Steel Dynamics Inc. (NASDAQ:STLD)

The financial data exhibits notable fluctuations in key performance indicators over the five-year period. Net operating profit after taxes (NOPAT) displays significant variability, with an initial increase from $755,373 thousand in 2017 to a peak of $1,420,457 thousand in 2018. This is followed by a decline in 2019 and 2020, reaching $696,079 thousand, before a substantial increase to $3,611,424 thousand in 2021, indicating a strong recovery and possibly improved operational efficiency or market conditions during the last year.

The cost of capital remains relatively stable throughout the period, hovering within a narrow range between 14.4% and 16.83%. The slight decrease in 2019 to 14.4% suggests a temporary reduction in the required return rate, which then rises again to 16.41% by 2021, reflecting possible changes in market risk perceptions or the company’s capital structure.

Invested capital shows a consistent upward trend, growing steadily from approximately $5.96 billion in 2017 to $8.55 billion in 2021. This continuous increase suggests ongoing investments in assets or expansions to support business operations, which could be associated with the variations observed in profitability metrics.

The economic profit metric underscores the company's value creation dynamics over time. It starts negative in 2017 (-$248,766 thousand), improves significantly to a positive $374,971 thousand in 2018, but then declines back into negative territory in 2019 and 2020, indicating years where returns did not cover the cost of capital. The sharp turnaround in 2021 to a positive $2,208,731 thousand signifies a substantial excess return over the required capital cost, highlighting a year of pronounced economic value generation likely linked to the spike in NOPAT.

Net income attributable to Steel Dynamics, Inc.

The net income shows a volatile trend over the period analyzed. It increased significantly from 812,741 thousand USD in 2017 to a peak of 1,258,379 thousand USD in 2018. However, this was followed by a sharp decline to 671,103 thousand USD in 2019 and a further decrease to 550,822 thousand USD in 2020. In 2021, net income experienced a remarkable surge, reaching 3,214,066 thousand USD, the highest level in the five-year span.

Net operating profit after taxes (NOPAT)

The NOPAT values exhibit a similar pattern to net income, indicating operational profitability dynamics. Starting at 755,373 thousand USD in 2017, NOPAT rose substantially to 1,420,457 thousand USD in 2018. Subsequently, it experienced a decline, reaching 827,375 thousand USD in 2019 and decreasing slightly to 696,079 thousand USD in 2020. In 2021, NOPAT showed a significant increase to 3,611,424 thousand USD, surpassing prior years and indicating improved operational efficiency or favorable business conditions.

Insights

Both net income and NOPAT demonstrate a pattern of considerable increase in 2018, followed by a decline over the next two years, and then a substantial recovery in 2021. The pronounced increases in 2021 suggest that the company may have benefited from external or internal factors that significantly enhanced profitability. However, the volatility in prior years highlights potential operational challenges or market fluctuations impacting earnings. The alignment between net income and NOPAT trends suggests that both operational performance and overall profitability were similarly affected throughout the period.

Income tax expense

The income tax expense exhibited significant fluctuation over the five-year period. Starting at approximately $129 million in 2017, it sharply increased to nearly $364 million in 2018. This was followed by a marked reduction to about $197 million in 2019 and further declined to approximately $135 million in 2020. However, in 2021, there was a dramatic spike to over $962 million, representing the highest value in the observed timeframe.

Cash operating taxes

Cash operating taxes showed a different pattern compared to the income tax expense. Initially, there was a moderate rise from roughly $317 million in 2017 to $332 million in 2018. This was succeeded by a substantial decrease to about $176 million in 2019, continuing downward to $110 million in 2020. In 2021, cash operating taxes reversed the downward trend, surging significantly to around $656 million, though still below the 2017 and 2018 levels.

Comparison and analysis

Both income tax expense and cash operating taxes experienced fluctuations with a notable peak in 2021. Income tax expense showed more volatility with its lowest value in 2017 and highest in 2021, while cash operating taxes maintained a relatively higher baseline in the earlier years before a marked decline and subsequent increase in 2021. The considerable rise in both metrics in 2021 might indicate higher taxable income or changes in tax policy or company financial structure. The differing trajectories from 2017 to 2020 between the two measures suggest variations in timing or recognition of tax-related cash flows versus accrued tax expenses.

Total reported debt & leases

The total reported debt and leases show a generally increasing trend over the analyzed period. Starting at approximately 2.43 billion USD in 2017, the figure rose steadily each year up to around 3.21 billion USD by the end of 2021. This indicates a growing leverage or financing through debt and lease obligations over time.

Total Steel Dynamics, Inc. equity

Equity values exhibit consistent growth throughout the five-year span. Beginning at approximately 3.35 billion USD in 2017, equity increased to about 6.30 billion USD by 2021, with a notable acceleration between 2020 and 2021. This substantial rise in equity suggests significant retained earnings, capital infusions, or revaluation impacts that strengthened the company’s equity base.

Invested capital

Invested capital experienced steady growth from 5.96 billion USD in 2017 to 8.55 billion USD in 2021. The increase is somewhat consistent year over year, with a marked jump in the final year analyzed. This growth reflects an expansion in the total capital allocated in the business, combining both debt and equity financing sources, which supports the company’s operational capacity and potential for value creation.

Overall trend and insights

The data reveals a balanced expansion financed through both higher liabilities and substantially increased equity, leading to larger invested capital over the five years. The proportionally higher increase in equity compared to debt may indicate a strategic emphasis on strengthening the financial position and reducing financial risk. The rising invested capital underscores ongoing investments in operational assets or business growth initiatives. Such trends typically reflect robust financial health and an upward trajectory in the company’s scale and capital structure sophistication.

The financial data reveals notable fluctuations in the company's economic profit, invested capital, and economic spread ratio over the five-year period ending in 2021.

Economic Profit

The economic profit demonstrates significant volatility throughout the period. It began with a substantial loss in 2017, switched to a positive profit in 2018, reverted to losses in 2019 and 2020, and then surged dramatically to a high positive figure in 2021. This pattern indicates considerable variability in the company's ability to generate profit above its cost of capital, with 2021 marking a marked improvement.

Invested Capital

Invested capital shows a consistent upward trend across the five years. Starting at approximately 5.96 billion US dollars in 2017, it gradually increased each year to reach about 8.55 billion US dollars in 2021. This steady growth signifies ongoing investments or accumulation of assets over time, reflecting expansion or reinvestment strategies.

Economic Spread Ratio

The economic spread ratio mirrors the volatility seen in economic profit. It was negative in 2017, turned positive in 2018, became negative again in 2019 and 2020, and then experienced a substantial increase to a highly positive value in 2021. The ratio's fluctuation indicates variations in the return generated over the cost of capital, with the final year representing a significant improvement in economic value creation.

Overall, the data shows a pattern of instability in profitability measures until 2021, where a pronounced positive shift is observed, alongside a steady accumulation of invested capital. This may suggest that investments made over the years culminated in improved economic performance in the most recent period.

Over the observed five-year period, the company exhibited significant fluctuations in its economic profit, indicating varying levels of profitability beyond the cost of capital. The economic profit was negative for three years (2017, 2019, and 2020), with the most substantial losses recorded in 2017 and 2020, reflecting challenges in generating value after accounting for capital costs during these periods. In contrast, 2018 and particularly 2021 showed positive economic profit, with 2021 marking a remarkable increase to over two billion US dollars, suggesting a substantial improvement in value creation.

Net sales demonstrated a generally upward trajectory from 2017 to 2021, displaying growth from approximately 9.54 billion to over 18.4 billion US dollars. There was a noticeable peak in sales in 2018, followed by a dip in 2019 and 2020, which could be indicative of external or internal challenges affecting revenue generation in those years. However, the sharp increase in 2021 sales suggests a robust recovery and expansion in market activity or pricing strategy.

The economic profit margin, representing economic profit as a percentage of net sales, mirrored the trends in economic profit. It shifted from negative figures in 2017, 2019, and 2020 to positive margins in 2018 and surged to 12% in 2021. This margin behavior underscores the company’s fluctuating efficiency and effectiveness in converting sales into real economic value over the period.

Overall Analysis

The financial data reflects a period of volatility and recovery, with the company overcoming certain downturns to achieve strong economic profitability by 2021.

Increasing net sales coupled with a rising economic profit margin in the final year suggest enhanced operational performance and value creation.

The negative economic profit in three out of five years points to intermittent periods where the company did not cover its cost of capital, highlighting potential areas for strategic focus to ensure sustained profitability.