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 general decreasing trend, though with some stabilization in the most recent year. These factors combined to consistently result in negative economic profit throughout the analyzed timeframe.

NOPAT Trend

NOPAT increased substantially from 2017 to 2018, reaching US$2,196 million. However, a dramatic decline occurred in 2019, falling to US$303 million, followed by a further reduction to US$40 million in 2020. A significant recovery was observed in 2021, with NOPAT rising to US$2,126 million, approaching the 2018 level.

Cost of Capital

The cost of capital fluctuated modestly between 18.04% and 19.33% over the period. It began at 19.25% in 2017, decreased to 18.04% in 2018, increased to 18.40% in 2019, peaked at 19.33% in 2020, and then decreased slightly to 18.60% in 2021. These changes do not appear to correlate strongly with the NOPAT fluctuations.

Invested Capital

Invested capital decreased from US$20,519 million in 2017 to US$16,335 million in 2020. The rate of decline slowed in 2021, with invested capital increasing to US$16,745 million. This suggests a potential stabilization of capital deployment.

Economic Profit

Economic profit remained negative throughout the entire period. The largest negative economic profit was recorded in 2020 at US$-3,118 million, coinciding with the lowest NOPAT. While negative economic profit was also observed in 2017, 2018, 2019, and 2021, the magnitude decreased in 2021 to US$-988 million, reflecting the improved NOPAT performance.

The consistent negative economic profit indicates that the company’s returns on invested capital have been insufficient to cover its cost of capital throughout the analyzed period. The recovery in 2021 suggests potential improvements in profitability, but further monitoring is necessary to determine if this trend will continue and if the company can achieve positive economic profit in future periods.

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 consistently remained negative across all observed years, though with fluctuations in magnitude. Invested capital exhibited a general decreasing trend, while the economic spread ratio mirrored the fluctuations in economic profit, remaining negative throughout the period.

Economic Profit

Economic profit began at negative US$2,320 million in 2017, improved to negative US$1,052 million in 2018, then deteriorated significantly to negative US$2,815 million in 2019. Further decline was observed in 2020, reaching negative US$3,118 million, before a substantial improvement to negative US$988 million in 2021. This indicates periods of increasing and decreasing value destruction, with 2021 showing the least amount of negative economic profit.

Invested Capital

Invested capital decreased from US$20,519 million in 2017 to US$16,335 million in 2020. A slight increase was noted in 2021, with invested capital reaching US$16,745 million. The overall trend suggests a reduction in the capital base employed by the entity, although the decrease slowed in the most recent year.

Economic Spread Ratio

The economic spread ratio displayed considerable variation. It started at -11.31% in 2017, improved to -5.84% in 2018, then worsened to -16.61% in 2019, reaching a low of -19.09% in 2020. A notable improvement occurred in 2021, with the ratio increasing to -5.90%. This ratio consistently indicates that the entity’s return on invested capital is less than its cost of capital, resulting in value destruction. The magnitude of this underperformance fluctuated considerably, peaking in 2020.

The interplay between these metrics suggests that while the entity has attempted to manage its invested capital, it has consistently failed to generate returns exceeding its cost of capital. The improvement observed in 2021, across all three metrics, warrants further investigation to determine the underlying drivers and sustainability of this positive shift.

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

Economic Profit Margin

The economic profit margin began at -25.07% in 2017. This indicates that, in that year, the company’s economic profit was 25.07% less than its revenue. A substantial improvement was seen in 2018, with the margin increasing to -11.19%, suggesting a reduced shortfall between economic profit and revenue. However, this positive trend reversed in 2019, with the margin declining to -31.71%, representing the largest negative margin during the observed period.

The margin continued to deteriorate in 2020, reaching -36.20%. This signifies a further widening gap between revenue and economic profit. A notable shift occurred in 2021, as the economic profit margin improved significantly to -8.93%. This represents the smallest negative margin within the five-year period, indicating a substantial increase in economic profit relative to revenue.

Economic profit itself demonstrated a similar pattern of volatility. While negative throughout the period, the magnitude of the loss varied considerably. The largest economic loss occurred in 2017 at -2,320 US$ million, followed by -3,118 US$ million in 2020. The lowest economic loss was recorded in 2021 at -988 US$ million, coinciding with the improvement in the economic profit margin.

Revenue Trend

Revenue experienced a slight increase from 9,256 US$ million in 2017 to 9,407 US$ million in 2018. A subsequent decline was observed in 2019 and 2020, reaching 8,612 US$ million. However, revenue rebounded strongly in 2021, increasing to 11,063 US$ million. This substantial revenue growth in 2021 likely contributed to the improved economic profit margin observed in that year.

The interplay between economic profit and revenue suggests that while the company consistently operated at an economic loss, the severity of that loss was influenced by revenue fluctuations. The improvement in both economic profit margin and the absolute value of economic profit in 2021 is strongly correlated with the significant increase in revenue during that year.