Broadcom Inc. (NASDAQ:AVGO)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes showed a general upward trend from 2019 to 2023, increasing from 3,003 million US dollars in 2019 to a peak of 14,440 million US dollars in 2023. However, in 2024, there was a noticeable decline to 11,075 million US dollars, indicating a reduction in operational profitability compared to the previous year.

Cost of Capital

The cost of capital steadily increased throughout the entire period, rising from 13.28% in 2019 to 15.53% in 2024. This gradual increase suggests a higher required return on invested capital or possibly an increased risk profile over time.

Invested Capital

Invested capital remained relatively stable between 2019 and 2023, fluctuating modestly between 60,032 million and 62,670 million US dollars. In 2024, there was a significant increase to 140,990 million US dollars, more than doubling the prior levels. This substantial rise indicates major investments or acquisitions that occurred in the latest year.

Economic Profit

Economic profit was negative in all years except for 2022 and 2023. From 2019 to 2021, the company experienced significant economic losses, although the magnitude of losses decreased in 2021 (-2,057 million US dollars) compared to prior years. In 2022 and 2023, positive economic profit was generated, reaching a high of 4,734 million US dollars in 2023. However, in 2024, economic profit sharply declined to -10,819 million US dollars, reflecting a material deterioration in value creation despite the prior years’ improvements.

Summary of Trends

The financial data reveals increasing profitability and stable capital deployment up to 2023, accompanied by rising cost of capital. The spike in invested capital by 2024 coincides with a decline in both net operating profit and economic profit, suggesting challenges in realizing returns on recent investments or increased financial pressures. The fluctuation in economic profit highlights volatility in value generation, with recent years showing weakness after a brief period of improvement.

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

Over the analyzed period, economic profit exhibited significant fluctuations. Initially, it remained negative, declining from -4970 million USD in 2019 to a low point of -5671 million USD in 2020. A marked improvement occurred in 2021 and 2022, with economic profit turning positive, reaching 3800 million USD in 2022 and further increasing to 4734 million USD in 2023. However, in 2024, the economic profit sharply reversed to a substantial negative value of -10819 million USD, indicating a potential loss or adverse financial event during that year.

Invested Capital

The invested capital showed a generally stable trend from 2019 through 2023, fluctuating within a range of approximately 60 billion to 65 billion USD. This stability suggests consistent investment levels in the company's assets during this period. However, in 2024, there was a notable increase to 140990 million USD, more than doubling the prior values. This sharp rise could indicate a significant capital infusion, acquisition, or revaluation of investments.

Economic Spread Ratio

The economic spread ratio, representing the difference between return on invested capital and cost of capital, was negative from 2019 through 2021, indicating returns below the cost of capital. The ratio improved considerably in 2022 and 2023, turning positive at 6.12% and 7.55% respectively, reflecting favorable financial performance and value creation. However, a substantial decline occurred in 2024, with the ratio falling back to -7.67%, which aligns with the negative economic profit experienced that year and suggests diminished operational efficiency or profitability relative to capital costs.

Overall Financial Trends

The data reveals a period of financial distress followed by recovery and value creation between 2019 and 2023, with improvements in both economic profit and economic spread ratio. The stability of invested capital up to 2023 indicates consistent asset investment strategies. The sharp declines seen in economic profit and economic spread ratio in 2024, coupled with the dramatic increase in invested capital, signal a significant shift in financial strategy or external challenges impacting company performance. This may warrant further investigation into the causes behind the 2024 figures.

Net Revenue Trends

The net revenue of the company demonstrated a consistent upward trajectory over the analyzed periods. Beginning at approximately $22.6 billion, revenues increased steadily year-over-year, reaching over $51.5 billion in the most recent period. This reflects robust growth in top-line performance, with particularly noticeable accelerated revenue gains in the latter years.

Economic Profit Evolution

The economic profit showed significant fluctuations across the periods. Initially, economic profit was negative, indicating losses, with values around -$5 billion in the earliest periods. There was a notable improvement culminating in positive economic profit values above $4.7 billion during the 2022 and 2023 periods. However, this positive trend reversed sharply in the last period, plunging to a negative economic profit of approximately -$10.8 billion, signaling substantial economic losses.

Economic Profit Margin Pattern

The economic profit margin followed a similar pattern to economic profit. It started significantly negative near -22%, marginally declining further to nearly -24% in subsequent early periods. By 2022 and 2023, the margin became positive, peaking at around 13%, indicating improved efficiency in generating value beyond the cost of capital. Yet the margin deteriorated drastically in the final period, returning to a negative level close to -21%, suggesting impaired profitability relative to invested capital.

Overall Financial Insights

The data suggest a period of strong revenue growth paired with volatile profitability outcomes. While top-line growth appears robust, the economic profit and margin metrics reveal challenges in maintaining consistent economic value creation, especially in the latest period where there is a sharp reversal to economic losses. This juxtaposition implies that despite increasing sales, cost structures, capital charges, or other economic factors significantly impacted overall profitability, necessitating a closer examination of operational efficiency and investment returns.