Fortinet Inc. (NASDAQ:FTNT)

The financial performance, as measured by economic value added (EVA) metrics, demonstrates a consistent positive trend over the observed period. Net operating profit after taxes (NOPAT) and economic profit both exhibit substantial growth, while the cost of capital remains relatively stable. Invested capital shows a significant increase, particularly in later years.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased steadily from US$554.165 million in 2018 to US$1,822.720 million in 2022. This represents a substantial increase, indicating improved operational efficiency and profitability. The growth rate appears to accelerate from 2020 onwards.

Cost of Capital

The cost of capital remained relatively consistent throughout the period, fluctuating slightly between 18.83% and 19.14%. The marginal decrease in 2021 and 2022 suggests a potentially improving capital structure or market conditions. However, the changes are minimal.

Invested Capital

Invested capital increased from US$1,886.300 million in 2018 to US$4,282.000 million in 2022. The most significant increase occurred between 2020 and 2022, suggesting substantial investments in growth initiatives or acquisitions during those years. The increase in invested capital is proportionally less than the increase in NOPAT, which is a positive sign.

Economic Profit

Economic profit, a key indicator of value creation, increased consistently from US$193.662 million in 2018 to US$1,016.449 million in 2022. This positive trend aligns with the growth in NOPAT and suggests that the company is generating returns exceeding its cost of capital. The rate of increase in economic profit mirrors the acceleration observed in NOPAT growth.

Overall, the observed trends indicate a strengthening financial position and an increasing ability to generate economic profit. The consistent growth in NOPAT, coupled with a stable cost of capital and increasing invested capital, suggests effective capital allocation and operational performance.

Net Income Attributable to Fortinet, Inc.

The net income attributable to the company exhibited a positive growth trend over the five-year period. Starting at 332,200 thousand US dollars in 2018, the figure slightly decreased to 326,500 thousand in 2019. However, from 2019 onwards, a significant upward trajectory is evident, with net income rising to 488,500 thousand in 2020, 606,800 thousand in 2021, and reaching 857,300 thousand in 2022. This progression indicates strong profitability improvement, particularly after 2019.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a consistent and robust increase during the same timeframe. From 554,165 thousand US dollars in 2018, it climbed steadily each year: 773,545 thousand in 2019, 966,259 thousand in 2020, 1,371,124 thousand in 2021, and culminating at 1,822,720 thousand in 2022. The rate of growth accelerated notably after 2020, reflecting enhanced operating efficiency and/or expansion of core business operations.

Overall Trends and Insights

Both net income and NOPAT depict a healthy and improving financial performance over the five-year span. The initial slight dip in net income in 2019 contrasts with a continuous increase in NOPAT, suggesting operational resilience despite minor fluctuations in net profitability that year. The marked growth in both metrics post-2019 underscores successful strategic execution, greater operational leverage, or favorable market conditions contributing to substantially higher earnings and operating profits by 2022.

Provision for (benefit from) income taxes

The provision for income taxes displayed considerable volatility over the five-year period. Initially, there was a significant income tax benefit of -81,300 thousand US dollars in 2018, indicating a tax gain rather than an expense. This shifted dramatically in 2019, turning into a tax expense of 52,700 thousand US dollars, which then remained relatively stable through 2020 at 53,200 thousand US dollars. In the subsequent years, the provision showed a decreasing trend in magnitude to 14,100 thousand US dollars in 2021, followed by an increase to 30,800 thousand US dollars in 2022. Overall, the data suggests a transition from a tax benefit to consistent tax expenses, with some fluctuations in the expense levels in recent years.

Cash Operating Taxes

Cash operating taxes showed a pronounced upward trend throughout the period examined. Beginning at 20,735 thousand US dollars in 2018, the amount decreased to 13,846 thousand US dollars in 2019, representing a short-term decline. However, from 2019 onwards, cash operating taxes rose sharply every year, reaching 56,940 thousand US dollars in 2020, 108,979 thousand US dollars in 2021, and peaking at 257,229 thousand US dollars in 2022. This consistent increase may indicate growing taxable income, changes in tax strategy, or increased profitability subject to cash tax payments.

Total Reported Debt & Leases

The total reported debt and leases remained relatively stable from 2018 to 2020, fluctuating between 46,100 and 53,100 thousand US dollars. However, there was a significant increase in 2021, with the value rising sharply to 1,055,200 thousand US dollars. This upward trend continued into 2022, with a slight further increase to 1,086,100 thousand US dollars, indicating a large increase in debt and lease obligations in the most recent two years.

Total Stockholders’ Equity (Deficit)

Stockholders’ equity exhibited a rising trend from 2018 through 2019, increasing from 1,010,200 thousand US dollars to 1,321,900 thousand US dollars. In 2020, equity declined sharply to 856,000 thousand US dollars and continued to decrease in 2021 to 781,700 thousand US dollars. The trend culminated in 2022 with a negative equity position of -281,600 thousand US dollars, reflecting a shift from equity surplus to deficit over the five-year period.

Invested Capital

Invested capital increased steadily over the observed period. It rose from 1,886,300 thousand US dollars in 2018 to 2,227,800 thousand US dollars in 2019 and remained close to that level in 2020 at 2,218,800 thousand US dollars. A notable increase occurred in 2021 when invested capital surged to 3,286,100 thousand US dollars, followed by continued growth in 2022 reaching 4,282,000 thousand US dollars. This indicates an expanding capital base, particularly pronounced in the most recent two years.

The economic profit of the company demonstrates a consistent upward trend over the observed period. From 2018 to 2022, economic profit increased substantially, moving from US$193.662 million to US$1.016 billion. Invested capital also increased during this timeframe, although the rate of increase was not constant. It rose from US$1.886 billion in 2018 to US$4.282 billion in 2022, with a notable jump between 2020 and 2021.

Economic Spread Ratio

The economic spread ratio exhibits an overall increasing trend, indicating improving returns relative to the cost of capital. The ratio began at 10.27% in 2018 and rose to 15.59% in 2019, representing a significant initial increase. Further growth was observed, reaching a peak of 24.40% in 2020. While the ratio experienced a slight decrease to 22.90% in 2021, it recovered to 23.74% in 2022. This suggests that the company consistently generated returns exceeding its cost of capital throughout the period, with a particularly strong performance in 2020.

The concurrent increases in both economic profit and invested capital, coupled with a consistently positive and generally increasing economic spread ratio, suggest effective capital allocation and value creation. The slight dip in the economic spread ratio in 2021, despite continued growth in economic profit, warrants further investigation to understand the drivers behind the change in the relationship between profit and invested capital.

The substantial growth in economic profit indicates successful operational performance and strategic decision-making. The increasing invested capital suggests ongoing investment in growth initiatives. The economic spread ratio provides a key metric for assessing the efficiency with which capital is deployed to generate returns.

The economic profit and adjusted revenue figures demonstrate consistent growth between 2018 and 2022. This growth is accompanied by a notable increase in the economic profit margin, indicating improving profitability relative to revenue.

Economic Profit

Economic profit increased substantially over the five-year period, rising from US$193.662 million in 2018 to US$1.016 billion in 2022. The rate of increase appears to accelerate from 2019 to 2021, before moderating slightly in 2022.

Adjusted Revenue

Adjusted revenue also exhibited consistent growth, increasing from US$2.152 billion in 2018 to US$5.605 billion in 2022. Similar to economic profit, the growth rate in adjusted revenue appears to be highest between 2020 and 2021.

Economic Profit Margin

The economic profit margin shows a clear upward trend, increasing from 9.00% in 2018 to 18.14% in 2022. This indicates that the company is becoming more efficient at converting revenue into economic profit. The increase was most pronounced between 2018 and 2020, with subsequent annual increases becoming more incremental, though still positive. The margin stabilized around the 18% level in the last two years of the observed period.

The consistent growth in both economic profit and adjusted revenue, coupled with the increasing economic profit margin, suggests a strengthening financial performance over the analyzed timeframe. The company appears to be effectively scaling its operations and improving its profitability.