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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
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Applied Materials Inc. pages available for free this week:
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Debt to Equity since 2005
- Analysis of Revenues
- Aggregate Accruals
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Economic Profit
12 months ended: | Oct 27, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Oct 25, 2020 | Oct 27, 2019 | |
---|---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | |||||||
Cost of capital2 | |||||||
Invested capital3 | |||||||
Economic profit4 |
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2024 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in warranty reserves.
4 Addition of increase (decrease) in severance and related charges reserves.
5 Addition of increase (decrease) in equity equivalents to net income.
6 2024 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2024 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net income.
9 2024 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
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.
Cash Operating Taxes
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
- 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.
Invested Capital
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of warranty reserves.
5 Addition of severance and related charges reserves.
6 Addition of equity equivalents to stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of construction in progress.
9 Subtraction of available-for-sale investments.
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.
Cost of Capital
Applied Materials Inc., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2024-10-27).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2023-10-29).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2022-10-30).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-10-31).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2020-10-25).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2019-10-27).
1 US$ in millions
2 Equity. See details »
3 Debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Oct 27, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Oct 25, 2020 | Oct 27, 2019 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | |||||||
Economic profit1 | |||||||
Invested capital2 | |||||||
Performance Ratio | |||||||
Economic spread ratio3 | |||||||
Benchmarks | |||||||
Economic Spread Ratio, Competitors4 | |||||||
Advanced Micro Devices Inc. | |||||||
Analog Devices Inc. | |||||||
Broadcom Inc. | |||||||
Intel Corp. | |||||||
KLA Corp. | |||||||
Lam Research Corp. | |||||||
Micron Technology Inc. | |||||||
NVIDIA Corp. | |||||||
Qualcomm Inc. | |||||||
Texas Instruments Inc. |
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
1 Economic profit. See details »
2 Invested capital. See details »
3 2024 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- Economic profit demonstrated an overall upward trajectory from 2019 to 2022, increasing from 1004 million US dollars to a peak of 3942 million US dollars. However, there was a notable decline in the subsequent years, falling to 2945 million US dollars in 2023 and further to 1917 million US dollars in 2024. This indicates a period of significant profit growth followed by a contraction in economic profitability.
- Invested Capital
- Invested capital experienced consistent growth throughout the entire period under review. Starting at 10129 million US dollars in 2019, it rose steadily each year to reach 22135 million US dollars in 2024. This reflects ongoing expansion or increased investment in capital assets.
- Economic Spread Ratio
- The economic spread ratio saw an increase from 9.91% in 2019 to a high point of 26.47% in 2022, indicating improving returns relative to cost of capital during this period. However, the ratio decreased sharply thereafter, falling to 16.56% in 2023 and further down to 8.66% in 2024, which suggests a diminishing spread and potentially reduced efficiency in generating returns on invested capital.
In summary, while both economic profit and economic spread ratio showed strong growth until 2022, the subsequent decline in these metrics alongside continual growth in invested capital suggests that recent years have been characterized by increasing assets but diminishing returns on those investments. This could imply challenges in maintaining previous profitability levels despite expanded capital investment.
Economic Profit Margin
Oct 27, 2024 | Oct 29, 2023 | Oct 30, 2022 | Oct 31, 2021 | Oct 25, 2020 | Oct 27, 2019 | ||
---|---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | |||||||
Economic profit1 | |||||||
Net revenue | |||||||
Performance Ratio | |||||||
Economic profit margin2 | |||||||
Benchmarks | |||||||
Economic Profit Margin, Competitors3 | |||||||
Advanced Micro Devices Inc. | |||||||
Analog Devices Inc. | |||||||
Broadcom Inc. | |||||||
Intel Corp. | |||||||
KLA Corp. | |||||||
Lam Research Corp. | |||||||
Micron Technology Inc. | |||||||
NVIDIA Corp. | |||||||
Qualcomm Inc. | |||||||
Texas Instruments Inc. |
Based on: 10-K (reporting date: 2024-10-27), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27).
1 Economic profit. See details »
2 2024 Calculation
Economic profit margin = 100 × Economic profit ÷ Net revenue
= 100 × ÷ =
3 Click competitor name to see calculations.