Broadcom Inc. (NASDAQ:AVGO)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes shows a generally increasing trend from 2019 to 2023, growing from 3,003 million USD in 2019 to a peak of 14,440 million USD in 2023. However, there is a notable decline in 2024, with NOPAT decreasing to 11,075 million USD. This suggests strong operational performance improvement over several years, followed by a significant reduction in the most recent period.

Cost of Capital

The cost of capital has gradually increased over the years, starting at 13.09% in 2019 and rising each year to reach 15.3% in 2024. This consistent upward trend indicates a rising expense of financing or capital risk over the period, which could impact investment and valuation decisions.

Invested Capital

Invested capital experienced moderate fluctuations from 2019 through 2023, ranging between approximately 60,000 million USD and 62,700 million USD, signifying relative stability in the capital base during that time. However, in 2024, invested capital sharply increased to 140,990 million USD, more than doubling the previous years’ levels. This substantial increase might reflect significant new investments, acquisitions, or capital restructuring.

Economic Profit

The economic profit was negative from 2019 through 2021, indicating returns below the cost of capital during those years. In 2022 and 2023, economic profit improved markedly, turning positive and reaching a high of 4,877 million USD in 2023. Nonetheless, in 2024, economic profit declined sharply to a negative 10,497 million USD, suggesting a substantial erosion of value relative to the cost of capital despite the higher invested capital.

Summary of Insights

Overall, operational profitability improved substantially until 2023, accompanied by positive economic profit, indicating value creation. The steadily rising cost of capital likely pressured returns. The dramatic increase in invested capital in 2024, combined with declining NOPAT and sharply negative economic profit, signals a period of underperformance and potential challenges in effectively utilizing the expanded capital base for profitable growth. This may warrant further investigation into capital allocation and operational efficiency in the latest 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 demonstrates considerable fluctuation over the observed periods. Initially, it was significantly negative in 2019 and 2020, with values of -4858 million and -5547 million US dollars, respectively. A marked improvement is evident in 2021, where the loss narrowed to -1926 million US dollars. This trend reversed dramatically in 2022 and 2023, yielding positive economic profits of 3932 million and 4877 million US dollars, correspondingly. However, in 2024, the economic profit sharply declined again to -10497 million US dollars, representing a substantial deterioration compared to previous years.

Invested Capital

Invested capital showed a generally stable trend from 2019 to 2023, ranging between approximately 60 billion and 63 billion US dollars. A significant change occurred in 2024, with invested capital more than doubling to 140990 million US dollars. This drastic increase suggests a major capital investment or acquisition, which could have impacted the company’s economic performance in the most recent year.

Economic Spread Ratio

The economic spread ratio paralleled the trends seen in economic profit. It was negative and declining slightly from -8.09% in 2019 to -8.41% in 2020. In 2021, the negative spread lessened considerably to -2.98%, followed by a positive shift in 2022 and 2023, reaching 6.33% and 7.78%, respectively. The ratio then reverted back to negative in 2024, at -7.45%, underscoring the challenging economic conditions or reduced profitability relative to invested capital.

Summary of Trends

The data reveals a volatile economic performance, with improvements in 2022 and 2023 that were not sustained into 2024. The sharp increase in invested capital in 2024 together with the decline in economic profit and spread ratio suggests that recent investments may not have yet translated into profitability or may have incurred significant costs. Careful analysis of the underlying drivers for these shifts is advised to understand the sustainability of the company's financial position.

Economic Profit

The economic profit displayed a volatile pattern over the analyzed periods. Starting from a significant loss of 4,858 million US dollars in 2019, the loss steepened to 5,547 million in 2020. However, there was a notable recovery in 2021 with losses narrowing to 1,926 million, followed by a turnaround to positive values in 2022 and 2023, recording profits of 3,932 million and 4,877 million respectively. The latest data from 2024 shows a sharp reversal to a substantial loss of 10,497 million, indicating considerable financial challenges during this period.

Net Revenue

Net revenue exhibited consistent growth throughout the periods under review. Starting at 22,597 million US dollars in 2019, there was a year-over-year increase each subsequent period, reaching 51,574 million in 2024. This steady upward trend suggests expanding business activity and revenue-generating capacity despite fluctuations in economic profit and margin.

Economic Profit Margin

The economic profit margin mirrored the fluctuation seen in economic profit, starting from a negative 21.5% in 2019 and declining further to -23.22% in 2020. Improvement was observed in 2021 as the margin moved closer to break-even at -7.01%. In 2022 and 2023, the margin turned positive, reaching 11.84% and 13.62% respectively, aligning with positive economic profits during these years. The most recent figure from 2024 shows a return to negative territory at -20.35%, signaling a significant deterioration in profitability relative to revenue.

Summary

The data highlights a complex financial performance profile characterized by continuous revenue growth alongside significant volatility in profitability measures. The periods ending in 2022 and 2023 were marked by improved economic profit and margin, indicating enhanced operational efficiency or cost management. However, the sharp decline in economic profit and margin in 2024 suggests emerging challenges that have substantially impacted profitability despite revenue growth. This divergence between revenue expansion and profitability warrants further investigation into cost structure, market conditions, or other operational factors affecting economic profit.