Synopsys Inc. (NASDAQ:SNPS)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes exhibits an overall increasing trend from October 2019 through October 2024, with noticeable fluctuations. Starting at approximately 490 million USD, NOPAT markedly rose to over 1.35 billion USD by October 2022, indicating a strong profit growth phase. However, this was followed by a decline to approximately 891 million USD in 2023, before recovering again to over 1.06 billion USD in 2024. This pattern suggests periods of volatility in operating profitability, with a generally upward trajectory over the six-year horizon.

Cost of Capital

The cost of capital remained relatively stable over the observed timeframe, fluctuating modestly between 15.26% and 15.71%. This stability indicates that the company’s required return rates or financing costs have not experienced significant changes, maintaining a consistent benchmark for investment decisions throughout the period.

Invested Capital

Invested capital demonstrated a steady increase from around 5.86 billion USD in 2019 to over 10.3 billion USD in 2024, nearly doubling the capital base within five years. This upward trend reflects ongoing investments or asset accumulation, potentially supporting growth initiatives or operational expansion. The consistent increase suggests a strategic focus on scaling the capital base to enhance business capabilities.

Economic Profit

Economic profit shows significant fluctuations and predominantly negative values throughout the period, with the exception of a positive result in 2022. The negative economic profits ranging between approximately -554 million USD and -262 million USD indicate that the returns generated did not consistently exceed the cost of capital, representing value erosion during most years. The positive economic profit of about 147 million USD in 2022 may reflect a temporary period where value creation occurred, but this was not sustained beyond that year.

Summary

Overall, the financial data reveals a company experiencing growth in operating profit and invested capital while facing challenges in generating consistent economic profit above its capital costs. The NOPAT growth signals improving operational efficiency or revenue growth, yet the persistent negative economic profits, aside from one year, point to ongoing difficulties in achieving returns that sufficiently cover the cost of capital. The stable cost of capital underscores that these challenges are not due to changing financing conditions but rather operational or strategic factors affecting value creation. Strategic efforts may be necessary to enhance profitability relative to investment levels to achieve sustained economic profit.

The financial data reveals notable trends in profitability measures over the six-year period ending October 31, 2024. Both net income attributable to the company and net operating profit after taxes (NOPAT) exhibit overall growth, albeit with differing patterns across the years.

Net Income Attributed to the Company

This metric demonstrates a consistent year-over-year increase from 2019 through 2024. Starting at approximately $532 million in 2019, net income rose steadily each year, reaching about $2.26 billion by 2024. This represents a more than fourfold increase over the six-year span, indicating substantial growth in bottom-line profitability.

Net Operating Profit After Taxes (NOPAT)

NOPAT generally maintains an upward trend but reflects more volatility compared to net income. Beginning at roughly $490 million in 2019, NOPAT nearly doubles by 2020 to $774 million, followed by a modest increase in 2021. In 2022, there is a significant jump to approximately $1.36 billion, likely reflecting improved operating efficiency or operational scale. However, in 2023, NOPAT decreases sharply to about $891 million before partially recovering to $1.06 billion in 2024. This fluctuation suggests changes in operating performance or tax impacts that merit further investigation.

Overall, net income growth appears robust and consistently positive, signaling strong profitability and potentially effective cost management or revenue expansion. Meanwhile, the variations in NOPAT highlight some potential operational challenges or one-time adjustments impacting operating earnings during the period, especially in the last two years.

Provision (Benefit) for Income Taxes

The provision for income taxes showed considerable volatility over the six-year period under review. Initially, there was a benefit recorded in 2020, reflected by a negative provision of approximately -25.3 million USD, following a provision of around 13.1 million USD in 2019. This was succeeded by a significant increase in the provision, reaching 49.2 million USD in 2021 and further rising sharply to 137.1 million USD in 2022. Subsequently, the provision decreased to 83.7 million USD in 2023 and showed a slight increase again to approximately 99.7 million USD in 2024. The fluctuations suggest varying tax strategies or changes in taxable income and tax rates over the years.

Cash Operating Taxes

Cash operating taxes exhibited a steady and substantial upward trend throughout the period. Starting from 96.8 million USD in 2019, there was a slight decline to 89.4 million USD in 2020, followed by a marked increase to 180.3 million USD in 2021. This upward trajectory continued with a slight reduction to 175.5 million USD in 2022, then a significant surge to 290.8 million USD in 2023, and further escalation to 473.0 million USD in 2024. The increasing cash outflows for operating taxes indicate higher taxable earnings or changes in tax payment policies, highlighting growing tax expenses in actual cash terms.

The financial data presents a multi-year view of key capital structure components, including total reported debt and leases, total stockholders' equity, and invested capital. The trends reflect notable developments in the company's financing and capitalization over the examined periods.

Total reported debt & leases

The total reported debt and leases exhibit a generally stable trend with minor fluctuations. Starting from approximately $760 million in 2019, the figure decreased to around $663 million in 2020 before slightly rising and then fluctuating marginally between $656 million and $688 million in subsequent years. By 2024, the debt level registers at about $684 million, indicating a relatively consistent leverage position without significant volatility or large changes in debt financing.

Total stockholders’ equity

The total stockholders’ equity demonstrates a strong upward trajectory across the years. Commencing at roughly $4.08 billion in 2019, equity increased steadily each year, reaching about $9 billion by 2024. This nearly doubles the equity base over the time frame, highlighting substantial growth in the company's net worth and potentially reflecting retained earnings, issuance of new equity, or appreciation in asset values. The consistent increase in equity suggests an improving financial foundation and possibly enhanced investor confidence.

Invested capital

Invested capital also follows an upward trend, beginning at approximately $5.86 billion in 2019 and increasing annually to surpass $10.3 billion by 2024. This indicates an expansion in the total capital employed in the business, combining equity and debt components. The growth in invested capital exceeds that of debt, aligning with the observed equity increases and suggesting that the company has been funding growth primarily through internal resources or equity financing rather than markedly increasing debt levels.

Overall, the company’s capital structure reveals disciplined management of debt with a stable leverage profile, alongside robust and steady growth in equity and invested capital. This pattern indicates a strengthening financial position supported by increased shareholder investment and a growing asset base.

Economic Profit

The economic profit demonstrates significant volatility throughout the analyzed periods. Starting from a substantial negative value in 2019, the loss decreased in 2020, indicating an improvement in economic profit. However, it slightly worsened again in 2021 before turning positive in 2022, which suggests a temporary favorable operating performance or return exceeding the cost of capital in that year. Nonetheless, the economic profit reverted to negative figures in 2023 and further deteriorated in 2024, reaching the lowest point in the observed timeline. This pattern indicates inconsistency in generating returns above the cost of capital.

Invested Capital

The invested capital shows a consistent and notable upward trend throughout the examined years. Beginning at approximately 5.86 billion in 2019, it steadily increased each year, culminating in a substantial rise to over 10.3 billion by 2024. This increment suggests ongoing investments or asset accumulation, reflecting possible expansion activities, increased asset base, or strategic capital deployment. The growth rate appears to accelerate particularly between 2023 and 2024.

Economic Spread Ratio

The economic spread ratio, representing the difference between return on invested capital and cost of capital, aligns with the economic profit trend by displaying negative values for most years except for 2022. Initial values in 2019 indicate a significant negative spread, which improved by 2020 and 2021 but remained below zero. The positive spread in 2022 correlates with the positive economic profit reported that year, suggesting an efficient capital deployment and favorable returns for that period. However, the ratio turned negative again in 2023 and worsened in 2024, implying that the company failed to generate returns exceeding its cost of capital in the later years, which is consistent with the negative economic profit readings.

The financial data reveals several significant trends over the six-year period. Adjusted revenue consistently increased year-over-year, reflecting overall growth in the company's top-line performance. Starting at approximately $3.39 billion in 2019, revenue rose steadily to reach about $6.15 billion in 2024, indicating a strong expansion trajectory.

Despite this revenue growth, economic profit exhibited considerable volatility and a predominantly negative trend. Economic profit was negative for five of the six years, with a notable positive spike only in 2022. This positive economic profit in 2022, amounting to roughly $147 million, suggests that the company achieved a period of operational efficiency or favorable economic conditions that year. However, this improvement was not sustained, as economic profit sharply declined again in the subsequent years, reaching a low of approximately -$555 million in 2024.

The economic profit margin, which measures economic profit as a percentage of revenue, aligns with these observations. The margin improved from -11.94% in 2019 to a relatively less negative -6.55% in 2021 before turning positive at 2.68% in 2022. After this brief positive phase, the margin deteriorated to -9.02% by 2024. This trend indicates that while revenue growth was consistent, the company struggled to convert this growth into economic profitability, except for a temporary success in 2022.

Overall, the data suggests that the company has been successful in expanding its revenue base but has faced challenges in achieving sustained economic profitability. The economic profit's sensitivity to underlying costs and capital charges likely contributed to the volatile margin performance. The positive deviation in 2022 indicates potential for improvement under certain conditions, but longer-term profitability issues remain evident given the subsequent decline.