Broadcom Inc. (NASDAQ:AVGO)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes shows an upward trend from 2019 through 2023, increasing from 3003 million US dollars to a peak of 14440 million US dollars in 2023. However, in 2024, there is a notable decline to 11075 million US dollars, signaling a reduction in operating profitability compared to the previous year.

Cost of Capital

The cost of capital has steadily increased over the period, starting at 13.29% in 2019 and rising to 15.54% in 2024. This rise suggests a growing expense associated with financing the invested capital, potentially reflecting market conditions, increased risk, or changes in the company's capital structure.

Invested Capital

Invested capital remained relatively stable and slightly fluctuated between 2019 and 2023, ranging roughly between 60,000 and 63,000 million US dollars. In 2024 there is a significant increase, with invested capital more than doubling to 140,990 million US dollars. This sharp rise could indicate major investments, acquisitions, or accounting changes impacting the capital base.

Economic Profit

Economic profit was negative from 2019 through 2021, indicating that the company's returns were below its cost of capital during these years. In 2022 and 2023, economic profit turned positive, reaching 4728 million US dollars, showing that the company generated value beyond the required return on capital. However, in 2024, economic profit declined abruptly to a negative figure of -10,834 million US dollars, revealing substantial value destruction despite the increase in invested capital.

The financial data reveals significant variability in the company's profitability over the analyzed periods.

Net Income

There is a general upward trend in net income from 2019 through 2023, increasing from 2,724 million US dollars to a peak of 14,082 million US dollars in 2023. However, in the most recent period ending November 3, 2024, net income has sharply declined to 5,895 million US dollars. This pattern suggests that while the company experienced strong growth in profitability over the four years, the latest year indicates a substantial reduction in net earnings.

Net Operating Profit After Taxes (NOPAT)

NOPAT follows a similar trajectory, rising steadily from 3,003 million US dollars in 2019 to a high of 14,440 million US dollars in 2023. The data for 2024 shows a decrease to 11,075 million US dollars. Although this represents a fall compared to the prior year, the operating profit after taxes remains at an elevated level relative to the initial years, indicating that the company maintains strong core profitability despite the recent decline.

Overall, the company demonstrated impressive growth in both net income and operating profit from 2019 through 2023, reaching substantial earnings highs in the 2023 period. The subsequent decrease in 2024, particularly notable in net income, may warrant further investigation to understand underlying causes such as market conditions, operational challenges, or one-time events affecting profitability. Regardless, the sustained high NOPAT level in 2024 compared to earlier years indicates ongoing operational strength.

Provision for (benefit from) income taxes

The provision for income taxes shows a significant upward trend over the reported periods. Initially, there were negative values indicating a tax benefit, with -$510 million in 2019 and -$518 million in 2020. Starting from 2021, the provision shifted to positive values, recording $29 million in 2021, followed by a substantial increase to $939 million in 2022. This upward trajectory continued with $1,015 million in 2023 and further surged to $3,748 million in 2024. This pattern suggests a major change in tax expense recognition or profitability leading to higher tax provisions in recent years.

Cash operating taxes

Cash operating taxes exhibit a consistent and pronounced increase throughout the periods reviewed. The amount rose from $534 million in 2019 to $925 million in 2020. This upward movement continued steadily to $1,402 million in 2021 and remained relatively stable at $1,367 million in 2022. More recently, the figure increased to $1,745 million in 2023 and further escalated significantly to $2,534 million in 2024. This trend reflects growing cash outflows for tax payments, possibly associated with higher taxable income or changes in tax regulations.

Total reported debt & leases

The total reported debt and leases showed an increasing trend from 33,447 million USD in 2019 to 41,689 million USD in 2020. It then slightly decreased over the next three years, reaching 39,648 million USD in 2023. However, in 2024, there was a significant jump to 68,916 million USD, nearly doubling compared to the previous year. This sharp increase suggests a substantial rise in borrowing or lease obligations in the most recent period.

Stockholders’ equity

Stockholders' equity fluctuated modestly between 24,941 million USD in 2019 and 23,874 million USD in 2020, followed by a recovery to 24,962 million USD in 2021. Thereafter, it declined again to a low of 22,709 million USD in 2022, before slightly increasing to 23,988 million USD in 2023. A notable increase occurred in 2024, with equity rising sharply to 67,678 million USD. This surge aligns with the pattern of increased invested capital and may indicate equity financing or revaluation effects during the period.

Invested capital

Invested capital displayed a steady increase from 60,032 million USD in 2019 to a peak of 65,921 million USD in 2020, followed by a minor decline to 62,670 million USD in 2023. A dramatic rise in invested capital was observed in 2024, reaching 140,990 million USD, more than doubling the prior year value. This significant growth suggests substantial investment activities or acquisitions, possibly funded by the increased debt and equity seen in the same period.

Overall analysis

The financial data reveals relative stability in debt, equity, and invested capital from 2019 through 2023, with moderate fluctuations. The year 2024, however, marked a considerable shift characterized by sharp increases in all three key metrics: debt, equity, and invested capital. The simultaneous escalation of these figures points to a major capital restructuring, expansion, or acquisition event during this period. Such changes warrant further investigation to understand the underlying drivers and implications for financial risk and company strategy.

Economic profit

The economic profit exhibited significant fluctuations over the analyzed periods. Initially, it showed considerable negative values, starting at -4975 million USD and worsening to -5677 million USD. A substantial improvement occurred in the subsequent years, turning positive with 3794 million USD and rising slightly to 4728 million USD. However, the last reported period revealed a sharp decline to -10834 million USD, indicating a reversal to a deep negative economic profit position.

Invested capital

The invested capital demonstrated a generally stable trend from 2019 through 2023, ranging between approximately 60 billion USD and 62.7 billion USD. A marked increase is observed in the final period, with capital more than doubling to 140.99 billion USD, signifying significant growth or investment activity in the latest year.

Economic spread ratio

The economic spread ratio, representing the difference between returns on invested capital and cost of capital, mirrored the economic profit trend closely. It started with negative percentages around -8.29% and -8.61%, improved toward positive territory with 6.11% and 7.54%, and then declined back to a substantial negative figure of -7.68%. This ratio confirms volatility in economic value generation relative to capital costs.

Net Revenue

There has been a consistent upward trend in net revenue over the six-year period. Starting from 22,597 million USD, it increased each year, reaching 51,574 million USD in the most recent period. This reflects a strong growth trajectory in the company's top-line performance.

Economic Profit

The economic profit showed considerable volatility throughout the timeframe. Initially, the company had negative economic profit, with values of -4,975 million USD and -5,677 million USD in the first two periods, respectively. This indicated losses exceeding the cost of capital. A significant improvement is observed starting in 2021, turning positive in 2022 and 2023 with values of 3,794 million USD and 4,728 million USD, respectively. However, the most recent year sees a sharp reversal to a large negative economic profit of -10,834 million USD.

Economic Profit Margin

The economic profit margin mirrored the fluctuations found in economic profit. It remained negative in the first three periods, with the largest negative margin being -23.77% in 2020. A notable turnaround occurred in 2022 and 2023, with the margin becoming positive at 11.43% and 13.2%, suggesting improved profitability relative to revenue. Nevertheless, this positive trend did not sustain, as the margin steeply declined to -21.01% in the latest period, indicating a substantial decrease in profitability relative to sales.

Overall Analysis

Although the company managed to grow its net revenue substantially over time, profitability and economic profit have not followed a stable upward trajectory. After enduring significant losses early on, the company demonstrated an impressive recovery with positive economic profit and margins for two years. However, the sudden and sizeable downturn in the latest year signals potential challenges that have negatively impacted economic returns despite higher revenue levels. This volatility in economic profit should be closely examined for underlying causes such as cost management issues, investment inefficiencies, or market changes affecting profitability.