Analog Devices Inc. (NASDAQ:ADI)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes experienced a decline from 1,510,496 thousand USD in 2019 to 1,115,726 thousand USD in 2021. Subsequently, there was a notable increase, peaking at 3,141,095 thousand USD in 2023, followed by a significant decrease to 1,343,155 thousand USD in 2024. This pattern reflects periods of contraction and expansion in operational profitability.

Cost of Capital

The cost of capital steadily increased over the six-year span, starting at 14.78% in 2019 and rising incrementally to 15.68% in 2024. The gradual rise suggests a slightly increasing hurdle rate for returns, which may impact investment decisions and valuation assessments.

Invested Capital

Invested capital remained relatively stable around 18 billion USD in 2019 and 2020, then experienced a sharp increase to approximately 47 billion USD in 2021. After this peak, it slightly decreased over the next years to 43.5 billion USD by 2024. This indicates a significant expansion in the asset base or investments in 2021, with a moderate contraction thereafter.

Economic Profit

Economic profit was consistently negative throughout the period, indicating that returns did not exceed the cost of capital. It worsened from -1,202,150 thousand USD in 2019 to -6,170,767 thousand USD in 2021, then improved slightly but remained substantially negative through 2024. The large negative values, especially post-2020, suggest that the company’s capital investments were not generating adequate returns relative to their cost.

Overall Insights

The data reveals a company facing challenges in generating sufficient economic profit despite fluctuations in operating profit. The sharp increase in invested capital in 2021 was not matched by proportional improvements in NOPAT, leading to deeper economic losses. The steady increase in cost of capital increases the financial pressure to generate higher returns. Although NOPAT showed recovery in 2022 and 2023, the sharp drop in 2024 combined with persistent negative economic profit points to ongoing issues in capital efficiency and profitability sustainability.

The financial data over the six-year period reveal significant fluctuations in the company's profitability metrics, specifically net income and net operating profit after taxes (NOPAT).

Net Income Trend

Net income started at approximately 1.36 billion US dollars in 2019, then experienced a decline in 2020 to about 1.22 billion US dollars. It recovered in 2021, increasing to nearly 1.39 billion US dollars, followed by a notable surge in 2022 with net income nearly doubling to approximately 2.75 billion US dollars. This upward momentum continued into 2023, reaching the highest value of around 3.31 billion US dollars. However, in 2024, net income sharply declined to about 1.64 billion US dollars, representing a significant drop compared to the prior two years.

Net Operating Profit After Taxes (NOPAT) Trend

NOPAT mirrored similar fluctuations with figures beginning at about 1.51 billion US dollars in 2019. This value decreased consecutively over the next two years to approximately 1.27 billion in 2020 and further down to 1.12 billion in 2021. Then, a dramatic increase occurred in 2022 with NOPAT more than doubling to roughly 2.59 billion US dollars, followed by a further peak at around 3.14 billion US dollars in 2023. In 2024, the metric fell sharply to approximately 1.34 billion US dollars, indicating a considerable reduction in operating profitability compared to the two preceding years.

Overall Insights

The data suggest a strong recovery and growth in both net income and NOPAT starting in 2021 through 2023, pointing to improved operational and financial performance during that period. However, the pronounced decline in 2024 highlights potential challenges or one-time events adversely impacting profitability. The parallel movement in net income and NOPAT indicates consistent operating efficiency and tax impact trends as drivers of net profitability throughout these years.

Provision for (benefit from) income tax

The provision for income tax exhibits significant variability including a notable negative value in 2021, which indicates a tax benefit during that year. Specifically, the provision decreased from approximately 122.7 million US dollars in 2019 to 90.9 million in 2020, followed by a drop to -61.7 million in 2021. Subsequently, there was a substantial increase in 2022 to 350.2 million, marking a reversal from the tax benefit to a large tax provision. The provision then decreased to 293.4 million in 2023 and further to 142.1 million in 2024. This pattern indicates volatility in the tax provision, potentially driven by changes in taxable income, tax rates, or tax planning strategies over the years.

Cash operating taxes

Cash operating taxes have shown a consistent upward trend from 2019 through 2023. Starting at 262.7 million US dollars in 2019, cash taxes slightly declined to 246.6 million in 2020, but thereafter increased significantly to 385.9 million in 2021. The upward trend continued in 2022, reaching 720.3 million, nearly doubling the prior year's amount. The growth decelerated somewhat but continued to rise, reaching 796.5 million in 2023. However, in 2024, cash operating taxes fell to 563.8 million, indicating a notable reduction compared to the previous two years. This pattern suggests increased cash tax outflows over the majority of the period with a notable decline in the latest year, possibly reflecting changes in operational profitability, tax credits, or tax payment timing.

Total reported debt & leases

The total reported debt and leases exhibit an overall increasing trend over the observed periods. Starting at approximately 5.87 billion in 2019, the amount decreased slightly to about 5.47 billion in 2020, then rose sharply to reach a peak of 7.12 billion in 2021. Subsequently, the debt level fluctuated but generally increased, ending at roughly 7.97 billion in 2024. This pattern indicates a growing reliance on debt financing or leases, particularly noticeable with the significant jump between 2020 and 2021, and continued increases thereafter.

Shareholders’ equity

Shareholders' equity shows considerable growth from 11.71 billion in 2019 to a substantial rise reaching nearly 38 billion in 2021, more than tripling from the initial value. After 2021, equity values slightly declined but remained relatively stable in the 35 to 36 billion range through to 2024. The considerable increase between 2020 and 2021 suggests significant equity injections or retained earnings accumulation, followed by a moderate correction or stabilization in subsequent years.

Invested capital

Invested capital mirrors the pattern observed in shareholders’ equity, starting near 18.35 billion in 2019 and holding steady through 2020. It then undergoes a sharp increase to over 47 billion in 2021, corresponding to the surge in equity, before gradually decreasing over the following years to approximately 43.52 billion by 2024. This trajectory suggests major investments or acquisitions occurring around 2021, with a slight reduction or optimization of capital employed in later periods.

Economic Profit

The economic profit exhibits a persistently negative trend throughout the periods analyzed. Initially recorded at approximately -1.2 billion USD in late 2019, it deteriorated further, reaching a peak negative value near -6.17 billion USD by late 2021. Although a subsequent improvement is noted in 2022 and 2023, bringing the figure closer to -3.75 billion USD, the economic profit again worsens in 2024, recording nearly -5.48 billion USD. This pattern indicates sustained economic losses with fluctuations that suggest varying operational or market challenges impacting profitability.

Invested Capital

The invested capital demonstrates an upward trend from around 18.3 billion USD in 2019 to over 47 billion USD in 2021, marking a substantial increase in assets or investments during this period. However, following this peak, there is a gradual decline over the subsequent years, dropping to approximately 43.5 billion USD by 2024. This reversal suggests potential divestitures, asset write-downs, or restrained capital deployment in the recent years.

Economic Spread Ratio

The economic spread ratio remains negative over the entire timeline, indicating that the returns on invested capital consistently fall below the cost of capital. Starting at -6.55% in 2019, it worsens to a low of -13.12% in 2021, reflecting a period of diminished economic viability. Improvements are seen in 2022 and 2023, reducing the negative spread to around -8.5%, yet the ratio again decreases sharply to -12.59% in 2024. The fluctuating but predominantly negative economic spread underscores persistent difficulties in value creation despite adjustments in capital deployment.

Revenue Trends

The revenue experienced fluctuations over the analyzed periods. Initially, revenue decreased from approximately $5.99 billion in 2019 to $5.60 billion in 2020. Subsequently, a notable increase occurred in 2021, reaching about $7.32 billion, followed by a substantial surge in 2022 to approximately $12.01 billion. In 2023, revenue maintained a similar level at $12.31 billion before declining again in 2024 to roughly $9.43 billion. Overall, this pattern indicates volatility with significant peaks in 2022 and 2023, and a decline afterward.

Economic Profit Analysis

The economic profit values were consistently negative throughout the period, indicating a recurring economic loss. The losses deepened from roughly -$1.20 billion in 2019 to nearly -$1.48 billion in 2020, followed by a sharp increase in the magnitude of losses in 2021, reaching over -$6.17 billion. Although losses decreased in the two subsequent years, they remained substantial at approximately -$4.44 billion in 2022 and -$3.76 billion in 2023. The most recent data in 2024 shows an increase in losses again to nearly -$5.48 billion. This trend suggests persistent challenges in generating returns above cost of capital despite variations in revenue.

Economic Profit Margin Insights

The economic profit margin, representing economic profit as a percentage of revenue, consistently showed negative values, reaffirming the inability to produce positive economic profit. The margin deteriorated from -20.07% in 2019 to -26.40% in 2020, then dramatically worsened to -84.32% in 2021. Improvements were observed in 2022 and 2023 at -36.98% and -30.54%, respectively, before worsening again to -58.13% in 2024. These fluctuations indicate variability in the company's capacity to manage costs relative to revenue and suggest periods of particularly inefficient resource use or increased costs in 2021 and 2024.

Overall Observations

The data reveals a company facing significant economic profit challenges despite varying revenue levels. Periods of higher revenue did not translate into economic profitability, as reflected by the persistent negative economic profit margins. The volatility in both revenue and economic profit margins highlights difficulties in maintaining a stable and efficient operational and financial performance over the analyzed timeframe.