Microchip Technology Inc. (NASDAQ:MCHP)

The financial data reveals several key trends over the six-year period from 2017 to 2022.

Net Operating Profit After Taxes (NOPAT)

NOPAT has shown a generally upward trajectory, starting at $180.6 million in 2017 and peaking significantly in 2022 at approximately $1.62 billion. Despite some fluctuations, such as a decline in 2020 compared to 2019, the overall increase is substantial, indicating improving operational profitability over the period.

Cost of Capital

The cost of capital remained relatively stable, fluctuating between 13.88% and 17.03%. It reached its lowest point in 2019 at 13.88% and its highest in 2022 at 17.03%. This suggests some variability in the company's financing costs or risk profile, with a marginal upward trend in recent years.

Invested Capital

Invested capital exhibits a notable decline after peaking in 2019 at approximately $14.7 billion. From 2017 to 2018, the invested capital decreased from about $6.09 billion to $5.15 billion, then sharply increased in 2019 before gradually declining through 2022 to around $11.96 billion. This pattern may reflect changes in asset base, capital expenditures, or divestitures.

Economic Profit

Economic profit has been negative throughout the entire period, indicating that the returns generated did not exceed the cost of capital. Although it moved closer to zero after 2017, it again worsened in 2019 and remained deeply negative through 2021, with some improvement seen in 2022. The persistent negative economic profit implies that the company struggled to create value over and above its capital costs despite rising profits.

In summary, while operational profitability as measured by NOPAT has substantially increased by 2022, the company has consistently faced economic profit challenges, failing to surpass its cost of capital. The cost of capital has slightly increased recently, potentially exerting additional pressure on value creation. Invested capital peaked mid-period and declined subsequently, reflecting potential strategic asset adjustments. Overall, the company’s financial performance demonstrates strong profit growth but ongoing issues with generating returns above capital costs.

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.

Economic Profit

The economic profit figures consistently show negative values throughout the analyzed periods, indicating that the company has not generated economic profit from 2017 to 2022. The loss decreased from -825,628 thousand USD in 2017 to a lower loss of -426,355 thousand USD in 2018, suggesting an initial improvement. However, there was a significant deterioration in 2019 and 2020, with losses increasing to -1,347,213 thousand USD and -1,584,640 thousand USD, respectively. The economic profit remained adversely high in 2021 at -1,612,454 thousand USD, then showed a noticeable improvement in 2022, reducing the loss to -416,922 thousand USD. Overall, the trend suggests volatility with considerable setbacks in certain years followed by partial recovery.

Invested Capital

Invested capital experienced notable fluctuations, starting at 6,087,016 thousand USD in 2017. There was a decrease in 2018 to 5,149,468 thousand USD, followed by a sharp increase to 14,715,398 thousand USD in 2019. From 2019 onward, invested capital gradually declined over the subsequent years to 11,963,600 thousand USD by 2022. These movements indicate significant capital deployment changes, potentially reflecting strategic investment shifts or divestitures during the period.

Economic Spread Ratio

The economic spread ratio remained negative for all years under review, indicating that the returns on invested capital were below the cost of capital throughout. It started at -13.56% in 2017 and improved slightly to -8.28% in 2018. The ratio then worsened to -9.16% in 2019, further declined to -11.55% in 2020, and again to -12.75% in 2021, before sharply improving to -3.48% in 2022. Although still negative, the significant improvement in 2022 suggests better management of capital efficiency or cost structure in that year compared to prior periods.

Economic Profit

The economic profit demonstrates a consistently negative trend throughout the observed periods, indicating the company has not achieved economic profitability at any point. Starting from -825,628 thousand USD in 2017, the economic loss deepened to -1,584,640 thousand USD in 2020, marking the lowest point in this timeframe. However, there is a notable improvement in 2022 when the economic loss significantly narrows to -416,922 thousand USD, the smallest loss recorded within the analyzed years.

Adjusted Net Sales

Adjusted net sales exhibit a consistent upward trend over the six-year period. Beginning at 3,407,807 thousand USD in 2017, sales steadily increased year over year, with a substantial jump from 5,438,400 thousand USD in 2021 to 6,938,500 thousand USD in 2022. This upward momentum suggests growing revenue generation capability, reflecting positive sales performance and market demand.

Economic Profit Margin

The economic profit margin remains negative across all years, mirroring the trend in economic profit. Initially at -24.23% in 2017, it improves momentarily in 2018 to -10.71%, but then declines sharply to near -30% in 2020 and 2021, indicating that losses relative to sales were at their highest during these years. By 2022, the margin improves markedly to -6.01%, revealing a positive shift towards reducing losses relative to net sales and signaling an enhanced ability to convert sales into economic profit, albeit still negative.

Overall Insights

The data reveals a company experiencing economic challenges, consistently operating at an economic loss despite expanding net sales across the years. The substantial reduction in economic losses and improvement in economic profit margin during the final year analyzed suggests operational improvements or cost efficiencies may have been implemented. Continued monitoring is necessary to assess if the positive trends in 2022 will persist and ultimately lead to positive economic profitability.