Illumina Inc. (NASDAQ:ILMN)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes exhibited a generally increasing trend from 2016 to 2019, growing from 453 million USD to a peak of 957 million USD. However, there was a notable decline in 2020, where the value decreased to 593 million USD. This suggests a significant contraction in operating profitability in the most recent year.

Cost of Capital

The cost of capital showed a gradual upward trend over the period, rising from 14.56% in 2016 to 15.15% in 2020. This incremental increase implies a rising hurdle rate for the company, potentially reflecting greater perceived risk or changes in market conditions.

Invested Capital

Invested capital steadily increased from 2,874 million USD in 2016 to a high of 4,997 million USD in 2019, followed by a slight decrease to 4,907 million USD in 2020. This pattern indicates continuous capital investment and asset expansion until 2019, with a marginal reduction in the final year analyzed.

Economic Profit

Economic profit rose significantly from 35 million USD in 2016 to a peak of 211 million USD in 2017, remaining relatively stable in 2018 and 2019 with values around 190 to 212 million USD. However, in 2020, economic profit turned negative, recording -151 million USD. This shift reflects the combined effect of declining profitability and increasing capital costs, resulting in value destruction during the last year.

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 key indicators reflecting the company’s economic performance and capital utilization over five consecutive years ending in 2020. The analysis focuses on economic profit, invested capital, and the economic spread ratio.

Economic Profit

There was a notable increase in economic profit from 2016 to 2017, rising from 35 million to 211 million US dollars. This strong performance continued with a slight decrease in 2018 to 190 million, followed by a moderate rebound in 2019 to 212 million US dollars. However, in 2020, economic profit turned negative, resulting in a loss of 151 million US dollars. This sharp decline indicates a significant deterioration in profitability or value creation during the final year analyzed.

Invested Capital

Invested capital showed a consistent upward trend from 2016 through 2019, increasing from 2,874 million to 4,997 million US dollars. In 2020, there was a slight decrease to 4,907 million US dollars, which may suggest limited disinvestment or capital reduction efforts, but overall, the capital base expanded substantially over the period.

Economic Spread Ratio

The economic spread ratio, representing the difference between return on invested capital and the cost of capital expressed as a percentage, improved markedly from 1.21% in 2016 to a peak of 5.87% in 2017. This ratio decreased progressively in the following years to 4.75% in 2018 and 4.24% in 2019, reflecting diminishing economic returns despite a positive spread. The ratio turned negative in 2020 at -3.07%, signaling that the company’s returns fell below its cost of capital, aligning with the negative economic profit observed in the same year.

In summary, the company experienced profitability growth and enhanced capital efficiency in the years leading up to 2019, supported by increasing invested capital and a favorable economic spread ratio. The year 2020 marked a reversal in these trends, characterized by negative economic profit and a negative economic spread ratio, highlighting potential challenges in maintaining value creation and capital efficiency under that period’s conditions.

Revenue Trend

Revenue showed a steady upward trajectory from 2016 through 2019, increasing from 2,398 million US dollars to 3,543 million US dollars. However, in 2020, revenue declined to 3,239 million US dollars, indicating a reversal of the prior growth trend.

Economic Profit

Economic profit exhibited significant fluctuations over the analyzed period. Beginning with 35 million US dollars in 2016, economic profit rose sharply to 211 million in 2017, followed by a slight decrease to 190 million in 2018. It recovered to 212 million in 2019 before declining dramatically to a negative value of -151 million in 2020. This negative economic profit in 2020 suggests the company incurred value destruction during that year.

Economic Profit Margin

The economic profit margin paralleled the economic profit trend. It started at a low level of 1.45% in 2016, peaked at 7.67% in 2017, and then moderately declined to 5.69% in 2018. In 2019, it slightly increased to 5.97%, showing reasonable profitability. However, in 2020, the margin turned negative to -4.65%, indicating that economic profitability deteriorated significantly.

Overall Analysis

The data reveals that while revenue generally increased from 2016 to 2019, economic profitability metrics were volatile but mostly positive during this period. The downturn in 2020, with both a decline in revenue and negative economic profit and margin, suggests an adverse shift in operational efficiency or increased costs that outweighed revenue. This may warrant further investigation into the factors causing the decline in economic value during 2020.