Abbott Laboratories (NYSE:ABT)

The period under review demonstrates a fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially decreased, then showed signs of recovery, while the cost of capital consistently increased for several years before stabilizing. Invested capital experienced a slight decline followed by a recovery, ultimately reaching a level comparable to the beginning of the period. However, economic profit remained negative throughout the entire period, indicating that the company’s returns did not exceed its cost of capital.

NOPAT Trend

Net operating profit after taxes decreased from US$7,014 million in 2021 to US$6,718 million in 2022. A more substantial decline was observed in 2023, falling to US$5,289 million. A modest recovery occurred in 2024, reaching US$5,543 million, followed by a significant increase to US$7,106 million in 2025, surpassing the 2021 level.

Cost of Capital Trend

The cost of capital exhibited a consistent upward trend from 13.02% in 2021 to 13.48% in 2024. In 2025, the cost of capital decreased slightly to 13.40%, halting the prior upward trajectory. This increase in the cost of capital contributed to the consistently negative economic profit.

Invested Capital Trend

Invested capital decreased from US$62,076 million in 2021 to US$59,651 million in 2023, representing the lowest value in the observed period. Subsequently, invested capital increased to US$60,086 million in 2024 and further to US$62,400 million in 2025, exceeding the initial value from 2021.

Economic Profit Trend

Economic profit was negative throughout the period. The deficit widened from US$-1,066 million in 2021 to US$-2,644 million in 2023, representing the largest negative value. A slight improvement was seen in 2024, with a deficit of US$-2,556 million. The deficit further improved in 2025 to US$-1,255 million, though remaining negative. The increasing cost of capital, coupled with fluctuations in NOPAT, contributed to this sustained negative economic profit.

The recovery in NOPAT in 2025, combined with a stabilization in the cost of capital, led to a reduced economic loss. However, the company did not generate returns exceeding its cost of capital during any of the years examined.

Net operating profit after taxes (NOPAT) exhibited fluctuations over the five-year period. While generally tracking with net earnings, distinct patterns emerge upon closer examination. Initial declines were followed by a significant increase and then a subsequent decrease.

Overall Trend

NOPAT began at US$7,014 million in 2021 and decreased to US$5,289 million in 2023. A substantial increase was then observed in 2024, reaching US$5,543 million, followed by a further increase to US$7,106 million in 2025. This indicates a period of profitability challenges followed by recovery and growth.

Year-over-Year Changes

From 2021 to 2022, NOPAT decreased by US$296 million, representing a roughly 4.2% decline. The decrease from 2022 to 2023 was more pronounced, with a reduction of US$429 million, or approximately 6.4%. However, 2024 saw an increase of US$254 million, a 4.6% rise. The largest year-over-year change occurred between 2024 and 2025, with NOPAT increasing by US$1,563 million, or 28.2%.

Relationship to Net Earnings

NOPAT closely mirrored the trend of net earnings. Both metrics decreased from 2021 to 2023, experienced a large jump in 2024, and then decreased in 2025. The difference between net earnings and NOPAT remained relatively consistent throughout the period, suggesting a stable capital structure and financing costs. The slight differences observed could be attributed to non-operating items impacting net earnings.

The substantial increase in NOPAT in 2025 warrants further investigation to determine the underlying drivers, such as revenue growth, cost reductions, or changes in operational efficiency. The dip in 2023 also merits attention to understand the factors contributing to the reduced profitability during that year.

The reported values for taxes on earnings and cash operating taxes exhibit distinct patterns over the five-year period. Cash operating taxes demonstrate relative stability, while taxes on earnings fluctuate significantly, including a substantial negative value in 2024.

Cash Operating Taxes

Cash operating taxes increased from US$1,759 million in 2021 to US$2,118 million in 2022, representing a growth of approximately 20.4%. A subsequent decrease to US$1,463 million was observed in 2023. Values then rose to US$1,626 million in 2024 and concluded at US$1,550 million in 2025. Overall, the trend suggests a moderate level of volatility around the US$1,600 million mark, with no consistent upward or downward trajectory.

Taxes on Earnings

Taxes on earnings began at US$1,140 million in 2021 and increased to US$1,373 million in 2022. A decline to US$941 million followed in 2023. The most notable change occurred in 2024, with a reported negative value of -US$6,389 million. This suggests a significant tax benefit or accounting adjustment occurred during that year. The value recovered to US$1,942 million in 2025, exceeding the 2022 level. The substantial fluctuation indicates a sensitivity to factors impacting reported earnings and applicable tax rates.

The divergence between taxes on earnings and cash operating taxes is particularly pronounced in 2024. The negative taxes on earnings, contrasted with positive cash operating taxes, suggests the presence of deferred tax assets being realized, or other non-cash tax effects impacting reported earnings. Further investigation into the components of taxes on earnings is warranted to understand the drivers behind the 2024 anomaly.

Relationship between Metrics

In 2021, 2022, and 2023, cash operating taxes were consistently higher than taxes on earnings. This difference could be attributed to timing differences between when taxes are accrued for financial reporting purposes and when they are actually paid in cash. The 2024 and 2025 periods demonstrate a reversal of this pattern, with taxes on earnings exceeding cash operating taxes in 2025, and being significantly negative in 2024.

The composition of invested capital demonstrates notable shifts over the five-year period. Total reported debt & leases consistently decreased, while total shareholders’ investment generally increased. These movements have influenced the overall trend in invested capital.

Total Reported Debt & Leases

A clear downward trend is observed in total reported debt & leases, decreasing from US$19,251 million in 2021 to US$14,136 million in 2025. The largest single-year decrease occurred between 2021 and 2022, with a reduction of US$1,305 million. Subsequent annual decreases were more moderate, suggesting a consistent, but slowing, debt reduction strategy.

Total Abbott Shareholders’ Investment

Total shareholders’ investment exhibited an overall increasing trend, rising from US$35,802 million in 2021 to US$52,130 million in 2025. A significant increase is apparent between 2023 and 2024, with an addition of US$8,961 million. This suggests substantial equity financing or retained earnings accumulation during that period. The increase from 2024 to 2025, while still positive, was smaller at US$4,466 million.

Invested Capital

Invested capital initially decreased from US$62,076 million in 2021 to US$59,651 million in 2023, reflecting the greater reduction in debt compared to the increase in shareholders’ investment. However, it stabilized and slightly increased in 2024 to US$60,086 million, and continued to rise to US$62,400 million in 2025. This stabilization and subsequent increase indicate a shift towards utilizing more capital, potentially for growth initiatives, despite the continued reduction in debt. The overall change in invested capital from 2021 to 2025 was a modest increase of US$324 million.

The interplay between decreasing debt and increasing shareholders’ investment suggests a strategic shift in capital structure. The company appears to be reducing its reliance on debt financing while simultaneously strengthening its equity base. The recent stabilization and slight growth in invested capital, coupled with these changes, warrants further investigation into the company’s capital allocation decisions and their impact on future performance.

The economic spread ratio demonstrates a concerning trend over the five-year period. Initially negative, the ratio exhibits a substantial decline before showing signs of improvement. Economic profit consistently remains negative throughout the observed timeframe, while invested capital fluctuates modestly.

Economic Spread Ratio

The economic spread ratio decreased significantly from -1.72% in 2021 to -4.43% in 2023, representing a worsening of the difference between the company’s return on invested capital and its weighted average cost of capital. This indicates an increasing destruction of shareholder value during this period. A slight recovery is then observed in 2024 and 2025, with the ratio improving to -4.25% and -2.01% respectively, though it remains negative.

Economic Profit

Economic profit shows a consistent negative value across all years. The magnitude of the loss increased from US$1,066 million in 2021 to US$2,644 million in 2023, mirroring the decline in the economic spread ratio. The loss is reduced in 2024 to US$2,556 million and further reduced in 2025 to US$1,255 million, aligning with the improvement in the economic spread ratio.

Invested Capital

Invested capital experienced a moderate decrease from US$62,076 million in 2021 to US$59,651 million in 2023. A slight increase is noted in 2024 to US$60,086 million, followed by a further increase to US$62,400 million in 2025. These fluctuations in invested capital appear to have a less pronounced effect on the economic spread ratio compared to the changes in economic profit.

The combined trends suggest that while the company has begun to mitigate the losses in economic profit, it continues to generate returns below its cost of capital. The improvement in the economic spread ratio in the later years indicates a positive shift, but sustained positive economic profit is necessary to create shareholder value.

The economic profit margin exhibited a consistently negative trend between 2021 and 2023, followed by a partial recovery in subsequent years. Economic profit itself was negative throughout the observed period, indicating the company’s returns were insufficient to cover the cost of capital.

Economic Profit Margin

The economic profit margin decreased from -2.47% in 2021 to -6.59% in 2023, representing a substantial decline over three years. This indicates a worsening ability to generate profits exceeding the cost of capital as a percentage of net sales. A subsequent improvement is noted in 2024 and 2025, with the margin reaching -6.09% and -2.83% respectively. While still negative, this suggests a positive shift in profitability relative to capital costs.

Net sales demonstrated fluctuations during the period. A slight increase occurred between 2021 and 2022, followed by a decrease in 2023. Sales then recovered in 2024 and continued to rise in 2025, reaching 44,328 US$ millions. However, the increase in net sales did not fully offset the negative economic profit, particularly in 2023.

Relationship between Net Sales and Economic Profit Margin

Despite the increase in net sales in 2024 and 2025, the economic profit margin remained negative, although improving. This suggests that while the company increased revenue, the cost of capital and/or operational inefficiencies continued to erode profitability. The largest negative economic profit margin (-6.59%) coincided with the lowest net sales figure (40,109 US$ millions) in 2023, reinforcing the connection between revenue generation and economic profitability.

The trend in economic profit itself mirrors the economic profit margin, declining significantly from -1,066 US$ millions in 2021 to -2,644 US$ millions in 2023, before showing improvement to -1,255 US$ millions in 2025. This indicates that the absolute value of the shortfall between returns and the cost of capital increased substantially during the 2021-2023 period and then began to lessen.