Microchip Technology Inc. (NASDAQ:MCHP)

The financial data reflects several notable trends and shifts over the six-year period ending March 31, 2022. The net operating profit after taxes (NOPAT) exhibited a pronounced upward trajectory overall, with some fluctuations. Starting at approximately $180.6 million in 2017, NOPAT more than doubled by 2018 to around $428.8 million and continued to increase sharply to nearly $695.8 million in 2019. However, there was a notable decline in 2020 to about $455.4 million and a modest recovery in 2021 to approximately $488.9 million, followed by a substantial increase to $1.62 billion in 2022, marking the highest value in the observed timeframe.

The cost of capital remained relatively stable with slight fluctuations, generally ranging between 14.11% and 17.34%. The cost of capital was lowest in 2019 at 14.11% and peaked at 17.34% in 2022. There is no clear consistent trend upward or downward, but the cost of capital stayed within a moderately high range throughout the years.

Invested capital showed a divergent trend compared to NOPAT. It started at about $6.09 billion in 2017, decreased to roughly $5.15 billion in 2018, then sharply increased to $14.72 billion in 2019, which is the peak within this timeframe. Subsequent years saw a gradual decline in invested capital to $13.73 billion in 2020, $12.64 billion in 2021, and $11.96 billion in 2022, suggesting a potential strategic reduction or optimization of invested assets after 2019.

Despite improvements in NOPAT, economic profit remained negative throughout the entire period, indicating that the returns did not consistently exceed the cost of capital. The economic profit started at negative $843.6 million in 2017, improved somewhat to negative $441.6 million in 2018 but worsened sharply in 2019 to negative $1.38 billion. The losses deepened further in 2020 and 2021, reaching approximately negative $1.62 billion and negative $1.65 billion respectively, before improving significantly in 2022 to negative $454.5 million. This suggests that although net operating profits increased substantially, the high cost of capital and large invested capital continued to exert pressure on the creation of economic value, with a notable improvement in the last year.

Overall, the data points to a company experiencing significant fluctuations in profitability and capital investment. The jump in invested capital in 2019 may have contributed to increased NOPAT but also resulted in negative economic profit due to a cost of capital exceeding returns on invested resources. The reduction in invested capital and spike in net operating profit in 2022 resulted in a marked recovery of economic profit, although it remained negative. Continuous monitoring of capital efficiency and cost management appears crucial for enhancing economic value creation moving forward.

Net Income Trend

The net income demonstrated a generally upward trajectory over the analyzed periods, beginning at 164,639 thousand US dollars in 2017. A significant rise is observed in 2018 and 2019, reaching 255,400 and 355,900 thousand US dollars respectively. The upward trend continues sharply in 2020, peaking at 570,600 thousand US dollars. There is a decline in 2021 to 349,400 thousand US dollars, followed by a substantial increase in 2022, culminating at 1,285,500 thousand US dollars. This pattern indicates volatility but overall strong growth, with the most notable surge occurring in the latest year observed.

Net Operating Profit After Taxes (NOPAT) Trend

NOPAT experienced substantial growth from 2017 through 2019, starting at 180,568 thousand US dollars and peaking at 695,844 thousand US dollars in 2019. However, a notable decrease occurred in 2020, dropping to 455,414 thousand US dollars. Subsequently, there is a modest recovery in 2021 to 488,868 thousand US dollars before a dramatic increase in 2022, reaching 1,620,172 thousand US dollars. The pattern highlights a peak in 2019, a decline amid challenging circumstances possibly in 2020, followed by remarkable recovery and growth in the most recent period.

Comparative Insights

Both net income and NOPAT demonstrate corresponding overall trends with initial growth, a dip around 2020, and a strong rebound by 2022. The magnitude of increase in 2022 is particularly pronounced for both metrics, suggesting enhanced operational efficiency and profitability. The divergence in the rates of increase across years reveals the company’s sensitivity to economic or operational factors but an overall ability to recover and expand profitability substantially.

Income Tax Provision (Benefit) Trend

The income tax provision displayed considerable volatility over the six-year period. A negative provision (benefit) was recorded in 2017 at -80,805 thousand USD, indicating a tax benefit rather than an expense. This shifted drastically to a positive tax provision of 481,900 thousand USD in 2018, suggesting a significant tax expense that year. A subsequent return to a tax benefit occurred in 2019 and 2020 with -151,400 and -420,200 thousand USD respectively. These years indicate substantial tax recoveries or credits. In 2021, the provision nearly neutralized with a small negative amount of -9,900 thousand USD, followed by an increase to a substantial tax expense of 197,000 thousand USD in 2022. Overall, the pattern reflects considerable fluctuations in taxable income, tax planning activities, or tax law impacts affecting the tax responsibility.

Cash Operating Taxes Trend

Cash operating taxes increased steadily during the period analyzed, showing a general upward trend. Beginning at 98,396 thousand USD in 2017, cash taxes paid more than quintupled by 2018 to 492,538 thousand USD, which may point to increased taxable profitability or changes in tax payment timing. However, 2019 shows a sharp drop to 17,593 thousand USD, representing a significant decrease in actual tax cash outflows. The subsequent years demonstrate recovery and growth in cash taxes paid, with amounts rising to 175,290 in 2020, then further to 205,150 in 2021, and reaching 244,410 thousand USD in 2022. This progressive increase suggests stronger cash tax payments, potentially aligned with growing earnings or changes in tax management strategies.

Comparative Insights Between Income Tax Provision and Cash Taxes

The divergence between income tax provision and cash operating taxes is notable. While provisions fluctuate between benefits and expenses, cash taxes exhibit a more consistent upward trend after 2019. The discrepancies likely reflect timing differences between accounting tax expenses and actual cash payments, deferred tax assets or liabilities, or adjustments related to tax credits or incentives. The years with tax benefits in provisions often correspond with lower cash taxes, highlighting the complexity of the tax position and cash flow impacts. The overall data suggests the company navigates fluctuating taxable income levels and tax obligations, influencing both reported tax expenses and actual cash tax payments distinctly over the period.

Total reported debt & leases

The reported debt and lease obligations exhibit a significant fluctuation over the analyzed periods. From March 2017 to March 2018, debt slightly increased from approximately 3.03 billion to 3.13 billion US dollars. This was followed by a sharp escalation in March 2019, where debt surged to nearly 10.45 billion, representing a more than threefold increase compared to the previous year. Subsequently, the total debt began a steady decline, reducing to approximately 9.62 billion in 2020, then to 9.07 billion in 2021, and further down to about 7.85 billion by March 2022. Overall, while there was a remarkable spike in debt in 2019, the trend after that showed a consistent effort toward debt reduction.

Stockholders’ equity

Stockholders’ equity showed a general upward trend with some modest fluctuations. Starting at around 3.27 billion in 2017, it remained relatively stable in 2018. In 2019, equity rose considerably to approximately 5.29 billion, continuing to increase slightly to about 5.59 billion in 2020. However, in 2021 equity decreased marginally to about 5.34 billion, before rising again to roughly 5.89 billion by 2022. This pattern suggests a broadly positive movement in equity with minor year-to-year variability.

Invested capital

Invested capital showed dynamic changes across the years analyzed. The figure decreased from approximately 6.09 billion in 2017 to around 5.15 billion in 2018. Then, a sharp increase occurred in 2019, where invested capital grew to nearly 14.72 billion, closely aligned with the spike seen in total debt and leases, possibly indicating increased borrowing or capital infusion. Following this peak, invested capital declined steadily over the next three years, dropping to about 13.73 billion in 2020, 12.64 billion in 2021, and further down to approximately 11.96 billion in 2022. This gradual reduction after the 2019 peak may reflect strategic asset sales, debt repayment, or operational adjustments.

The financial data reveals several key trends over the analyzed periods. The economic profit consistently remains negative across all years, indicating that the company's returns have been insufficient to cover its cost of capital. Although the economic loss fluctuates, it reaches its highest negative value in the fiscal year ending March 31, 2020, and improves somewhat in the latest year but remains significantly below zero.

Invested capital shows considerable variation. It increases sharply from 2018 to 2019, more than doubling the amount recorded in the previous year. Following this peak, there is a gradual decline in invested capital through subsequent years, indicating possible divestitures, asset sales, or less investment in capital assets.

The economic spread ratio, which measures the spread between the return on invested capital and the cost of capital, is negative throughout the period. This negative performance indicates that the company has not been generating returns exceeding its capital costs. The ratio improves notably in the fiscal year ending in 2022 compared to prior years but remains negative, suggesting some recovery in operational efficiency or profitability, although not enough to produce a positive economic spread.

Economic Profit

Negative in all periods, with the peak economic loss in 2020, followed by an improvement in 2022 but still below zero.

Invested Capital

Substantial increase from 2018 to 2019, then a downward trend through 2022.

Economic Spread Ratio

Consistently negative, indicating returns below cost of capital, but shows notable improvement in 2022.

Overall, the data suggests that while the company faced significant challenges in generating economic profit during the period, especially around 2020, there are early signs of improvement in its economic spread in the latest year, accompanied by a reduction in invested capital. This combination may reflect strategic changes aimed at enhancing capital efficiency and profitability going forward.

Economic Profit

The economic profit demonstrates significant fluctuations with generally negative values across the years reviewed. Initially, it improved from -843,620 in 2017 to -441,621 in 2018, indicating a reduction in economic losses. However, in 2019 and 2020, there was a marked deterioration to -1,380,865 and -1,619,333 respectively, reflecting increasing economic deficits. The economic profit remained substantially negative in 2021 at -1,650,754 but improved considerably in 2022 to -454,514, suggesting a partial recovery from prior losses.

Adjusted Net Sales

Adjusted net sales exhibited a consistent upward trend throughout the period. From 3,407,807 in 2017, sales rose steadily every year except a slight dip in 2020 where sales marginally decreased to 5,274,200 from 5,349,500 in 2019. The following years saw continuous growth, reaching a peak of 6,938,500 in 2022. This pattern indicates expansion in revenue generation despite economic profit challenges.

Economic Profit Margin

The economic profit margin parallels the economic profit trend, remaining negative throughout the timeline. It started at -24.76% in 2017 and showed improvement in 2018 to -11.09%. However, it worsened significantly in 2019 and 2020 to -25.81% and -30.7% respectively, indicating decreased profitability relative to sales. The margin slightly improved in 2021 to -30.35% and showed a significant recovery in 2022 to -6.55%, suggesting improved operational efficiency or cost management that helped reduce losses relative to sales despite margins still being negative.

Summary

Overall, the data reveal a pattern of expanding sales revenue accompanied by persistent economic losses, though with notable volatility. The economic profit and its margin highlight challenges in translating revenue growth into positive economic returns, with temporary periods of improvement and significant setbacks. The most recent year shows encouraging signs of recovery in economic profit and margin, indicating potential improvements in profitability dynamics going forward.