Becton, Dickinson & Co. (NYSE:BDX)

The period between September 30, 2016, and September 30, 2021, demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) and invested capital fluctuate over the observed timeframe, the cost of capital remains relatively stable, contributing to the sustained negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT initially increased significantly from US$717 million in 2016 to US$1,300 million in 2017. However, it then decreased to US$570 million in 2018 before recovering to US$1,105 million in 2019. A slight decline to US$991 million was observed in 2020, followed by a substantial increase to US$2,155 million in 2021. Despite the increase in 2021, NOPAT did not reach levels sufficient to generate positive economic profit.

Cost of Capital

The cost of capital experienced minor fluctuations, ranging from 10.53% to 11.29% throughout the period. The cost of capital increased steadily from 10.53% in 2017 to 11.29% in 2021. This incremental increase in the cost of capital, while not dramatic, contributed to the continued negative economic profit.

Invested Capital

Invested capital showed a consistent upward trend from US$22,258 million in 2016 to US$47,282 million in 2018. It then decreased slightly to US$45,181 million in 2019 and remained relatively stable at US$46,312 million in 2020, before decreasing again to US$45,278 million in 2021. The substantial growth in invested capital, particularly between 2016 and 2018, did not translate into positive economic profit.

Economic Profit

Economic profit remained negative throughout the entire period, ranging from -US$1,730 million to -US$4,569 million. The most significant negative economic profit occurred in 2018, at -US$4,569 million. While the negative economic profit lessened in 2021 to -US$2,957 million, it remained substantial. The consistent negative economic profit indicates that the returns generated from invested capital were consistently below the cost of that capital.

In summary, despite increases in NOPAT and invested capital at various points during the period, the cost of capital remained high enough to consistently result in negative economic profit. The largest negative economic profit occurred in 2018, coinciding with the highest level of invested capital. The improvement in economic profit in 2021 suggests a potential positive trend, but further monitoring is necessary to determine if this improvement is sustainable.

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 the magnitude fluctuates, the company did not generate positive economic profit during this timeframe. Invested capital generally increased over the period, peaking in 2018, then stabilizing before a slight decrease in 2021. The economic spread ratio, reflecting the relationship between economic profit and invested capital, consistently registered negative values throughout the analyzed period.

Economic Profit

Economic profit exhibited volatility. Beginning at negative $1,730 million in 2016, it decreased to negative $2,349 million in 2017, then experienced a substantial decline to negative $4,569 million in 2018. A moderate recovery to negative $3,938 million occurred in 2019, followed by a further decrease to negative $4,205 million in 2020. The final year observed, 2021, showed improvement, with economic profit reaching negative $2,957 million.

Invested Capital

Invested capital showed an overall increasing trend from $22,258 million in 2016 to a peak of $47,282 million in 2018. Following 2018, invested capital decreased slightly to $45,181 million in 2019, then remained relatively stable at $46,312 million in 2020. A minor decrease to $45,278 million was observed in 2021.

Economic Spread Ratio

The economic spread ratio consistently remained negative, indicating that the company’s return on invested capital was less than its cost of capital. The ratio moved from -7.77% in 2016 to -6.78% in 2017, then deteriorated to -9.66% in 2018, representing the lowest value in the observed period. The ratio improved slightly to -8.71% in 2019 and -9.08% in 2020 before showing a notable improvement to -6.53% in 2021. Despite this improvement, the ratio remained negative, signifying continued value destruction.

The observed trend suggests that while the company has been increasing its invested capital, it has not been able to generate returns sufficient 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 shift, but sustained performance is needed to achieve positive economic profit.

The economic profit margin demonstrates a consistently negative trend over the observed period, indicating the company consistently generated economic losses. While fluctuations occur year-to-year, the overall direction points to diminishing economic profitability.

Economic Profit Margin Trend

The economic profit margin began at -13.86% in 2016 and deteriorated to -19.43% in 2017, representing a substantial decline. This was followed by a further decrease to -28.58% in 2018, the lowest point in the series. A slight improvement occurred in 2019, with the margin increasing to -22.77%, but this was short-lived as it decreased again to -24.57% in 2020. Finally, the margin showed a notable improvement in 2021, rising to -14.61%, though it remained negative.

Revenues exhibited an increasing trend throughout the period. Despite this revenue growth, the economic profit margin remained negative, suggesting that revenue increases were insufficient to offset the cost of capital or that costs were increasing at a faster rate than revenues. The largest revenue increase occurred between 2020 and 2021, coinciding with the most significant improvement in the economic profit margin, although the margin remained in negative territory.

Relationship between Revenues and Economic Profit Margin

The observed pattern suggests a weak correlation between revenue growth and economic profitability. While revenues increased from US$12.483 billion in 2016 to US$20.248 billion in 2021, the economic profit margin did not consistently improve. This indicates that factors beyond revenue generation, such as cost management or capital efficiency, are significantly impacting economic profitability.

The substantial negative economic profit values, ranging from approximately US$1.73 billion to US$4.57 billion, underscore the magnitude of the economic losses experienced by the company during this period. The improvement in 2021, while positive, still resulted in a significant economic loss of approximately US$2.96 billion.