Broadcom Inc. (NASDAQ:AVGO)

The financial data indicates notable fluctuations and trends over the observed periods in key performance metrics and capital allocation efficiency.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows an overall upward trajectory from 2019 through 2023, increasing from $3,003 million to a peak of $14,440 million. This represents substantial growth over the five-year span. However, in the latest period, there is a marked decline to $11,075 million, suggesting potential challenges impacting operational profitability after reaching the highest point one year earlier.

Cost of Capital

The cost of capital has gradually increased throughout the years, starting at 13.29% in 2019 and rising to 15.54% by 2024. The steady increase in cost of capital reflects potentially higher risk perceptions, inflationary pressures, or shifts in the financing environment that may affect capital expenditure decisions and valuation of the business.

Invested Capital

Invested capital remained relatively stable between 2019 and 2023, fluctuating narrowly within the $60,000-$62,000 million range. However, the latest period shows a dramatic surge to nearly $141,000 million, more than doubling prior levels. This significant increase suggests major investments, acquisitions, or restructuring of the capital base that drastically alter the company's asset and capital structure.

Economic Profit

Economic profit exhibits considerable volatility over the period. Initially, it is negative, indicating that returns were insufficient to cover the cost of capital, with losses deepening from -$4,976 million in 2019 to -$5,679 million in 2020. Improvement occurs by 2021, narrowing losses to -$2,065 million, followed by a positive turnaround in 2022 and 2023 with profits of $3,793 million and $4,726 million respectively. In the latest period, economic profit sharply drops to a negative $10,838 million, the lowest point recorded, closely aligned with the substantial increase in invested capital, indicating the company may be facing challenges in generating adequate returns on its expanded capital base.

In summary, while operational profitability improved significantly until 2023, the subsequent period appears to be challenging with decreases in net profits and substantial capital investments that have not yet yielded positive economic profits. The rising cost of capital coupled with large capital deployment may be pressuring financial performance and economic value creation in the most recent fiscal year.

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 financial data reveals fluctuating trends in economic profit, invested capital, and economic spread ratio over the analyzed periods.

Economic Profit

Economic profit remained negative during the first three periods, with the largest losses recorded in the fiscal years ending in 2019 and 2020. A significant improvement occurred in 2022 and 2023, with economic profit turning positive and peaking at 4,726 million US dollars in 2023. However, the latest period reflects a substantial reversal, with economic profit plunging to -10,838 million US dollars, indicating a marked deterioration in profitability.

Invested Capital

Invested capital showed a moderate increase from 60,032 million US dollars in 2019 to around 62,670 million US dollars in 2023, suggesting relatively stable investment levels during this timeframe. Nonetheless, the data for the most recent period reveals a dramatic surge to 140,990 million US dollars, which more than doubles the previous values. This sharp rise indicates a significant expansion or acquisition of assets, warranting further investigation regarding its impact on returns.

Economic Spread Ratio

The economic spread ratio followed a trajectory similar to economic profit, displaying negative values in the initial three periods, reaching its lowest at -8.61% in 2020. It shifted to positive territory in 2022 and 2023, peaking at 7.54% in 2023, reflecting improved profitability relative to the cost of capital. The most recent period, however, shows a swift decline back to a negative ratio of -7.69%, consistent with the downturn in economic profit and the surge in invested capital. This suggests that the recent increase in invested capital has not translated into proportional returns, negatively affecting the economic spread.

Overall, the company demonstrated a recovery in economic profitability during the middle periods, but the latest data indicates significant challenges, likely due to a massive increase in invested capital that has yet to generate positive economic returns.

Net Revenue

The net revenue of the company shows a consistent upward trend over the periods analyzed. Starting at approximately $22.6 billion in 2019, it increased modestly in 2020 and 2021, followed by a more marked rise in 2022 and 2023, and a significant jump to over $51.5 billion by 2024. This indicates strong top-line growth, especially in the most recent year.

Economic Profit

Economic profit exhibited a notably volatile pattern. Initially, the company reported substantial negative economic profits in 2019 and 2020, indicating that it was not generating returns above its cost of capital during these years. The loss peaked in 2020 at nearly -$5.7 billion. A dramatic improvement occurred in 2022 and 2023, with positive economic profits of $3.8 billion and $4.7 billion respectively, suggesting enhanced operational efficiency or higher returns. However, this positive momentum reversed sharply in 2024, with economic profit plunging back into negative territory at over -$10.8 billion, exceeding previous losses.

Economic Profit Margin

The economic profit margin mirrors the fluctuations seen in economic profit. Initially deeply negative in 2019 and 2020 (-22.02% and -23.77%), it improved steadily to a nearly neutral level in 2021 (-7.52%), then turned positive in 2022 and 2023 (11.42% and 13.19%), reflecting profitability above the cost of capital. The margin abruptly deteriorated in 2024, plunging to -21.01%, signaling a significant decline in economic efficiency despite the revenue increase.

Overall Analysis

The data reveal a company experiencing strong revenue growth, especially in the latest year, but with significant volatility in economic profit and profitability margins. The positive turnaround during 2022 and 2023 suggests periods of improved operational effectiveness and value creation. However, the sharp decline in 2024 economic profit and margin despite high revenue points to increased costs, decreased efficiency, or other financial challenges that eroded value. This indicates a need for careful examination of underlying factors affecting profitability amid expanding sales.