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. A considerable increase is observed in 2021, representing the highest NOPAT value within the analyzed timeframe, though still insufficient to generate positive economic profit.

Cost of Capital Trend

The cost of capital remained relatively stable throughout the period, fluctuating within a narrow range between 10.54% and 11.30%. A slight upward trend is discernible, indicating a marginally increasing cost of funding over the years.

Invested Capital Trend

Invested capital increased significantly from 2016 to 2018, more than doubling. Following 2018, invested capital remained relatively stable, with minor fluctuations, indicating a period of consolidation in capital deployment. The level in 2021 is comparable to that of 2018.

Economic Profit Trend

Economic profit remained negative across all years examined. The magnitude of the negative economic profit peaked in 2018, reaching its lowest point. While the negative economic profit decreased in 2021 compared to prior years, it remained substantial. The consistent negative values suggest that the company’s returns on invested capital are not exceeding its cost of capital.

The combination of a relatively stable, and slightly increasing, cost of capital and fluctuating NOPAT levels, coupled with a large invested capital base, consistently results in negative economic profit. The increase in NOPAT in 2021 offers a potential positive signal, but further monitoring is required to determine if this represents a sustainable trend towards generating positive 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 volatility, initially at -US$1,732 million in 2016, decreasing to -US$2,352 million in 2017, then significantly declining to -US$4,572 million in 2018. A slight improvement was noted in 2019 with a value of -US$3,941 million, followed by a further decline to -US$4,209 million in 2020. The final year observed, 2021, showed a positive shift, with economic profit increasing to -US$2,961 million, representing the least negative value within the analyzed period.

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 final year, 2021, saw a slight decrease to US$45,278 million, though remaining significantly higher than the initial value in 2016.

Economic Spread Ratio

The economic spread ratio consistently registered negative values throughout the period. It began at -7.78% in 2016, decreased to -6.79% in 2017, and then experienced a substantial decline to -9.67% in 2018, representing the lowest value observed. The ratio improved slightly to -8.72% in 2019 and further to -9.09% in 2020. A notable improvement occurred in 2021, with the ratio increasing to -6.54%, indicating a reduced, but still negative, difference between the return on invested capital and the cost of capital.

The observed trend suggests that despite increases in invested capital, the company struggled to generate returns exceeding its cost of capital. The improvement in the economic spread ratio in 2021, coupled with the reduced magnitude of the economic loss, may indicate a positive shift in operational efficiency or capital allocation, though continued negative economic profit suggests ongoing challenges in value creation.

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. Revenues demonstrated an overall upward trajectory, accelerating in the later years of the period.

Economic Profit Margin

The economic profit margin began at -13.88% in 2016 and progressively declined, reaching a low of -28.61% in 2018. This indicates a widening gap between the company’s cost of capital and the returns generated from revenue. A slight recovery to -24.59% occurred in 2020, but the most substantial improvement was observed in 2021, with the margin increasing to -14.62%. This suggests a potential increase in efficiency or a decrease in the cost of capital in the most recent year.

Economic Profit

Economic profit decreased from a loss of US$1,732 million in 2016 to a loss of US$4,572 million in 2018, mirroring the decline in the economic profit margin. While remaining negative, the loss moderated to US$4,209 million in 2020 and further improved to US$2,961 million in 2021. This reduction in the magnitude of the loss coincides with the improvement in the economic profit margin and the increase in revenues.

Revenues

Revenues experienced a slight decrease from US$12,483 million in 2016 to US$12,093 million in 2017. However, from 2017 onward, revenues demonstrated consistent growth, reaching US$20,248 million in 2021. The rate of revenue growth accelerated between 2019 and 2021, potentially contributing to the improved economic profit margin observed in the final year.

The consistent negative economic profit, despite increasing revenues, suggests that the company’s cost of capital remained a significant factor throughout the period. The improvement in 2021 indicates a positive shift, but continued monitoring is warranted to determine if this trend is sustainable.