Broadcom Inc. (NASDAQ:AVGO)

The analysis of the financial data reveals several significant trends across the periods presented.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a general upward trend from 2019 through 2023, increasing from $3,003 million to a peak of $14,440 million in 2023. However, in the most recent period (2024), there is a notable decline to $11,075 million, indicating a reduction in operating profitability after taxes.

Cost of Capital

The cost of capital steadily increased each year, starting at 13.26% in 2019 and rising to 15.5% by 2024. This increasing cost indicates a higher required return on invested capital, which could pressure future profitability assessments and valuation metrics.

Invested Capital

Invested capital remained relatively stable from 2019 through 2023, fluctuating slightly within a narrow range around $60,000 to $62,670 million. However, in 2024, there is a sharp increase to approximately $140,990 million, more than doubling the previous period. This spike suggests significant investment or acquisition activity, changes in asset base, or possibly a reclassification of capital components.

Economic Profit

Economic profit was negative from 2019 through 2021, showing losses ranging from -$4,955 million to -$5,655 million, improving to a smaller loss of -$2,040 million in 2021. It then turned positive in the 2022 and 2023 periods, reaching $3,817 million and $4,753 million respectively. However, in 2024, economic profit deteriorates sharply to -$10,778 million, despite the previously strong operating profits, reflecting the combined effect of increased invested capital and a higher cost of capital.

Overall, the company exhibited strong operational performance from 2019 to 2023, with increasing NOPAT and a transition from negative to positive economic profit. The rising cost of capital over the same period represents a tightening financial environment or increased risk perceptions. The dramatic increase in invested capital coupled with decreased economic profit in the latest period suggests challenges in generating sufficient returns on new investments or capital employed, resulting in value destruction. These factors warrant close monitoring to assess the sustainability of profitability and capital efficiency going forward.

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.

The economic profit demonstrates significant fluctuations over the analyzed periods. Initially, it shows a substantial negative value, reaching its lowest point in the year 2020, before improving markedly in the subsequent years 2022 and 2023, where it turns positive. However, there is a sharp reversal in the latest period, with economic profit dropping drastically back to a large negative value.

The invested capital exhibits a generally stable trend from 2019 to 2023, with slight fluctuations but maintaining a level between approximately 60,000 and 66,000 million US dollars. In the most recent period, however, there is a pronounced increase, more than doubling the invested capital to nearly 141,000 million US dollars.

The economic spread ratio mirrors the pattern observed in economic profit. It starts with negative values in 2019 and 2020, indicating returns below the cost of capital. The ratio then improves significantly in 2022 and 2023, turning positive and suggesting value creation during those years. In 2024, the ratio declines sharply into negative territory once again, consistent with the downturn seen in economic profit.

Summary

The financial data reveals a cyclical pattern in profitability, with economic profit and economic spread ratio both recovering from negative values to positive in 2022 and 2023 but then deteriorating substantially in 2024. Meanwhile, invested capital remains relatively stable until a substantial increase in 2024, which coincides with the negative reversal in economic performance. These trends suggest recent volatility in value creation and a significant shift in capital deployment strategy in the latest period.

The analysis of the annual financial data reveals significant fluctuations in key performance indicators over the six-year period.

Net Revenue

There is a consistent upward trend in net revenue, with figures increasing from $22,597 million in 2019 to $51,574 million in 2024. This indicates steady revenue growth, more than doubling over the period. The growth appears particularly sharp between 2023 and 2024.

Economic Profit

The economic profit shows substantial volatility. Initially, the company experienced negative economic profits, worsening from -$4,955 million in 2019 to -$5,655 million in 2020. This was followed by a significant improvement in 2021 to -$2,040 million, turning positive in 2022 and 2023 with $3,817 million and $4,753 million respectively. However, in 2024, economic profit drastically declined to -$10,778 million, representing a sharp reversal back into substantial losses.

Economic Profit Margin

The economic profit margin mirrors the trend seen in economic profit. It starts negative and worsening, from -21.93% in 2019 to -23.67% in 2020, improves considerably to -7.43% in 2021 and turns positive in 2022 (11.5%) and 2023 (13.27%). Nonetheless, in 2024, the margin plunges back into negative territory at -20.9%, indicating significantly reduced profitability relative to revenue.

Overall, while revenue growth appears strong and consistent, the company’s economic profitability has been highly unstable. Positive improvements in economic profit and margins in 2022 and 2023 suggest operational gains during those years, but the sharp decline in 2024 should be reviewed closely to identify underlying causes and assess implications for future performance.