Becton, Dickinson & Co. (NYSE:BDX)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not consistently reach levels sufficient to offset the cost of capital applied to the invested capital base.

NOPAT Trend

Net operating profit after taxes experienced a substantial increase from 2016 to 2017, nearly doubling. However, this was followed by a significant decline in 2018. A partial recovery occurred in 2019, and a further decline in 2020. The most recent year, 2021, shows the highest NOPAT value in the observed period, though still insufficient to generate positive economic profit.

Cost of Capital Trend

The cost of capital remained relatively stable throughout the period, exhibiting a gradual increasing trend. It rose from 10.94% in 2016 to 11.24% in 2021. This incremental increase in the cost of capital contributes to the sustained negative economic profit.

Invested Capital Trend

Invested capital increased significantly from 2016 to 2018, more than doubling. Following 2018, invested capital remained relatively stable, with minor fluctuations between 45,181 and 47,282 US$ millions. The high level of invested capital, combined with the cost of capital, exerts downward pressure on economic profit.

Economic Profit Trend

Economic profit remained negative across all observed years. The magnitude of the negative economic profit peaked in 2018 at -4,545 US$ millions. While the negative economic profit lessened in 2021 to -2,933 US$ millions, it still represents a substantial shortfall. The trend suggests that the company’s returns on its invested capital are consistently below its cost of capital.

In summary, despite increases in NOPAT in certain years, the combination of a consistently increasing cost of capital and a substantial invested capital base results in ongoing negative economic profit. The improvement in NOPAT during 2021 did not fully offset the cost of capital, indicating a continued need to improve profitability relative to the capital employed.

Net Income

The net income figures exhibit considerable fluctuation over the reported periods. Starting at 976 million US dollars in 2016, it increased moderately to 1100 million in 2017. However, 2018 saw a sharp decline to 311 million, representing a significant downturn. This was followed by a strong recovery in 2019, where net income rose to 1233 million. A decline occurred again in 2020, as net income dropped to 874 million. The latest figure in 2021 indicates a substantial increase to 2092 million, marking the highest value in the dataset and demonstrating a notable overall upward trend despite earlier volatility.

Net Operating Profit After Taxes (NOPAT)

NOPAT trends are somewhat aligned with net income, but they reflect less volatility. It started at 717 million US dollars in 2016 and sharply increased to 1300 million in 2017, marking a significant improvement. In 2018, NOPAT declined to 570 million, though this drop was less severe in relative terms compared to the net income decline in the same year. Subsequently, NOPAT recovered to 1105 million in 2019 and saw a slight decrease to 991 million in 2020. The year 2021 shows a dramatic increase to 2155 million, the highest point in the period, underscoring strong operational profitability improvements.

Summary Insights

Both net income and NOPAT demonstrate cyclical patterns characterized by steep declines followed by significant recoveries. The year 2018 stands out as an outlier with notably lower profitability, suggesting possible operational or market challenges during that period. The firm’s overall financial performance shows strong resilience and upward momentum by 2021, indicating effective management of costs and revenue growth leading to enhanced profitability. The 2021 figures exceeding previous highs imply robust financial health and operational efficiency.

The financial data reveals significant fluctuations in the income tax provision (benefit) over the observed periods. Initially, the income tax provision shows a negative value in 2017 (-124 million USD), indicating a benefit rather than an expense. This contrasts with the positive provisions in 2016 (97 million USD) and the substantial increase to 862 million USD in 2018. The value dips again in 2019 to a negative figure (-57 million USD), signaling another tax benefit, followed by a recovery to positive values in 2020 and 2021, reaching 111 million USD and 150 million USD, respectively. This volatility suggests variability in taxable income or tax planning strategies affecting provisions for income taxes.

Cash operating taxes also exhibit variability but with somewhat less drastic changes. The cash tax payment starts at 748 million USD in 2016, sharply decreases to 109 million USD in 2017, then peaks dramatically at 1,285 million USD in 2018. After this peak, there is a decline to 711 million USD in 2019, followed by further decreases and stabilization around 508 million USD in 2020, and a slight increase to 537 million USD in 2021. This pattern may reflect changes in operational profitability, timing differences in tax payments, or varying tax obligations year over year.

Income Tax Provision (Benefit)

Displayed considerable volatility with alternating positive and negative values, suggesting fluctuations in reported taxable income or tax expense recognition.

Peak observed in 2018, with a significant tax expense recorded.

Negative values in 2017 and 2019 suggest periods where tax benefits or credits were recognized.

The latter years (2020 and 2021) show moderate positive provisions, indicating a potential stabilization.

Cash Operating Taxes

Experienced sharp variations, with the highest cash tax paid in 2018 aligning with the peak in income tax provision.

Following the 2018 peak, the cash tax outlay declined and stabilized at a lower level by 2020 and 2021.

This may suggest shifts in operational profitability, timing issues in tax payments, or changes in tax liabilities over these years.

The financial data presented reveals notable trends in the company's capital structure and financing over the six-year period ending September 30, 2021.

Total Reported Debt & Leases

This item shows a significant increase from 2016 to 2018, rising from $11,801 million to a peak of $21,951 million in 2018. Subsequently, there is a consistent downward trend from 2018 through 2021, decreasing to $18,080 million. This decline may suggest efforts to reduce leverage or refinance obligations with lower levels of debt.

Shareholders’ Equity

Shareholders’ equity exhibits strong growth throughout the period. Starting at $7,633 million in 2016, it more than doubles by 2018 to $20,994 million, then continues increasing steadily to nearly $23,677 million by 2021. This upward trajectory indicates sustained profitability or capital infusions supporting the equity base.

Invested Capital

Invested capital reflects the combined financing through debt and equity and follows a similar pattern as debt, increasing from $22,258 million in 2016 to a peak of $47,282 million in 2018. Afterward, invested capital experiences a moderate decline, ending at $45,278 million in 2021. This suggests that while the total capital invested in the business grew substantially initially, it has somewhat plateaued or been optimized in recent years.

Overall, the data indicates an initial period of expansion or increased financing up to 2018, followed by a phase of debt reduction and stability in total invested capital. The continuous growth in shareholders’ equity through this period highlights strengthening financial resilience and potential value creation for shareholders.

The period between September 30, 2016, and September 30, 2021, demonstrates a consistent pattern of negative economic profit. While invested capital generally increased over this timeframe, the economic spread ratio consistently remained negative, indicating that the company’s returns on invested capital were less than its cost of capital.

Economic Profit

Economic profit exhibited volatility, initially at -US$1,719 million in 2016, decreasing to -US$2,332 million in 2017, then significantly declining to -US$4,545 million in 2018. A slight improvement was noted in 2019 with a value of -US$3,914 million, followed by a further decline to -US$4,181 million in 2020. The most recent year, 2021, showed a positive shift, with economic profit improving to -US$2,933 million, though still remaining negative.

Invested Capital

Invested capital showed a generally increasing trend. Starting at US$22,258 million in 2016, it rose substantially to US$34,655 million in 2017 and continued to increase to US$47,282 million in 2018. A slight decrease was observed in 2019 to US$45,181 million, followed by a modest increase to US$46,312 million in 2020. The value decreased slightly again in 2021, settling at US$45,278 million.

Economic Spread Ratio

The economic spread ratio consistently registered negative values throughout the observed period. It began at -7.72% in 2016, decreased to -6.73% in 2017, and then experienced a substantial decline to -9.61% in 2018. The ratio remained negative in 2019 (-8.66%) and 2020 (-9.03%). A notable improvement occurred in 2021, with the ratio increasing to -6.48%, representing the least negative value within the period, although still indicating returns below the cost of capital.

The increasing invested capital alongside consistently negative economic profit and economic spread ratios suggests that while the company has been increasing its investment, it has not been generating sufficient returns to cover its cost of capital. The improvement in the economic spread ratio in 2021, coupled with the reduced magnitude of economic loss, may indicate a positive trend, but continued monitoring is warranted to assess the sustainability of this improvement.

The economic profit margin exhibited a consistently negative trend between 2016 and 2020, followed by a notable improvement in 2021. Economic profit itself remained negative throughout the observed period, though the magnitude of the loss decreased in the final year.

Economic Profit Margin

The economic profit margin decreased from -13.77% in 2016 to -19.29% in 2017, representing a worsening of profitability from an economic value perspective. This decline continued through 2018 and 2019, reaching -28.44% and -22.64% respectively. The margin then reached its lowest point in 2020 at -24.42% before improving significantly to -14.49% in 2021.

Economic Profit

Economic profit demonstrated a pattern of increasing losses from 2016 to 2018, moving from a loss of US$1,719 million to US$4,545 million. While the loss decreased slightly in 2019 to US$3,914 million, it remained substantial. The loss increased again in 2020 to US$4,181 million before decreasing considerably to US$2,933 million in 2021. This reduction in the economic loss coincides with the improvement observed in the economic profit margin.

Revenues

Revenues generally increased over the period. From 2016 to 2019, revenues grew from US$12,483 million to US$17,290 million. Revenue growth slowed in 2020, with revenues at US$17,117 million, but then increased substantially in 2021 to US$20,248 million. The increase in revenue in 2021 did not fully offset the economic loss, but contributed to the improved economic profit margin.

The consistent negative economic profit margin indicates that the company’s returns are not covering its cost of capital throughout the period. The improvement in 2021 suggests a positive shift in the relationship between revenues, costs, and capital employed, though further analysis would be required to determine the sustainability of this trend.