively stable, with a slight upward trend towards the end of the period.

Economic Profit Trend

Economic profit began at US$2,871 million in 2021 and remained relatively consistent at US$2,839 million in 2022. A decline was then observed in 2023, with economic profit falling to US$1,813 million. In 2024, the company experienced a negative economic profit of US$138 million, indicating that returns did not cover the cost of capital. A strong recovery occurred in 2025, with economic profit increasing significantly to US$3,865 million.

NOPAT Analysis

NOPAT showed a minor decrease from US$6,412 million in 2021 to US$6,399 million in 2022. A substantial increase to US$7,802 million was recorded in 2023. A significant decrease followed in 2024, with NOPAT falling to US$5,377 million. The final year, 2025, saw a considerable rebound, reaching US$9,219 million, the highest value observed during the period.

Invested Capital and Cost of Capital Relationship

Invested capital increased from US$40,247 million in 2021 to US$69,976 million in 2023, representing a substantial expansion of capital employed. It then decreased to US$63,169 million in 2024 and further to US$58,618 million in 2025. The cost of capital remained relatively stable, fluctuating between 8.56% and 9.13% throughout the period. The increase in invested capital, coupled with a relatively consistent cost of capital, likely contributed to the initial decline in economic profit observed in 2023 and the negative economic profit in 2024. The subsequent decrease in invested capital, alongside the increase in NOPAT, drove the strong economic profit recovery in 2025.

The fluctuations in economic profit appear closely tied to the interplay between NOPAT and invested capital. While NOPAT experienced considerable volatility, the changes in invested capital seem to have a more pronounced effect on the overall economic profit, particularly in the years 2024 and 2025.

Net operating profit after taxes (NOPAT) exhibited fluctuations over the five-year period. While net income demonstrated an overall positive trend, NOPAT presented a more complex pattern. Initial stability was followed by a significant increase and then a subsequent decline before recovering strongly in the final year.

Overall Trend

NOPAT began at US$6,412 million in 2021, experienced a slight decrease to US$6,399 million in 2022, then increased substantially to US$7,802 million in 2023. A decrease was then observed in 2024, with NOPAT falling to US$5,377 million, before a considerable recovery to US$9,219 million in 2025.

Year-over-Year Changes

The period from 2021 to 2022 showed a minimal decrease in NOPAT. The most significant year-over-year change occurred between 2022 and 2023, with an increase of US$1,403 million. The largest decline occurred between 2023 and 2024, representing a decrease of US$2,425 million. Finally, 2024 to 2025 saw a substantial increase of US$3,842 million.

Relationship to Net Income

While both NOPAT and net income generally moved in the same direction, the magnitudes of change differed. NOPAT’s fluctuations were more pronounced than those of net income. In 2021, NOPAT exceeded net income by US$519 million. This difference narrowed in 2022 to US$153 million. In 2023, NOPAT exceeded net income by US$1,085 million. The gap widened again in 2024, with NOPAT exceeding net income by US$1,287 million, and then further increased in 2025 to US$1,508 million.

The substantial increase in NOPAT in 2025 suggests improved operational efficiency or a change in the company’s capital structure. The decline in 2024 warrants further investigation to determine the underlying causes, such as increased operating expenses or changes in tax rates. The consistent difference between NOPAT and net income indicates the presence of non-operating items impacting net income.

The provision for income taxes and cash operating taxes exhibited distinct patterns over the five-year period. A review of these figures reveals fluctuations in both reported tax expense and actual cash outflows for tax obligations.

Provision for Income Taxes

The provision for income taxes initially decreased from US$808 million in 2021 to US$794 million in 2022. A substantial increase was then observed in 2023, reaching US$1,138 million, before declining significantly to US$519 million in 2024. The provision increased again in 2025, closing at US$1,265 million. This suggests potential volatility influenced by changes in taxable income, tax rates, or the recognition of deferred tax assets or liabilities.

Cash Operating Taxes

Cash operating taxes demonstrated an upward trend from US$1,497 million in 2021 to US$2,368 million in 2022, representing a considerable increase. This growth continued into 2023, with cash taxes reaching US$2,963 million. A decrease was then noted in 2024, with cash taxes reported at US$2,426 million, followed by a slight increase to US$2,551 million in 2025. The cash tax figures generally remained above the provision for income taxes throughout the period.

Relationship between Provision and Cash Taxes

A consistent difference exists between the provision for income taxes and cash operating taxes. Cash operating taxes are consistently higher than the provision for income taxes across all reported years. This disparity could be attributed to several factors, including timing differences between when income is recognized for accounting purposes versus when taxes are paid, the utilization of tax loss carryforwards, or differences related to stock-based compensation. The widening gap in 2022 and 2023, followed by a narrowing in 2024 and 2025, warrants further investigation to understand the underlying drivers.

The observed trends suggest a dynamic tax profile. Further analysis, incorporating details regarding changes in tax legislation, deferred tax items, and the company’s overall income structure, would be necessary to provide a more comprehensive understanding of these fluctuations.

The reported invested capital exhibited fluctuations over the five-year period. Total reported debt & leases and stockholders’ equity are the components used to calculate invested capital, and both experienced considerable changes during this timeframe.

Invested Capital Trend

Invested capital remained relatively stable between 2021 and 2022, at approximately US$40 billion. A significant increase was observed in 2023, rising to nearly US$70 billion. Subsequently, invested capital decreased in both 2024 and 2025, reaching US$58.6 billion by the end of 2025. This suggests a period of substantial capital deployment followed by a reduction in capital employed.

Debt & Leases

Total reported debt & leases increased from US$33.98 billion in 2021 to US$39.64 billion in 2022. A substantial rise occurred in 2023, reaching US$65.42 billion. This was followed by a decrease to US$60.88 billion in 2024 and a further reduction to US$55.44 billion in 2025. The pattern indicates increased reliance on debt financing in 2023, followed by a deliberate effort to reduce debt levels.

Stockholders’ Equity

Stockholders’ equity experienced a notable decline from US$6.7 billion in 2021 to US$3.66 billion in 2022. A recovery was seen in 2023, with equity rising to US$6.23 billion. This trend continued modestly in 2024, reaching US$5.88 billion, and then increased significantly in 2025 to US$8.66 billion. The fluctuations suggest changes in profitability, share repurchases, or other equity-related activities.

The interplay between debt and equity significantly influenced the overall invested capital. The increase in invested capital in 2023 was primarily driven by the substantial increase in debt, while the subsequent decrease in invested capital in 2024 and 2025 was influenced by both debt reduction and, to a lesser extent, fluctuations in stockholders’ equity.

The economic spread ratio exhibited fluctuating performance over the five-year period. Initial values demonstrated a relatively stable and positive spread, followed by a period of decline, and a subsequent recovery.

Economic Spread Ratio Trend

The economic spread ratio began at 7.13% in 2021 and increased slightly to 7.15% in 2022, indicating consistent value creation relative to invested capital. A significant decrease was then observed in 2023, with the ratio falling to 2.59%. This downward trend continued into 2024, resulting in a negative economic spread ratio of -0.22%, signifying that returns on invested capital were not covering the cost of capital. The ratio rebounded strongly in 2025, reaching 6.59%, suggesting a restoration of value creation.

Economic profit generally followed the trend of the economic spread ratio, peaking in 2021 and 2022, declining in 2023 and becoming negative in 2024, before recovering substantially in 2025. However, the magnitude of the economic profit fluctuations was considerably larger than the changes in the economic spread ratio.

Invested Capital

Invested capital increased substantially from 2022 to 2023, rising from US$39,722 million to US$69,976 million. This increase likely reflects significant capital deployment activities. Following this peak, invested capital decreased in both 2024 and 2025, settling at US$58,618 million. The decrease in invested capital in the later years may be due to asset sales, reduced capital expenditures, or other strategic financial decisions.

The negative economic spread ratio in 2024 warrants further investigation to understand the underlying factors contributing to the shortfall in returns relative to the cost of capital. The subsequent recovery in 2025 suggests corrective actions were effective, but continued monitoring is advisable.

The economic profit exhibited volatility over the five-year period. Initially strong, it declined significantly before recovering to levels comparable to the earlier period. Product sales demonstrated consistent growth throughout the period, contrasting with the fluctuations in economic profit. Consequently, the economic profit margin experienced corresponding changes, reflecting the interplay between profitability and revenue.

Economic Profit

Economic profit began at US$2,871 million in 2021 and decreased to US$2,839 million in 2022, representing a slight decline. A more substantial decrease was observed in 2023, with economic profit falling to US$1,813 million. This downward trend continued into 2024, resulting in an economic loss of US$138 million. However, a significant recovery occurred in 2025, with economic profit rising to US$3,865 million.

Product Sales

Product sales increased from US$24,297 million in 2021 to US$24,801 million in 2022, indicating modest growth. This growth accelerated in subsequent years, reaching US$26,910 million in 2023, US$32,026 million in 2024, and US$35,148 million in 2025. The consistent increase in product sales suggests a positive trend in revenue generation.

Economic Profit Margin

The economic profit margin mirrored the trends in economic profit. It started at 11.82% in 2021 and decreased to 11.45% in 2022. The margin continued to decline, reaching 6.74% in 2023. In 2024, the margin turned negative, registering at -0.43%. A substantial recovery was seen in 2025, with the economic profit margin increasing to 11.00%, nearly returning to its initial level. The negative margin in 2024 indicates that the cost of capital exceeded economic profit during that year, despite increased sales.

The divergence between the consistent growth in product sales and the fluctuating economic profit suggests that factors beyond revenue, such as cost of capital or operational expenses, significantly impacted overall profitability. The substantial recovery in both economic profit and margin in 2025 warrants further investigation to determine the drivers behind this improvement.