Western Digital Corp. (NASDAQ:WDC)

The analysis of the financial data reveals notable fluctuations in key performance metrics over the six-year period. The net operating profit after taxes (NOPAT) exhibits significant volatility, starting with a strong positive figure in 2018, followed by a sharp decline into negative territory in 2019. It then recovers modestly in 2020, sharply increases in 2021 and 2022, and plunges back into a substantial negative value in 2023.

Invested capital shows a gradual downward trend throughout the period. Beginning at a value above 22,000 million US dollars in 2018, it steadily decreases each year, reaching just under 19,000 million US dollars by 2023. This consistent reduction in invested capital suggests cautious capital management or divestitures during these years.

The return on invested capital (ROIC) aligns closely with the NOPAT trend, indicating its sensitivity to profitability changes. Starting at a moderate positive rate in 2018, ROIC falls slightly into negative in 2019, recovers slightly in 2020, and then surges to its peak in 2022. In 2023, ROIC sharply reverses to a significant negative figure, reflecting the deep loss in NOPAT relative to the invested capital.

Net Operating Profit After Taxes (NOPAT)

Shows a highly cyclical pattern with substantial swings, including two notable periods of strong profitability (2018 and 2021–2022) and two periods of marked losses (2019 and 2023).

Invested Capital

Depicts a steady decline, suggesting a reduction in asset base or investments over time.

Return on Invested Capital (ROIC)

Reflects the volatility in profitability, with positive returns in 2018, 2021, and 2022 and negative returns in 2019 and 2023, peaking at over 9% before falling drastically.

Overall, the financial performance appears unstable, with significant swings in profitability that impact returns on capital. The sustained decrease in invested capital contrasts with the fluctuating profits, indicating possible adjustments in operational scale or asset efficiency. The sharp negative results in the latest period warrant further investigation to identify underlying causes and potential risks.

The analysis of the financial ratios over the six-year period reveals several notable trends and fluctuations in the company's performance and financial health.

Operating Profit Margin (OPM)

The operating profit margin displayed considerable volatility. It started relatively strong at 13.15% in 2018, dropped sharply to 1% in 2019, then experienced a minor increase to 2.43% in 2020. Subsequently, there was a consistent improvement reaching 12.84% in 2022. However, in 2023, the margin fell significantly to a negative 11.05%, indicating operational challenges or increased costs affecting profitability.

Turnover of Capital (TO)

This ratio, reflecting the efficiency of capital utilization, showed a declining trend. Starting at 0.91 in 2018, it decreased to 0.79 in 2019, fluctuated slightly upward between 2020 and 2022, achieving a peak of 0.95 in 2022, but then dropped more markedly to 0.65 in 2023. The downturn in 2023 may suggest diminished capital use efficiency or lower asset productivity in that year.

1 – Effective Cash Tax Rate (CTR)

The measure representing one minus the effective cash tax rate demonstrated high variability and an overall increasing trend. It began at 28.81% in 2018, declined sharply into negative territory in 2019 (-9.07%), indicating tax benefits or credits. It then rose steadily in the subsequent years, peaking at 100% in 2023. This progression suggests an increasing tax burden or changes in tax structure, significantly affecting cash flow from taxes.

Return on Invested Capital (ROIC)

ROIC showed fluctuating performance with an initial moderate return of 3.45% in 2018, dropping slightly below zero in 2019 and remaining near zero in 2020. There was a notable recovery in 2021 and 2022, reaching a high of 9.31%. However, the figure turned negative again in 2023 at -8.47%, reflecting potential difficulties in generating returns from invested capital during the most recent year.

Overall, the financial ratios indicate a period of instability with some recovery phases followed by recent downturns, particularly evident in operating profit margin, turnover of capital, and return on invested capital in 2023. The rising effective cash tax rate towards 2023 also implies increased fiscal pressure, which may have contributed to the deterioration in profitability and capital efficiency metrics.

Net operating profit before taxes (NOPBT)

There is a significant fluctuation in the net operating profit before taxes over the observed periods. The value starts at moderately high levels in 2018 with 2714 million USD, sharply declines to 166 million USD in 2019, and partially recovers to 407 million USD in 2020. It sees a substantial increase in 2021 with 1210 million USD and almost doubles in 2022 to 2414 million USD. However, in 2023, the figure drops drastically into a negative territory at -1361 million USD, indicating the company experienced a considerable operating loss before taxes during this period.

Revenue, net

Net revenue shows a generally declining trend after 2018. It starts at 20647 million USD in 2018 and falls steeply to 16569 million USD in 2019. The revenue remains relatively stable with slight increases in 2020 and 2021 at 16736 and 16922 million USD respectively. In 2022, revenue increases to 18793 million USD, before experiencing a sharp decline in 2023 to 12318 million USD. The drop in 2023 revenue is notable and corresponds with the negative operating profit before taxes that year.

Operating profit margin (OPM)

The operating profit margin follows a pattern consistent with overall profitability trends. It is relatively high at 13.15% in 2018 but plunges to 1% in 2019. Minor recovery occurs in 2020 with a margin of 2.43%, followed by more substantial increases to 7.15% in 2021 and 12.84% in 2022. The margin then falls sharply to -11.05% in 2023, reflecting the operational losses observed in that year.

Summary of trends

The company’s financial performance exhibits volatility throughout the periods analyzed. After an initially strong year in 2018, both profitability and revenue decline significantly in 2019. There is a gradual recovery in subsequent years, culminating in peak profitability and improved margins in 2022. However, the year 2023 marks a pronounced downturn, with substantial revenue loss and negative operating profit margin, signaling operational difficulties and financial distress. This pattern indicates that while the company has been capable of recovery following downturns in the past, it faced significant challenges in the most recent year that merit further investigation.

Revenue, net

The net revenue showed a declining trend from 2018 to 2019, dropping from 20,647 million US dollars to 16,569 million US dollars. Following this, revenue remained relatively stable in 2020 and 2021, with minor fluctuations around 16,700 and 16,922 million respectively. In 2022, there was an increase to 18,793 million US dollars; however, in 2023, a significant decrease occurred, with net revenue falling sharply to 12,318 million US dollars.

Invested capital

Invested capital decreased consistently over the entire period. Starting at 22,667 million US dollars in 2018, it reduced each year, reaching 18,928 million US dollars in 2023. The decline was steady, indicating a gradual reduction in the amount of capital invested annually.

Turnover of capital (TO)

The turnover of capital ratio showed a downward trend from 0.91 in 2018 to 0.79 in 2019, followed by a moderate recovery in 2020 and 2021 with values of 0.85 and 0.86 respectively. In 2022, the ratio improved further to 0.95, suggesting a more efficient use of invested capital relative to revenue generation during that year. However, in 2023, the ratio dropped substantially to 0.65, indicating a marked decline in capital efficiency.

Overall assessment

Overall, net revenue experienced fluctuation with an initial decline, a period of stabilization, a growth spike, and a notable fall in the latest year. Invested capital steadily decreased throughout the timeframe, yet the turnover of capital ratio varied, showing periods of both recovery and decline. The sharp decline in both revenue and turnover ratio in 2023 may reflect challenges in operational efficiency or market conditions impacting the company's performance in that year.

The financial data reveals several notable trends in cash operating taxes, net operating profit before taxes (NOPBT), and the effective cash tax rate (CTR) over the six-year period.

Cash Operating Taxes

Cash operating taxes show significant volatility during the period. Starting from a high of $1,932 million in 2018, the value drops sharply to $181 million in 2019. This is followed by a moderate increase in subsequent years, peaking again at $574 million in 2022 before declining to $243 million in 2023. The fluctuations suggest intermittent variations in taxable income or changes in tax obligations.

Net Operating Profit Before Taxes (NOPBT)

The NOPBT values display a highly variable pattern. In 2018, the figure stood at $2,714 million but then decreased precipitously to $166 million in 2019. Modest recovery appeared in 2020 with $407 million, followed by a considerable surge to $1,210 million in 2021 and $2,414 million in 2022. However, in 2023, the company experienced a significant operating loss before taxes, indicated by a negative NOPBT of $1,361 million. This trend reflects periods of profitability interspersed with financial challenges, particularly the large downturn in the most recent year.

Effective Cash Tax Rate (CTR)

The effective cash tax rate demonstrates a downward trend with considerable fluctuations. In 2018, the rate was 71.19%, which sharply increased to 109.07% in 2019, indicating a tax expense that exceeded operating profit before taxes. The rate then decreased progressively over the next three years, reaching 23.77% in 2022. Data for 2023 is absent, possibly due to the negative NOPBT in that year. The declining tax rate over time may be indicative of improved tax planning, shifts in tax regulations, or changes in profitability impacting taxable income.

Overall, the period is characterized by significant instability in profitability and tax expenses. The initial years saw steep drops in profits and tax payments followed by a recovery phase, culminating in a sharp operating loss in the most recent year. The effective tax rate trends correspond with these changes, highlighting fluctuating tax obligations relative to operating income. These dynamics suggest that the company has faced variable operational performance and tax exposure over the six years.