Broadcom Inc. (NASDAQ:AVGO)

Net operating profit after taxes (NOPAT)

The NOPAT exhibited a significant upward trend from 2019 through 2023, increasing from 3,003 million USD in 2019 to a peak of 14,440 million USD in 2023. However, this was followed by a notable decline in 2024, dropping to 11,075 million USD. This indicates strong growth in operating profitability until 2023, with a sharp reduction in the most recent period.

Cost of capital

The cost of capital showed a consistent increase over the periods, rising from 13.29% in 2019 to 15.54% in 2024. This steady increase suggests a growing cost pressure on capital, potentially reflecting higher risks or market conditions affecting the company's financing costs.

Invested capital

Invested capital remained relatively stable between 2019 and 2023, fluctuating slightly but staying within the 60,000 to 65,000 million USD range. In 2024, there was a considerable surge to 140,990 million USD, more than doubling the previous levels. This substantial increase may represent major investments or acquisitions undertaken in the latest year.

Economic profit

The economic profit was negative from 2019 through 2021, indicating that the company was not generating returns above its cost of capital during these years. In 2022 and 2023, economic profit turned positive and increased from 3,795 million USD to 4,728 million USD, reflecting performance improvements and value creation. Nevertheless, economic profit sharply declined to -10,833 million USD in 2024, indicating substantial value destruction likely due to the combination of increased invested capital and decreased operating profit after taxes.

Overall analysis

The data reveals a period of strong operating profitability growth accompanied by rising cost of capital until 2023, with relatively stable invested capital. Positive economic profit in 2022 and 2023 suggests efficient capital use during these years. However, the sharp decline in operating profit, combined with a significant increase in invested capital and a rising cost of capital in 2024, led to a steep negative economic profit. This points to challenges in effectively deploying the increased capital base or adverse operational shifts impacting value creation in the most recent period.

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 shows a fluctuating pattern over the observed periods. Initially, there is a negative economic profit of -4974 million USD, which further declines to -5677 million USD the following year. A significant improvement occurs in 2021, with a reduced negative economic profit of -2063 million USD, followed by a positive turn in 2022, reaching 3795 million USD. This upward trend continues into 2023 with economic profit peaking at 4728 million USD; however, a drastic reversal is observed in 2024, plummeting to -10833 million USD, the lowest point recorded in the timeframe.

Invested capital

The invested capital values generally increase over the years with some variability. Starting at 60032 million USD in 2019, the capital rises to 65921 million USD in 2020, then slightly declines to 64649 million USD in 2021, and further decreases to 62111 million USD in 2022. The invested capital shows a minor increase in 2023 to 62670 million USD, followed by a substantial jump to 140990 million USD in 2024, representing more than a twofold increase from the previous year.

Economic spread ratio

The economic spread ratio exhibits volatility with an overall negative trend. Starting at -8.29% in 2019, it declines marginally to -8.61% in 2020, before improving to -3.19% in 2021. In 2022, this metric turns positive at 6.11%, and further improves to 7.54% in 2023, reflecting enhanced profitability relative to invested capital during this period. Nevertheless, 2024 sees a sharp reversal back to negative territory at -7.68%, indicating a contraction in the economic spread.

The financial data reveals notable fluctuations in key performance indicators over the observed periods.

Economic Profit

The economic profit showed a negative trend from 2019 through 2021, indicating losses that decreased from -4974 million US$ in 2019 to -2063 million US$ in 2021. This negative economic profit reversed to positive values in 2022 and 2023, reaching 3795 million US$ and 4728 million US$ respectively, suggesting improved operational efficiency or profitability during these years. However, there is a substantial and sharp decline in 2024, with the economic profit plummeting to -10833 million US$, indicating significant economic losses that surpass all prior values in magnitude.

Net Revenue

Net revenue demonstrates a consistent and strong upward trend across all periods. It increased steadily from 22597 million US$ in 2019 to 35819 million US$ in 2023, reflecting sustained growth in sales or services. This growth trajectory intensifies in 2024, with net revenue reaching 51574 million US$, marking a significant jump compared to previous years.

Economic Profit Margin

The economic profit margin mirrors the pattern seen in economic profit. Initially, it remained negative in 2019 (-22.01%) through 2021 (-7.51%), indicating the company was generating less economic profit relative to revenue. The margin turned positive in 2022 (11.43%) and further improved in 2023 (13.2%), suggesting better profitability relative to net revenue. Nonetheless, a marked downturn occurred in 2024, with the margin dropping sharply to -21%, signaling that despite increased revenue, the company experienced losses relative to sales at a rate close to that seen five years prior.

In summary, while net revenue has consistently risen over the years, economic profit and its margin have been volatile. The company showed signs of recovery and improved profitability during 2022 and 2023, yet suffered a significant reversal in 2024 with heavy economic losses despite record-high revenue. This suggests issues in cost management, pricing, or other financial factors affecting profitability that overshadow revenue growth in the most recent period.