Broadcom Inc. (NASDAQ:AVGO)

Net Operating Profit After Taxes (NOPAT)

There is a significant upward trend in NOPAT from 2019 to 2023, rising from $3,003 million to a peak of $14,440 million. This indicates a strong improvement in operating profitability over these years. However, in 2024, NOPAT declines notably to $11,075 million, suggesting a reduction in operating profit after taxes compared to the previous year.

Invested Capital

Invested capital exhibits moderate fluctuations between 2019 and 2023, remaining in the range of approximately $60 billion to $63 billion. In 2024, invested capital experiences a substantial increase to $140,990 million, more than doubling compared to the previous years. This sharp rise may indicate significant new investments or acquisitions during this period.

Return on Invested Capital (ROIC)

ROIC shows a declining trend from 5% in 2019 to 4.8% in 2020, followed by a marked improvement to 11.02% in 2021. The upward momentum continues with ROIC reaching a high of 23.04% in 2023, reflecting enhanced efficiency in generating returns from invested capital. However, in 2024, ROIC drops sharply to 7.86%, coinciding with the large increase in invested capital and the decrease in NOPAT, indicating reduced efficiency in capital utilization during this final period.

Overall Analysis

The data reveals a period of strong growth in profitability and capital efficiency from 2019 through 2023, as evidenced by rising NOPAT and ROIC. This growth phase is interrupted in 2024 where, despite a significant increase in invested capital, both NOPAT and ROIC decline substantially. This suggests potential challenges such as integration costs from investments, declining operational performance, or other factors affecting profitability and capital returns in the latest period.

The analysis of the financial performance over the reported periods reveals several notable trends in profitability, asset utilization, tax efficiency, and overall returns.

Operating profit margin (OPM)

The operating profit margin exhibits a significant upward trend from 15.65% in 2019 to a peak of 45.19% in 2023, indicating enhanced operational efficiency and profitability. However, there is a marked decline to 26.39% in the latest period, suggesting some possible challenges or increased costs affecting profitability in the most recent year.

Turnover of capital (TO)

The turnover of capital shows moderate fluctuations, starting at 0.38 in 2019 and decreasing slightly to 0.36 in 2020. It then increases steadily, reaching 0.57 in 2023 before dropping back to 0.37 in 2024. This suggests variations in how effectively the company utilizes its invested capital to generate revenue, with a peak efficiency around 2023 followed by a notable decrease.

1 – Effective cash tax rate (CTR)

This measure shows variability, beginning at 84.9% in 2019 and decreasing to 77.37% in 2020, suggesting some improvement in tax efficiency. It then rises sharply, peaking at 90.41% in 2022, remaining high in 2023, and finally dropping to 81.38% in 2024. Overall, the company experiences periods of both higher and lower tax burdens, with high effective tax rates in most recent years except the latest, which shows improvement.

Return on invested capital (ROIC)

The ROIC displays a strong upward trajectory from a low 5% in 2019 to 23.04% in 2023, indicating improving returns on the capital invested in the business. Nonetheless, the ROIC declines sharply to 7.86% in 2024, mirroring the declines observed in both operating profit margin and capital turnover, which may point to emerging profitability or efficiency challenges.

In summary, the company demonstrated substantial improvement in profitability and capital efficiency up to 2023, alongside fluctuating tax effectiveness. The latest period reflects a considerable reverse in these positive trends, with declines in operating profit margin, capital turnover, and ROIC, suggesting a need for further investigation into the underlying causes and potential strategic adjustments.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes exhibited a general upward trend over the examined periods, increasing from $3,537 million in 2019 to a peak of $16,185 million in 2023. However, a decline was observed in 2024, with the figure dropping to $13,609 million. This indicates an overall improvement in profitability before taxes followed by a recent decrease.

Net Revenue

Net revenue demonstrated consistent growth throughout the periods under review. Starting at $22,597 million in 2019, revenue increased steadily each year, reaching $35,819 million in 2023, and then showing a significant jump to $51,574 million in 2024. This substantial increase in the final year suggests a strong expansion in the company’s sales and business volume.

Operating Profit Margin (OPM)

The operating profit margin experienced considerable variation during the timeframe. It rose sharply from 15.65% in 2019 to a peak of 45.19% in 2023, indicating improving operational efficiency and profitability relative to net revenue. However, in 2024, the margin declined to 26.39%, suggesting either increased operating costs or a less favorable profit mix despite the higher revenue.

Summary of Trends

The financial data highlights a pattern of robust revenue growth with an accompanying rise in profitability until 2023. The decline in both net operating profit before taxes and operating profit margin in 2024, despite a significant increase in revenue, points to potential challenges in cost management or changing market dynamics impacting profitability. The data suggests that while sales have expanded notably, maintaining operational efficiency remains an area requiring attention.

Net Revenue

Net revenue exhibited a generally increasing trend over the analyzed periods. Starting at $22,597 million, revenue rose steadily each year until reaching $35,819 million in the year ending October 29, 2023. A substantial increase was observed in the most recent period, with net revenue rising sharply to $51,574 million. This indicates significant growth in sales or services delivered in the latest year.

Invested Capital

Invested capital showed moderate fluctuations from 2019 to 2023, starting at $60,032 million and moving within a relatively narrow range to $62,670 million by late 2023. However, a notable surge occurred in the last period under review, reaching $140,990 million, more than doubling the previous amount. This suggests a major capital investment or acquisition occurred in the most recent year, impacting the company's asset base significantly.

Turnover of Capital (TO)

The turnover of capital ratio demonstrated some variability across the years. Initially, the ratio declined slightly from 0.38 to 0.36 between 2019 and 2020, then improved notably, reaching a peak of 0.57 in 2023, reflecting enhanced efficiency in generating revenue from invested capital. Nonetheless, the ratio dropped sharply to 0.37 in the final period, likely influenced by the substantial increase in invested capital, which outpaced revenue growth, thereby reducing capital turnover efficiency.

Overall Insights

The financial data illustrates strong revenue growth paired with a relatively stable invested capital base for several years, leading to improved capital turnover efficiency. The most recent period shows significant capital expansion, likely due to strategic investments, which, while boosting revenue, has temporarily reduced turnover of capital efficiency. Monitoring how invested capital translates into revenue in future periods will be essential to assess ongoing operational efficiency and returns on new investments.

Cash Operating Taxes

The cash operating taxes exhibited a generally upward trend over the six-year period, rising from 534 million USD in 2019 to 2534 million USD in 2024. There was a particularly marked increase between 2023 and 2024, with taxes growing by nearly 45%. This suggests a growing tax burden or increased profitability subject to taxation.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes showed substantial growth from 2019 to 2023, increasing from 3537 million USD to a peak of 16185 million USD in 2023, reflecting strong operational performance and possibly improved margins. However, in 2024, there was a noticeable decline to 13609 million USD, indicating either reduced operational efficiency, increased costs, or less favorable market conditions impacting profitability.

Effective Cash Tax Rate (CTR)

The effective cash tax rate displayed significant fluctuations throughout the period. It started at 15.1% in 2019, peaked at 22.63% in 2020, then dropped considerably to single digits in 2022 and 2023 (9.59% and 10.78%, respectively). In 2024, the effective tax rate rose again to 18.62%. These variations may indicate changes in tax planning strategies, tax legislation, or one-time tax adjustments affecting the company's cash tax burden in different years.