Broadcom Inc. (NASDAQ:AVGO)

The financial data reveals several significant trends over the analyzed periods. Net operating profit after taxes (NOPAT) exhibits a strong upward trajectory from 2019 through 2023, increasing from 3,003 million USD to a peak of 14,440 million USD. However, in the final period, 2024, there is a notable decline to 11,075 million USD, indicating potential challenges affecting profitability.

The cost of capital shows a consistent incremental rise from 13.25% in 2019 to 15.49% in 2024, suggesting increasing expectations from investors or rising capital expenses. This upward trend in cost of capital impacts the calculation of economic profit.

Invested capital fluctuates somewhat in the initial years, peaking at 65,921 million USD in 2020 before a slight decline towards 62,670 million USD in 2023. In the last period, 2024, invested capital experiences a substantial increase to 140,990 million USD, more than doubling the previous amounts. This sharp rise may be linked to significant investments or acquisitions.

Economic profit reflects the difference between NOPAT and the cost of capital applied to invested capital. It remains negative during the first three periods, although the deficit lessens from -4,953 million USD in 2019 to -2,037 million USD in 2021. The company achieves positive economic profit in 2022 and 2023, reaching 3,821 million USD and 4,756 million USD respectively, demonstrating effective value creation during these years. However, a marked reversal occurs in 2024 with economic profit plunging to -10,770 million USD. This sharp decline likely results from the combined effects of reduced NOPAT and significantly higher invested capital alongside elevated cost of capital.

Overall, the data indicates a period of improving profitability and value creation through 2023, followed by a convergence of rising capital costs, increased capital investment, and diminished operating profits in 2024 that adversely affect economic profit and may warrant further investigation.

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 periods analyzed. It started with a negative value of -4953 million US dollars in 2019, deepened further to -5652 million in 2020, then improved sharply in 2021, rising to -2037 million. The upward trend continued, turning positive in 2022 with 3821 million US dollars and further increasing to 4756 million in 2023. However, in 2024, there was a pronounced reversal, with economic profit declining drastically to -10770 million US dollars, the lowest point in the period under review.

Invested Capital

Invested capital showed a generally stable trend from 2019 through 2023, ranging between approximately 60,000 to 66,000 million US dollars. Specifically, it increased from 60,032 million in 2019 to a peak of 65,921 million in 2020, followed by slight fluctuations and a small decline to 62,670 million in 2023. Notably, in 2024, invested capital nearly doubled, reaching 140,990 million US dollars, marking a significant expansion of the company's capital base.

Economic Spread Ratio

The economic spread ratio started at a negative -8.25% in 2019, deteriorated further to -8.57% in 2020, and then improved notably in 2021 to -3.15%. In 2022, this ratio turned positive at 6.15%, strengthening further to 7.59% in 2023, indicative of improved returns over the cost of capital. However, in 2024, the ratio again plunged to -7.64%, aligning with the negative economic profit observed that year, suggesting a substantial decline in the company's economic performance relative to invested capital.

The financial data over the six-year period reveals significant fluctuations in both economic profit and economic profit margin, alongside steady growth in net revenue.

Net Revenue

Net revenue exhibits a consistent upward trend from 22,597 million US$ in 2019 to 51,574 million US$ in 2024, representing more than a twofold increase over the period. The growth appears steady each year, with particularly notable increases between 2022 and 2024.

Economic Profit

Economic profit demonstrates marked volatility throughout the period. Initially, the company reported substantial economic losses of -4,953 million US$ in 2019 and -5,652 million US$ in 2020. A marked improvement is observed in 2021, with losses narrowing significantly to -2,037 million US$. In 2022 and 2023, the company achieved positive economic profits of 3,821 million US$ and 4,756 million US$, indicating effective value creation during these years. However, 2024 reflects a sharp reversal with economic profit plunging to a substantial loss of -10,770 million US$.

Economic Profit Margin

The economic profit margin mirrors the trend in economic profit, beginning with a negative margin of -21.92% in 2019 that worsens slightly to -23.66% in 2020. In 2021, the margin improves significantly to -7.42%, turning positive in 2022 at 11.51%, and further increasing to 13.28% in 2023. This indicates a period of strong profitability relative to revenue. Nevertheless, the margin suffers a dramatic decline in 2024, dropping to -20.88%, which signals a reversal in profitability despite the continued increase in revenue.

Overall, the data suggests that while revenue growth has been robust and consistent, profitability as measured by economic profit and economic profit margin has been highly volatile. The period of positive economic profit in 2022 and 2023 indicates successful operational and financial performance improvements, but the sharp downturn in 2024 raises concerns about cost management, market conditions, or other factors adversely impacting value generation during the most recent year.