Walgreens Boots Alliance Inc. (NASDAQ:WBA)

The analysis of economic value added reveals that the entity operated with a consistent negative economic profit from 2014 through 2019. While the organization failed to generate returns exceeding its cost of capital during this period, a positive trajectory in narrowing these losses is observed starting in 2017.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited significant growth over the observed timeframe, increasing from US$ 3,086 million in 2014 to a peak of US$ 5,934 million in 2018. Despite a slight contraction to US$ 5,719 million in 2019, the overall trend reflects a substantial improvement in operational profitability.

Invested Capital

Invested capital experienced a sharp increase between 2014 and 2016, rising from US$ 55,001 million to a peak of US$ 85,356 million. Following this expansion, capital levels decreased and stabilized, ending the period at US$ 77,429 million in 2019.

Cost of Capital and Economic Profit

The cost of capital remained relatively stable between 11.18% and 11.71% for most of the period, before declining to 9.98% in 2019. The interplay between rising NOPAT and the stabilization of invested capital led to a steady improvement in economic profit after 2016. Economic losses peaked at US$ -4,845 million in 2016 but progressively narrowed to US$ -2,008 million by 2019, indicating a gradual approach toward economic value creation.

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 financial performance from 2014 to 2019 is characterized by persistent negative economic profit, indicating that the cost of capital consistently exceeded the returns generated on invested capital. While the period began with substantial economic losses, a recovery trend emerged after 2016, leading to a gradual reduction in the deficit by the end of the observed period.

Economic Profit Trends

Economic profit exhibited a volatile trajectory, declining from -3,093 million USD in 2014 to a trough of -4,845 million USD in 2016. Subsequently, a consistent recovery was observed, with losses narrowing each year to reach -2,008 million USD by August 31, 2019. This represents a significant reduction in the annual economic loss from the 2016 peak.

Invested Capital Dynamics

A sharp expansion in invested capital occurred between 2014 and 2016, with the amount rising from 55,001 million USD to 85,356 million USD. Following this growth phase, capital levels stabilized and experienced a slight contraction, fluctuating between 76,286 million USD and 77,429 million USD from 2017 through 2019.

Economic Spread Ratio Performance

The economic spread ratio remained negative throughout the six-year period, confirming that the entity failed to generate a return above its cost of capital. The ratio reached its lowest point in 2016 at -5.68%. However, a steady upward trajectory followed, with the ratio improving to -2.59% by 2019. This trend indicates a narrowing gap between the return on invested capital and the required rate of return, reflecting improved capital efficiency over the latter half of the period.

An analysis of the financial performance from 2014 to 2019 reveals a period of significant revenue growth coupled with a gradual recovery in economic value creation. While the organization operated with negative economic profit throughout the period, there is a clear trend toward improving efficiency and reducing the gap between operating returns and the cost of capital.

Economic Profit Trend

Economic profit exhibited a volatile trajectory, initially declining from -3,093 million US dollars in 2014 to a peak deficit of -4,845 million US dollars in 2016. Following this low point, a consistent recovery phase was observed, with the deficit narrowing to -2,008 million US dollars by 2019. This indicates a successful reduction in economic loss over the final three years of the period.

Sales Performance

A strong and continuous upward trend in sales is evident. Revenue increased from 76,392 million US dollars in 2014 to 136,866 million US dollars in 2019. This steady expansion suggests a significant increase in market scale and top-line growth, providing a larger base to offset the cost of capital.

Economic Profit Margin Analysis

The economic profit margin reflects the relationship between economic profit and total sales. Although the margin remained negative throughout the analysis period, it showed marked improvement after 2016. From a low of -4.13% in 2016, the margin improved to -1.47% by 2019. This compression of the negative margin indicates that the organization is becoming more efficient at generating value relative to its sales volume, moving closer to a point of positive economic value added.