Microchip Technology Inc. (NASDAQ:MCHP)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes displayed a significant upward trend over the analyzed period. Starting at 180,568 US$ thousands in 2017, NOPAT increased drastically to 1,620,172 US$ thousands by 2022. Notably, there were fluctuations in the middle years, with a peak in 2019 at 695,844 US$ thousands followed by a dip in 2020 and 2021 before the substantial increase in 2022.

Cost of Capital

The cost of capital generally remained in the mid-to-high teens, with a slight variability each year. It started at 16.87% in 2017, fluctuated moderately with a low point of 14.15% in 2019, and rose to the highest point of 17.39% in 2022. This indicates an increasing cost to finance capital, particularly in the latter years.

Invested Capital

The invested capital exhibited considerable fluctuations throughout the period. Initially valued at 6,087,016 US$ thousands in 2017, it decreased in 2018 to 5,149,468 US$ thousands before a sharp increase in 2019 to 14,715,398 US$ thousands. After 2019, invested capital steadily declined, reaching 11,963,600 US$ thousands by 2022. This pattern suggests changes in asset base or capital deployment strategies during the period.

Economic Profit

Economic profit remained negative throughout the period, indicating that returns did not surpass the cost of capital consistently. The values ranged from -846,271 US$ thousands in 2017 to a low of -1,656,397 US$ thousands in 2021, before improving to -460,053 US$ thousands in 2022. Despite the persistent negative economic profit, the less negative value in 2022 suggests an improvement in generating returns above the cost of capital, although the company remained economically unprofitable.

Overall Summary

There was a clear increase in net operating profit after taxes, especially in the latest year, which signals enhanced operational performance or profitability. However, these gains were juxtaposed against a consistently high and sometimes increasing cost of capital, adding pressure to the company's profitability from a financial perspective. Invested capital showed volatility, with a peak in 2019 followed by reductions, indicating dynamic asset or capital structure management. Notably, economic profit remained negative, albeit with a substantial improvement by 2022, suggesting ongoing challenges in generating returns exceeding capital costs despite improved operational earnings. The trends imply a need for continued focus on increasing capital efficiency and managing financing costs to achieve sustainable economic profitability.

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 has fluctuated significantly over the period from March 31, 2017, to March 31, 2022. Initially, the economic profit was negative at -846,271 thousand US dollars in 2017, improving to -443,870 thousand in 2018. However, it then deteriorated sharply to reach its lowest point at -1,624,444 thousand in 2020 and remained substantially negative through 2021. In 2022, there was a notable improvement with economic profit rising to -460,053 thousand US dollars, indicating a reduction in losses compared to the preceding years, though it remains negative overall.

Invested Capital

The invested capital demonstrates a variable trend. It started at approximately 6.09 billion US dollars in 2017, decreasing to around 5.15 billion in 2018, then sharply increasing to around 14.72 billion in 2019. Following this peak, invested capital steadily declined over the next three years, reaching about 11.96 billion US dollars by 2022. This pattern suggests significant capital expenditure or acquisition activity around 2019, followed by a gradual reduction or divestment in subsequent years.

Economic Spread Ratio

The economic spread ratio remained negative throughout the period, indicating that the returns on invested capital were consistently below the cost of capital. Starting at -13.9% in 2017, the ratio improved slightly in 2018 to -8.62%, but then deteriorated again through 2020 and 2021, hitting -13.1%. A significant improvement is observed in 2022 with the ratio moving closer to zero at -3.85%, which corresponds with the reduction in economic losses during the same period. Despite this improvement, the negative spread suggests ongoing challenges in generating economic value above the cost of capital.

Overall Summary

Over the analyzed period, the company experienced persistent negative economic profit accompanied by a negative economic spread ratio, indicating consistent value destruction relative to invested capital costs. The considerable fluctuations in invested capital, particularly the surge in 2019 followed by a steady decline, suggest episodic strategic investment or restructuring activity. Recent data from 2022 shows an encouraging trend of reduced economic losses and an improving economic spread ratio, which may reflect enhanced operational efficiencies or improved capital allocation strategies. Nevertheless, the overall financial performance indicates a need for continued focus on generating returns that exceed capital costs to achieve sustainable economic profitability.

The financial data reveals significant fluctuations in economic profit and associated metrics over the analyzed periods. The economic profit showed a negative trend throughout all years, indicating persistent losses. However, the magnitude of these losses varied notably.

Economic Profit

The economic profit was most favorable in the fiscal year ending March 31, 2018, with the smallest loss of approximately -$443,870 thousand. In contrast, the most substantial losses occurred in the fiscal years ending in 2019, 2020, and 2021, with economic profits of -$1,385,824 thousand, -$1,624,444 thousand, and -$1,656,397 thousand respectively. The fiscal year 2022 showed improvement, with the economic profit loss reducing significantly to -$460,053 thousand.

Adjusted Net Sales

Adjusted net sales displayed a positive upward trend across the years, increasing from approximately $3,407,807 thousand in 2017 to $6,938,500 thousand in 2022. The growth was steady, with notable jumps between 2018 and 2019, as well as between 2021 and 2022, highlighting consistent sales expansion over the period.

Economic Profit Margin

The economic profit margin followed a pattern consistent with economic profit, remaining negative in all years. It was least negative in 2018 at -11.15% and most negative in 2020 at -30.8%, highlighting a period of diminished profitability relative to sales. The margin improved significantly in 2022 to -6.63%, indicating better economic efficiency despite still operating at a loss.

Overall, while the company experienced consistent economic losses throughout the period, there is a clear improvement in the most recent year, both in terms of reduced economic loss and improved economic profit margin. This suggests some progress toward enhanced profitability, alongside ongoing growth in sales revenues. However, the economic profit margins remaining negative signals that beyond revenue growth, cost management and value creation remain challenges for the company.