Walgreens Boots Alliance Inc. (NASDAQ:WBA)

The financial data reveals several noteworthy trends in the company's operational and capital efficiency over the six-year period ending in August 2019.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced significant growth from 2014 to 2015, rising from $3,086 million to $5,501 million. Following this peak, it fluctuated moderately, dipping to $4,855 million in 2016, then gradually increasing to $5,934 million in 2018 before slightly decreasing to $5,719 million in 2019. Overall, NOPAT shows an upward trend with some volatility in the middle years.

Cost of Capital

The cost of capital percentage showed a slight upward trend from 9.76% in 2014 to a peak of 10.17% in 2015, followed by a gradual decline to 8.76% in 2019. This decline in cost of capital towards the end of the period may indicate improved financing conditions or reduced perceived risk.

Invested Capital

Invested capital increased sharply from $55,001 million in 2014 to $80,730 million in 2015, marking a substantial capital commitment. It continued to grow reaching $85,356 million in 2016 before decreasing in subsequent years to around $77,429 million in 2019. This pattern suggests an initial aggressive investment phase followed by a period of capital optimization or divestment.

Economic Profit

Economic profit remained negative throughout the entire period, indicating that the company did not generate returns above its cost of capital. The negative economic profit deepened from -$2,282 million in 2014 to the worst level of -$3,574 million in 2016. After 2016, the negative economic profit improved progressively, reaching -$1,065 million in 2019. This improvement suggests better alignment of operating profits with the cost of capital, although the company still operated below the threshold of value creation.

In summary, while net operating profits increased substantially early in the period and showed overall growth, the concurrent increase in invested capital and persistent negative economic profits highlight challenges in generating returns exceeding the cost of capital. The reduction in cost of capital and partial recovery in economic profit during the latter years indicate improved efficiency and capital management, yet profitability above capital costs remains an area requiring attention.

Net earnings attributable to Walgreens Boots Alliance, Inc.

The net earnings exhibit volatility over the six-year period. Starting at 1,932 million USD in 2014, there is a significant increase to 4,220 million USD in 2015. This level is mostly sustained through 2016 and 2017, with values of 4,173 and 4,078 million USD respectively. In 2018, net earnings peak at 5,024 million USD, marking the highest point in the period analyzed. However, a decline occurs in 2019, where earnings fall to 3,982 million USD, indicating a downward shift after the 2018 peak.

Net operating profit after taxes (NOPAT)

The NOPAT shows an overall upward trend with some fluctuations. Beginning at 3,086 million USD in 2014, it rises sharply to 5,501 million USD in 2015. After this peak, it dips to 4,855 million USD in 2016, before increasing again in 2017 and 2018 to 5,246 and 5,934 million USD respectively. The highest NOPAT value is recorded in 2018. In 2019, NOPAT slightly decreases to 5,719 million USD but remains close to the peak level, indicating relatively stable operating profitability in recent years compared to net earnings.

Income Tax Provision

The income tax provision exhibited a general downward trend from 2014 to 2019. Beginning at $1,526 million in 2014, the figure decreased steadily through subsequent years, reaching $588 million in 2019. Notably, the most significant decline occurred between 2017 and 2019.

Cash Operating Taxes

Cash operating taxes remained relatively stable between 2014 and 2018, fluctuating within a narrow range from $1,667 million to $1,856 million. However, in 2019, there was a sharp decrease to $831 million, which represents a substantial reduction compared to the previous years.

Overall Observations

Both income tax provision and cash operating taxes showed significant declines by 2019 compared to earlier periods. While income tax provision steadily decreased over the years, cash operating taxes were stable for several years before dropping markedly in the last year observed. These trends may reflect changes in tax policies, operational adjustments, or shifts in taxable income and cash tax payments.

The financial data reveals several notable trends concerning the company's capital structure and invested capital over the six-year period ending in 2019.

Total reported debt & leases

This figure shows an overall increasing trend from 31,909 million USD in 2014 to 43,464 million USD in 2019, with a peak at 46,508 million USD in 2016. After reaching this peak, there is a decline in 2017 to 39,129 million USD, followed by a gradual increase again through 2018 and 2019. This pattern suggests a significant increase in leveraging activities up to 2016, some deleveraging or repayment in 2017, and subsequent additional borrowings or lease liabilities through 2019.

Total shareholders’ equity

Shareholders' equity exhibits a declining trend over the period. Starting at 20,457 million USD in 2014, the equity rose sharply to 30,861 million USD in 2015 but then continuously decreased each year thereafter to 23,512 million USD by 2019. This reduction over time indicates a depletion of equity capital, which could be attributed to factors such as sustained net losses, dividend distributions exceeding net income, share repurchases, or other equity-reducing activities.

Invested capital

The invested capital closely aligns with the combined effect of debt and equity, representing the total capital used in operations. It increased substantially from 55,001 million USD in 2014 to a peak of 85,356 million USD in 2016. Following this peak, invested capital decreased to 76,485 million USD in 2017 and remained relatively stable, with a slight increase, reaching 77,429 million USD by 2019. This behavior suggests expansion or acquisition activity up to 2016, followed by a period of consolidation or capital optimization in subsequent years.

In summary, the company experienced considerable growth in debt financing and invested capital until 2016, accompanied by an initial rise and then a steady decline in shareholders' equity. The data implies a strategic shift post-2016, characterized by deleveraging and stabilization of invested capital, while equity erosion continued, highlighting potential risks related to capital structure and financial sustainability.

The analysis of the financial data over the six-year period reveals several important trends in key economic metrics.

Economic Profit

The economic profit remained negative throughout the entire period, indicating that the company consistently failed to generate returns above its cost of capital. However, the magnitude of losses has decreased notably from a substantial negative value in 2016 (-3574 million USD) to a smaller negative figure in 2019 (-1065 million USD). This trend suggests an improvement in economic profitability, albeit still not reaching a positive threshold.

Invested Capital

The invested capital experienced a significant increase from 2014 to 2016, rising from 55,001 million USD to 85,356 million USD. Following this peak, invested capital declined slightly in 2017 and 2018 before stabilizing around 77,000 million USD in 2019. This behavior indicates initial expansion or acquisition of assets followed by a phase of relative consolidation where capital deployment was maintained but did not grow substantially.

Economic Spread Ratio

The economic spread ratio, reflecting the spread between return on invested capital and cost of capital, was negative throughout the period, consistent with the observed negative economic profit. It improved steadily from -4.15% in 2014 to -1.38% in 2019. This upward trend denotes a reduction in value destruction over time and suggests enhanced efficiency or profitability in operating assets relative to funding costs, although the ratio remained below zero, indicating continued economic value erosion.

Overall, the company showed a trend towards economic improvement from 2016 onward, with declining losses in economic profit and a narrowing negative economic spread. Invested capital grew sharply initially but has since leveled off, implying a strategic shift from aggressive capital expansion to maintaining current investment levels. Despite these improvements, the persistent negative economic profit and spread highlight ongoing challenges in achieving value creation over the analysis period.

Sales Trend

Sales demonstrated a consistent upward trajectory from 2014 through 2019. The total sales increased substantially, starting at approximately 76.4 billion US dollars in 2014 and reaching about 136.9 billion US dollars by 2019, indicating a steady growth over the six-year period.

Economic Profit

Economic profit remained negative throughout the entire period, implying that the company was not generating value above its cost of capital. Despite this, there was a discernible improvement in economic profit figures. The loss narrowed significantly from -2.282 billion US dollars in 2014 to -1.065 billion US dollars in 2019, which suggests enhanced operational efficiency or better capital management over time.

Economic Profit Margin

The economic profit margin followed a similar pattern to economic profit, consistently remaining negative but improving year over year. Starting at -2.99% in 2014, it improved steadily to -0.78% in 2019. This indicates a reduction in the gap between profits and economic costs relative to sales, signaling progress toward profitability on an economic profit basis.

Overall Interpretation

The financial data reveals a positive sales growth trend alongside gradually improving economic profitability metrics, albeit economic profit and its margin remain below zero. This suggests that while revenue generation has increased considerably, further efforts may be necessary to achieve positive economic returns. The narrowing losses in economic profit and margin illustrate a potentially improving operational or financial efficiency that could be leveraged toward achieving sustainable profitability in the future.