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 employed. Invested capital generally increased over the period, contributing to the sustained negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced a significant increase from 2016 to 2017, more than doubling. However, it then decreased substantially in 2018 before recovering in 2019 and 2020. A substantial increase is observed in 2021, reaching the highest value within the observed period. Despite this increase, NOPAT remains insufficient to generate a positive economic profit.

Cost of Capital

The cost of capital exhibits relative stability throughout the period, ranging between 9.22% and 9.85%. A slight upward trend is discernible, increasing from 9.22% in 2017 to 9.85% in 2021. This incremental increase in the cost of capital contributes to the difficulty in achieving positive economic profit.

Invested Capital

Invested capital generally increased from 2016 to 2018, nearly doubling over that timeframe. It then experienced a slight decrease in 2019, followed by a modest increase in 2020, and a further decrease in 2021. The consistently high level of invested capital, coupled with the cost of that capital, significantly impacts economic profit.

Economic Profit

Economic profit remains negative throughout the entire period. The magnitude of the negative economic profit is largest in 2018, reaching -3,928 US$ millions. While the negative economic profit decreases in 2021 to -2,305 US$ millions, it remains substantial. The trend suggests that while NOPAT improved in 2021, it was not enough to overcome the cost of the significant invested capital.

In summary, the organization consistently destroys economic value as indicated by the negative economic profit. Improvements in NOPAT are offset by a high cost of capital and substantial levels of invested capital. Further analysis would be required to determine the drivers of invested capital and potential strategies to improve economic profit.

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 a generally worsening trend from 2016 to 2018, declining from a loss of US$1,421 million to a loss of US$3,928 million. A slight improvement occurred in 2019, with the loss decreasing to US$3,305 million, but this was followed by a further decline to US$3,550 million in 2020. The most recent year, 2021, showed a positive shift, with economic profit improving to a loss of US$2,305 million. Despite this improvement, economic profit remained negative throughout the entire period.

Invested Capital

Invested capital increased significantly from US$22,258 million in 2016 to US$34,655 million in 2017, and continued to rise to US$47,282 million in 2018. Following this substantial growth, invested capital experienced a slight decrease to US$45,181 million in 2019. It then saw a modest increase to US$46,312 million in 2020 before decreasing slightly again to US$45,278 million in 2021. The overall trend indicates a substantial increase in invested capital, although the rate of increase slowed and even reversed in later years.

Economic Spread Ratio

The economic spread ratio consistently registered negative values throughout the observed period. The ratio began at -6.38% in 2016 and deteriorated to -8.31% in 2018, representing the lowest point in the series. A slight improvement was observed in 2019 and 2020, with the ratio moving to -7.32% and -7.67% respectively. The most recent year, 2021, showed the most significant improvement, with the ratio increasing to -5.09%. While still negative, this represents a notable shift towards a more favorable position compared to earlier years in the period. The consistent negativity suggests that the company’s investments are not generating returns sufficient to cover the cost of capital.

In summary, the company experienced consistent negative economic profit despite increasing invested capital. The economic spread ratio, while showing some improvement in the final year, remained negative throughout the period, indicating a continued shortfall in returns relative to the cost of capital.

The economic profit margin exhibited a generally declining trend from 2016 through 2018, followed by some fluctuation before a partial recovery in the most recent period. Economic profit itself consistently remained negative across the observed timeframe, indicating the company’s returns were insufficient to cover the cost of capital.

Economic Profit Margin Trend

The economic profit margin decreased from -11.38% in 2016 to -15.68% in 2017, representing a worsening of profitability relative to capital employed. This decline continued significantly in 2018, reaching -24.58%, the lowest point in the series. A slight improvement occurred in 2019, with the margin moving to -19.12%, but this was followed by a further decrease to -20.74% in 2020. Finally, the margin improved considerably in 2021, reaching -11.39%, returning to a level comparable to that observed in 2016.

Relationship between Revenues and Economic Profit

Revenues generally increased over the period, rising from US$12,483 million in 2016 to US$20,248 million in 2021. However, this revenue growth did not translate into positive economic profit. Despite the substantial increase in revenues, the negative economic profit persisted, and the economic profit margin worsened until 2020, suggesting that the cost of generating those revenues, combined with the cost of capital, exceeded the revenue generated. The improvement in the economic profit margin in 2021 coincided with a significant revenue increase, indicating a potential, though incomplete, improvement in the efficiency of capital utilization.

The consistent negative economic profit suggests the company may need to focus on strategies to improve profitability, reduce the cost of capital, or more effectively allocate capital to projects that generate returns exceeding the cost of capital. The recent improvement in the economic profit margin in 2021 is a positive sign, but sustained improvement will be necessary to achieve positive economic profit.