Illumina Inc. (NASDAQ:ILMN)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes exhibited a general upward trend from 2016 to 2019, increasing from 453 million USD in 2016 to a peak of 957 million USD in 2019. However, in 2020 there was a significant decline to 593 million USD, indicating a considerable reduction in operational profitability during that year.

Cost of Capital

The cost of capital showed a gradual increase over the analyzed period, rising from 14.56% in 2016 to 15.14% in 2020. This increase suggests a rising expense or required return on invested capital, which may have implications for investment decisions and valuation.

Invested Capital

Invested capital demonstrated a consistent growth pattern from 2,874 million USD in 2016 to 4,997 million USD in 2019, reflecting ongoing investments or asset accumulation. However, in 2020, invested capital slightly decreased to 4,907 million USD, indicating a possible slowdown or divestment.

Economic Profit

Economic profit showed considerable variation during the period. From a modest 35 million USD in 2016, it surged markedly to 211 million USD in 2017 and remained relatively stable through 2019 around the 190-212 million USD range. In 2020, economic profit turned negative, registering a loss of 150 million USD. This shift indicates that in 2020, returns failed to cover the cost of capital, possibly reflecting reduced profitability alongside increased capital costs.

Overall Insights

The company experienced growing profitability and invested capital through most years up to 2019, alongside a steadily increasing cost of capital. However, 2020 marks a clear inflection point with declines in net operating profit and economic profit turning negative, despite only a slight reduction in invested capital. The rising cost of capital throughout the period, combined with the 2020 downturn, suggests increased financial pressure and challenges in generating value above capital costs. The data highlights a need for careful evaluation of operational efficiency and capital management post-2019.

Net Income Attributable to Illumina Stockholders

The net income demonstrated an overall upward trend from 2016 to 2019, starting at 463 million US dollars in 2016 and reaching a peak of 1002 million US dollars in 2019. This represents a substantial growth over the four-year period. However, in 2020, there was a notable decline to 656 million US dollars, which indicates a reversal of the previous growth trend.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a similar pattern to net income, increasing consistently from 453 million US dollars in 2016 to 957 million US dollars in 2019. This increase reflects improving operational efficiency and profitability. However, in 2020, NOPAT decreased to 593 million US dollars, signaling a significant downturn in operating profitability in that year.

Overall Observations

Both net income and NOPAT showed strong positive growth through 2019, indicating solid financial performance and effective management of operational costs and taxes. The decline observed in 2020 suggests that external factors or internal challenges may have adversely affected profitability. The 2020 results warrant further investigation to identify specific causes and to assess the sustainability of future earnings.

The financial data reveals the trends in tax-related expenses over five fiscal years ending from 2016 to 2020. Both the provision for income taxes and cash operating taxes have exhibited fluctuations throughout this period.

Provision for Income Taxes

This item showed a significant increase from $133 million in 2016 to a peak of $365 million in 2017. Subsequently, it decreased sharply to $112 million in 2018 and remained relatively stable in 2019 with a slight increase to $128 million. In 2020, there was a notable rise again to $200 million.

Cash Operating Taxes

Cash operating taxes also followed a somewhat similar pattern, increasing from $140 million in 2016 to $344 million in 2017. After 2017, there was a decline to $133 million in 2018, followed by a further decrease to $114 million in 2019. In 2020, cash operating taxes dropped dramatically to $35 million, reaching the lowest level in the five-year span.

Overall, both tax provisions and cash operating taxes peaked sharply in 2017, followed by declines in subsequent years. However, while the provision for income taxes saw a rebound in 2020, cash operating taxes continued to decline substantially. This divergence in 2020 may indicate changes in tax payment timing, tax strategy, or the recognition of deferred tax liabilities.

The financial data indicates several notable trends in the company's capital structure and financing components over the five-year period ending December 31, 2020.

Total reported debt & leases

This metric exhibits moderate fluctuations, beginning at $1,795 million in 2016, rising to a peak of $2,599 million in 2018, before decreasing to approximately $1,881 million in 2019 and stabilizing around $1,906 million in 2020. The increase through 2018 suggests a period of increased borrowing or lease commitments, followed by a reduction implying possible debt repayment or lease adjustments.

Total stockholders’ equity

Equity shows a consistent, steady increase year-over-year, rising from $2,197 million in 2016 to $4,694 million in 2020. The equity nearly doubled over the period, reflecting retained earnings growth, possible capital raises, or accumulated comprehensive income, indicating strengthening financial stability and increased shareholder value.

Invested capital

Invested capital generally trends upward from $2,874 million in 2016 to a peak of $4,997 million in 2019, with a slight decrease to $4,907 million in 2020. This overall growth reflects increased funding employed in the business, either through equity or liabilities, aligning with growth or expansion strategies. The small decline in 2020 suggests a minor contraction or adjustment in the capital base.

Overall, the company demonstrates a strengthening equity base coupled with management of debt levels, maintaining total invested capital at elevated levels consistent with potential expansion or operational scaling. The reduction in debt after 2018, alongside rising equity, may suggest a strategic shift towards lower leverage, improving financial flexibility.

The financial data presents a mixed performance trend across the five-year period ending in 2020. The economic profit showed a general increase from 35 million US dollars in 2016 to a peak of 212 million US dollars in 2019, followed by a sharp decline to a negative 150 million US dollars in 2020. This indicates a significant deterioration in profitability in the latest period.

Invested capital steadily increased each year from 2,874 million US dollars in 2016 to 4,997 million US dollars in 2019, before slightly decreasing to 4,907 million US dollars in 2020. This rising trend in capital investment suggests ongoing expansion or asset accumulation over the first four years, tapering off in the last year of the record.

The economic spread ratio, which measures the return on invested capital relative to its cost, improved markedly from 1.21% in 2016 to a high of 5.87% in 2017. Afterward, it declined gradually to 4.76% in 2018 and 4.24% in 2019. The final year, 2020, exhibited a notable reversal to a negative spread ratio of -3.06%, revealing that the company’s returns on capital were lower than its capital costs during that year.

In summary, the data reflects a period of growth and improving returns up to 2019, followed by a contraction in economic profit and a negative return spread in 2020, despite a relatively stable level of invested capital. The negative economic profit and spread ratio in 2020 signify a challenging financial environment or operational difficulties during that period.

Revenue Trend

The revenue demonstrated a consistent upward trajectory from 2016 to 2019, increasing from $2,398 million to $3,543 million. However, in 2020, revenue declined to $3,239 million, indicating a departure from the previous growth pattern.

Economic Profit Analysis

Economic profit experienced significant fluctuations over the observed period. Starting at $35 million in 2016, it peaked dramatically at $211 million in 2017, then slightly decreased to $190 million in 2018, followed by a modest increase to $212 million in 2019. In 2020, economic profit turned negative, declining sharply to -$150 million, suggesting a substantial erosion of value during that year.

Economic Profit Margin Insights

The economic profit margin mirrored the economic profit trend with considerable variation. It rose from 1.45% in 2016 to a high of 7.67% in 2017, followed by declines to 5.69% in 2018 and a slight rebound to 5.98% in 2019. The margin then dropped significantly to -4.64% in 2020, indicating that the company experienced losses relative to its revenue base in the most recent year.

Overall Observations

From 2016 through 2019, the company showcased revenue growth accompanied by mostly positive economic profit and margins, reflecting increasing value creation. The year 2020 marked a notable reversal, with decreased revenue, negative economic profit, and negative profit margin, signaling operational or market challenges that adversely impacted financial performance.