Applied Materials Inc. (NASDAQ:AMAT)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes exhibited a general upward trend from 2019 to 2022, increasing from 2,934 million US dollars to a peak of 6,900 million US dollars. However, after reaching this peak, NOPAT declined in the subsequent years, falling to 6,533 million in 2023 and 6,363 million in 2024, indicating a reduction in operational profitability following the 2022 high.

Cost of Capital

The cost of capital remained relatively stable over the six-year period, fluctuating slightly around 20%. It increased gradually from 19.18% in 2019 to a peak of 20.32% in 2023, followed by a slight decrease to 20.22% in 2024. This suggests a consistently high required return on invested capital with minor variation year over year.

Invested Capital

Invested capital demonstrated a consistent and substantial increase throughout the entire period, rising from 10,129 million US dollars in 2019 to 22,135 million US dollars in 2024. This continuous growth signifies ongoing capital investment to support operations or expansion, with a marked acceleration in increases particularly noticeable between 2022 and 2024.

Economic Profit

Economic profit showed a positive and strong growth trend initially, rising from 992 million US dollars in 2019 to a high of 3,923 million in 2022. After this peak, economic profit declined substantially to 2,921 million in 2023 and further to 1,888 million in 2024. This decline suggests that while the company generated value above its cost of capital early in the period, its economic profit-generating capability diminished considerably in the last two years analyzed.

Overall Analysis

The company experienced strong growth in profitability and value creation from 2019 through 2022, supported by steady investment increases. The cost of capital remained relatively stable, indicating consistent capital market expectations. However, the decline in both NOPAT and economic profit after 2022 suggests emerging challenges in maintaining profitability and value generation despite continued capital investment. The reduction in economic profit, in particular, points to decreasing returns relative to the capital invested, which could signal pressures on operational efficiency or profitability margins in recent periods.

The financial data reveals a general upward trend in the company's profitability over the years under review.

Net Income

Net income has shown consistent growth from 2019 through 2024. Starting at 2,706 million US dollars in 2019, it increased steadily each year to reach 7,177 million US dollars in 2024. This represents a more than doubling of net income over the six-year period, indicating strong financial performance and effective management of expenses relative to revenue.

Net Operating Profit After Taxes (NOPAT)

NOPAT also exhibited growth from 2019 through 2022, increasing from 2,934 million US dollars to 6,900 million US dollars, which reflects improvements in operating efficiency and tax management. However, there is a slight downward trend observed in the last two years, decreasing to 6,533 million in 2023 and further to 6,363 million in 2024. This suggests a potential reduction in operational efficiency or changes in tax impacts during the most recent period.

Comparing net income and NOPAT trends, it is evident that while net income maintains a robust growth path, NOPAT has begun to stabilize and slightly decline. This may indicate increased financial activities or non-operating gains contributing to net income, or possible changes in operational conditions needing further investigation.

Provision for Income Taxes

The provision for income taxes shows a general upward trend over the six-year period. Starting at $563 million in 2019, it slightly decreased to $547 million in 2020 but then increased substantially to $883 million in 2021. This upward trajectory continued with provisions of $1,074 million in 2022. A decrease occurred in 2023, with the provision falling to $860 million, followed by a rebound to $975 million in 2024. These fluctuations suggest variability in taxable income or changes in tax rates or regulations impacting the tax provision.

Cash Operating Taxes

Cash operating taxes show a consistent and pronounced increase throughout the period. Beginning at $563 million in 2019, cash taxes slightly decreased to $530 million in 2020 but then rose steadily each subsequent year: $868 million in 2021, $920 million in 2022, followed by a more marked increase to $1,215 million in 2023, and reaching $1,606 million in 2024. This substantial increase in cash taxes paid indicates growing tax liabilities settled in cash, which may reflect higher taxable income or changes in tax payment schedules and cash flow management.

Comparative Analysis

The provision for income taxes and cash operating taxes follow somewhat similar trends with both increasing from 2020 onwards, though the cash taxes show a more aggressive increase from 2022 to 2024. Notably, cash operating taxes exceeded the provision for income taxes from 2023 onwards, implying potential timing differences between accrued tax expenses and actual tax payments or adjustments such as payment of prior year liabilities or changes in deferred tax balances.

The financial data reveals several notable trends over the six-year period. Total reported debt and leases increased steadily from 5,464 million US dollars in 2019 to 6,605 million US dollars in 2024. This represents a moderate but consistent growth in the company's financial obligations, suggesting an ongoing strategy involving increased leverage or financing through debt instruments.

Stockholders’ equity exhibited significant growth, rising from 8,214 million US dollars in 2019 to 19,001 million US dollars in 2024. This increase reflects a strengthening equity base, which may be attributed to retained earnings, new equity issuances, or asset revaluation. The growth in equity outpaces the growth in reported debt, indicating an overall improvement in the company’s financial position from an equity perspective.

Invested capital also demonstrated a rising trend, growing from 10,129 million US dollars in 2019 to 22,135 million US dollars in 2024. This metric encompasses both equity and debt financing, and its increase corresponds with the observed growth in both debt and equity. The substantial growth in invested capital suggests increased investment in company assets, potentially aimed at supporting expansion or enhancing operational capacity.

Overall, the data indicates a company that is incrementally increasing its financial leverage while simultaneously enhancing its equity base and investing more capital into the business. This balanced growth in debt and equity, coupled with the substantial rise in invested capital, may imply strategic investments geared toward long-term growth objectives.

Economic Profit

The economic profit demonstrated a rising trend from 992 million US dollars in 2019 to a peak of 3,923 million US dollars in 2022. This represents substantial growth over the initial three-year period. However, the figure declined notably to 2,921 million in 2023 and further to 1,888 million in 2024, indicating a reduction in economic profit during the last two years under review.

Invested Capital

Invested capital showed a continuous upward trend throughout the entire period, starting at 10,129 million US dollars in 2019 and increasing steadily each year to reach 22,135 million US dollars by 2024. This consistent increase suggests ongoing significant capital investment or asset growth by the company.

Economic Spread Ratio

The economic spread ratio exhibited considerable variability over the years. It increased gradually from 9.79% in 2019 to a high of 26.35% in 2022, which aligns with the peak in economic profit, reflecting a period of improved returns relative to the cost of capital. After 2022, the ratio dropped sharply to 16.43% in 2023 and further to 8.53% in 2024, approaching levels similar to those at the beginning of the period. This downward trend post-2022 indicates diminishing returns on invested capital.

The financial data indicates several notable trends in the company's performance over the six-year period.

Net Revenue

The net revenue displays a continuous upward trajectory from 2019 to 2024. Starting at $14,608 million in 2019, revenue increased steadily each year, reaching $27,176 million in 2024. This consistent growth suggests sustained expansion in sales or service delivery, with the growth rate appearing to slow somewhat in the later years.

Economic Profit

The economic profit shows a more variable pattern compared to net revenue. There was significant growth from $992 million in 2019 to a peak of $3,923 million in 2022, reflecting enhanced profitability. However, post-2022, economic profit declined sharply to $1,888 million by 2024, indicating reduced profitability despite increasing revenue. This decline could suggest rising costs, increased capital charges, or diminishing returns on invested capital in the later years.

Economic Profit Margin

The economic profit margin mirrors the trend observed in economic profit, rising from 6.79% in 2019 to a peak of 15.21% in 2022. This implies improved operational efficiency or better capital utilization up to 2022. From 2022 onwards, the margin falls significantly to 6.95% in 2024, correlating with the decrease in economic profit and indicating a potential erosion in profitability relative to net revenue.

In summary, while the company exhibits strong revenue growth over the examined period, its economic profit and profit margin have been more volatile. The peak in 2022 followed by a marked decline suggests challenges in maintaining profitability despite expanding sales, warranting a review of cost structures, capital efficiency, or market conditions affecting margins.