NXP Semiconductors N.V. (NASDAQ:NXPI)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited considerable volatility, while the cost of capital remained relatively stable. Invested capital experienced a decline over the initial years, followed by stabilization. Consequently, economic profit consistently remained negative throughout the analyzed timeframe.

NOPAT Trend

NOPAT increased from US$1,630 million in 2017 to US$2,196 million in 2018, representing a substantial improvement. However, a dramatic decrease occurred in 2019, falling to US$303 million, and further declining to US$40 million in 2020. A significant recovery was observed in 2021, with NOPAT reaching US$2,126 million, nearly returning to the 2018 level.

Cost of Capital

The cost of capital fluctuated modestly between 15.61% and 16.70% over the five-year period. It began at 16.62% in 2017, decreased to 15.61% in 2018, increased to 15.92% in 2019, rose to 16.70% in 2020, and then decreased slightly to 16.07% in 2021. These changes were not substantial enough to independently drive the observed trends in economic profit.

Invested Capital

Invested capital decreased from US$20,519 million in 2017 to US$16,335 million in 2020. Following this decline, it stabilized at US$16,745 million in 2021. The reduction in invested capital did not translate into improved economic profit, suggesting that operational performance was a more significant factor.

Economic Profit

Economic profit was negative in each year of the period. The losses ranged from US$-565 million to US$-2,687 million. The largest loss occurred in 2020, coinciding with the lowest NOPAT. While NOPAT improved in 2021, the economic profit remained negative, indicating that the return on invested capital was still below the cost of capital. The magnitude of the loss decreased in 2021 compared to the prior two years, but remained substantial.

In summary, the company consistently failed to generate returns exceeding its cost of capital during the analyzed period. The substantial volatility in NOPAT appears to be the primary driver of the fluctuations in economic profit, despite a relatively stable cost of capital and a declining, then stabilizing, invested capital base.

The financial data reveals notable fluctuations in both net income attributable to stockholders and net operating profit after taxes (NOPAT) over the five-year period.

Net Income Attributable to Stockholders

From 2017 to 2018, net income remained relatively stable, showing a slight decline from 2215 million US dollars to 2208 million US dollars. In 2019, a significant drop occurred, with net income decreasing sharply to 243 million US dollars. This downward trend continued into 2020, reaching a low of 52 million US dollars. However, in 2021, there was a strong recovery, with net income rising substantially to 1871 million US dollars, approaching earlier peak levels.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed a somewhat parallel trend to net income. It increased from 1630 million US dollars in 2017 to 2196 million US dollars in 2018. In 2019, NOPAT declined considerably to 303 million US dollars and further dropped to 40 million US dollars in 2020, highlighting a period of operational challenges. A notable rebound occurred in 2021, with NOPAT climbing to 2126 million US dollars, indicating significant operational improvement.

Overall, the data indicates a period of stability in the initial years, followed by a marked deterioration in financial performance in 2019 and 2020. The pronounced recovery in 2021 for both net income and NOPAT suggests a recovery phase, possibly driven by operational enhancements or favorable market conditions. The volatility observed could be indicative of external disruptions or internal restructuring efforts during the observed timeframe.

The financial data for income tax expense (benefit) and cash operating taxes over the five-year period reveals notable fluctuations and trends.

Income Tax Expense (Benefit)

The income tax expense (benefit) displays significant variability. Starting with a benefit of $483 million in 2017, the company experienced a positive tax expense of $176 million in 2018, followed by a smaller expense of $20 million in 2019. In 2020, the tax expense reverted to a benefit of $83 million, before increasing sharply to an expense of $272 million in 2021. This volatility indicates fluctuations in taxable income or changes in tax strategies and could reflect variations in profitability or one-time tax adjustments across the years.

Cash Operating Taxes

Cash operating taxes show a relatively stable trend from 2017 to 2021, with values ranging from $275 million to $445 million. There was an increase from $386 million in 2017 to a peak of $445 million in 2018, followed by a decline to $275 million in 2019. The tax paid then rose again to $355 million in 2020 and $384 million in 2021. This pattern suggests that while the accounting income tax expense experienced fluctuations, the actual cash taxes paid remained consistently substantial, with some variability potentially influenced by operational results or tax payment timing.

Total reported debt & leases

There is a noticeable upward trend in total reported debt and leases from 2017 to 2021. The figure increased steadily from $6,683 million in 2017 to $7,846 million in 2020, followed by a significant jump to $10,809 million in 2021. This represents a substantial rise in the company's leverage, particularly in the last reported year.

Stockholders’ equity

Stockholders’ equity shows a consistent decline over the five-year period. Starting at $13,527 million in 2017, equity decreased each year, reaching $6,528 million in 2021. This reduction suggests a diminishing net asset base, possibly impacted by accumulated losses, dividends, or repurchases, which may be cause for deeper examination into retained earnings and other equity changes.

Invested capital

Invested capital decreased from $20,519 million in 2017 to $16,335 million in 2020, indicating a reduction in the company’s total funds invested in operations. However, 2021 saw a slight increase to $16,745 million, which could reflect either asset acquisition or other forms of reinvestment. Despite the modest recovery, the overall trend indicates contraction in invested capital over the period analyzed.

The period under review demonstrates a volatile performance in economic value creation. Economic profit fluctuates significantly, moving from a substantial loss in 2017 to a reduced loss in 2018, then increasing losses through 2020, before improving again in 2021. Invested capital generally declines from 2017 to 2020, with a slight increase in 2021. The economic spread ratio, a key indicator of value creation efficiency, exhibits a similar pattern of fluctuation and overall negative performance.

Economic Profit

Economic profit begins at a loss of US$1,781 million in 2017. This loss is reduced to US$615 million in 2018, representing an improvement. However, losses then widen to US$2,395 million in 2019 and further to US$2,687 million in 2020, indicating a deterioration in value creation. The most recent year, 2021, shows a significant improvement, with economic profit decreasing to a loss of US$565 million. This suggests a potential positive shift in the company’s ability to generate returns exceeding its cost of capital, although it remains negative overall.

Invested Capital

Invested capital experiences a consistent decline from US$20,519 million in 2017 to US$16,335 million in 2020. This decrease could be attributed to various factors, including asset sales, reduced capital expenditures, or changes in working capital management. A modest increase is observed in 2021, with invested capital rising to US$16,745 million. This suggests a stabilization or a slight reinvestment in the business.

Economic Spread Ratio

The economic spread ratio is consistently negative throughout the period, indicating that the company’s returns on invested capital are less than its cost of capital. The ratio fluctuates considerably, starting at -8.68% in 2017. It improves to -3.41% in 2018, but then deteriorates significantly, reaching -16.45% in 2020, the lowest point in the observed period. The ratio improves substantially in 2021 to -3.37%, mirroring the improvement in economic profit. This suggests a correlation between the economic spread ratio and the company’s ability to generate returns above its cost of capital.

Overall, the analysis reveals a period of challenging economic value creation. While 2021 shows encouraging signs of improvement in both economic profit and the economic spread ratio, sustained positive performance will be necessary to demonstrate a consistent ability to generate value for investors.

The economic profit margin exhibited significant fluctuation between 2017 and 2021. Initially negative, the margin worsened considerably over the period before showing improvement in the most recent year. A review of the underlying figures reveals a complex relationship between economic profit and revenue.

Economic Profit Margin

The economic profit margin began at -19.24% in 2017. This indicates that the company’s economic profit was 19.24% lower than its revenue. The margin improved to -6.54% in 2018, suggesting a reduction in the gap between economic profit and revenue. However, this improvement was short-lived, as the margin deteriorated substantially to -26.98% in 2019 and further to -31.21% in 2020. This represents the lowest point in the observed period, signifying a substantial shortfall in economic profit relative to revenue. A notable shift occurred in 2021, with the economic profit margin increasing to -5.11%, indicating a considerable improvement in economic profit performance compared to the prior two years.

Economic Profit

Economic profit itself was consistently negative throughout the analyzed timeframe. Starting at a loss of US$1,781 million in 2017, it decreased to a loss of US$615 million in 2018. The loss then increased to US$2,395 million in 2019 and peaked at US$2,687 million in 2020. Finally, the loss decreased significantly to US$565 million in 2021. The trend in economic profit directly influences the economic profit margin.

Revenue

Revenue demonstrated a more stable, though not consistently upward, trend. It increased from US$9,256 million in 2017 to US$9,407 million in 2018, before declining to US$8,877 million in 2019 and further to US$8,612 million in 2020. A substantial increase was observed in 2021, with revenue reaching US$11,063 million. The revenue increase in 2021 likely contributed to the improved economic profit margin despite the continued negative economic profit.

The substantial improvement in the economic profit margin in 2021, despite remaining negative, suggests that the company began to generate economic profit more efficiently relative to its revenue. However, the consistently negative economic profit indicates that the company’s returns are not yet covering its cost of capital throughout the period.