Builders FirstSource Inc. (NYSE:BLDR)

Net Operating Profit After Taxes (NOPAT)

There is a consistent upward trend in NOPAT over the observed periods. It increased gradually from 352,490 thousand USD at the end of 2018 to 451,161 thousand USD by the end of 2020. A significant surge occurred in 2021, with NOPAT reaching 1,833,934 thousand USD, followed by continued growth to 2,864,596 thousand USD in 2022. This indicates a substantial improvement in operating profitability after taxes during the latter years.

Cost of Capital

The cost of capital has shown a notable increase from 13.96% in 2018 to a peak of 21.16% in 2020. Following that peak, it slightly declined to 20.35% in 2021 and stabilized somewhat at 20.43% in 2022. Overall, the rising cost of capital reflects increasing financial and/or operational risks, or changes in market conditions affecting the company’s capital costs over the period analyzed.

Invested Capital

Invested capital exhibited moderate growth from 2,393,541 thousand USD in 2018 to 3,091,935 thousand USD in 2020. A sharp increase occurred in 2021, where invested capital jumped to 8,507,614 thousand USD and remained relatively stable in 2022 at 8,565,898 thousand USD. This rapid increase suggests significant capital investments or acquisitions in the latter part of the period, potentially supporting growth initiatives.

Economic Profit

Economic profit started positively at 18,232 thousand USD in 2018 but turned negative the following two years, reaching a low of -203,225 thousand USD in 2020. This negative trend corresponds with rising cost of capital and a slower growth in invested capital and NOPAT. In 2021, economic profit rebounded sharply to 102,918 thousand USD and surged further to 1,114,651 thousand USD in 2022. This turnaround signals a significant improvement in value creation, indicating that operating profits have outpaced capital costs substantially in the recent periods.

Net Income

Net income showed a positive and significant upward trend over the five-year period. Starting at 205,191 thousand US dollars in 2018, the figure increased moderately to 221,809 thousand in 2019 and then experienced a more substantial rise to 313,537 thousand in 2020. A pronounced acceleration occurred in 2021, with net income exceeding 1.7 million thousand US dollars, before reaching nearly 2.75 million thousand US dollars in 2022. This trend indicates strong growth in profitability, particularly in the final two years.

Net Operating Profit After Taxes (NOPAT)

NOPAT also demonstrated steady growth throughout the analyzed period. It began at 352,490 thousand US dollars in 2018 and increased incrementally to 374,658 thousand in 2019, followed by a more notable rise to 451,161 thousand in 2020. Similar to net income, a substantial surge was observed in 2021, with NOPAT exceeding 1.8 million thousand US dollars, and it continued to rise in 2022 to nearly 2.86 million thousand US dollars. This suggests improved operational efficiency and profitability after tax considerations.

Overall Trends and Insights

The financial data indicates a consistent and strong upward trajectory in key profitability metrics over the five-year period. Both net income and NOPAT reflected modest growth in the initial three years, followed by a dramatic increase in the latter two years. This pattern suggests either enhanced operational performance, favorable market conditions, or both, leading to a significant expansion in the company's earnings and operational profit after taxes. The parallel rise in both net income and NOPAT underscores an improvement not only in bottom-line profitability but also in the company’s operational effectiveness, which could be attributed to strategic initiatives or cost management improvements.

The financial data reveals a significant upward trend in both income tax expense and cash operating taxes over the five-year period ending December 31, 2022.

Income Tax Expense

Income tax expense displayed a steady increase from 2018 to 2020, rising from approximately $55.6 million to about $94.6 million. A substantial escalation is observed in 2021, where the expense surged to over $526 million, almost a sixfold increase compared to the prior year. This growth continued into 2022 with the expense reaching approximately $822.5 million, indicating a strong upward trajectory and possibly reflecting higher taxable income or changes in tax rates or provisions.

Cash Operating Taxes

Cash operating taxes similarly showed growth over the period. Starting from about $28.8 million in 2018, the figure steadily rose to approximately $110.2 million in 2020. A marked increase occurred in 2021, with cash operating taxes nearing $594.5 million—a more than fivefold increase relative to 2020. In 2022, this figure further increased to about $962.5 million, closely aligning with the trend observed in income tax expense.

Overall, both income tax expense and cash operating taxes have experienced accelerated growth starting in 2021. This pattern may reflect changes in the company's profitability, tax policy adjustments, or other operational factors leading to higher tax liabilities. The sharp rise suggests increased taxable earnings and/or shifts in tax-related strategies or regulations impacting cash tax payments.

The analysis of the financial data over the five-year period reveals several notable trends in the company's financial structure and capital management.

Total reported debt & leases

The total reported debt and leases demonstrated fluctuations across the years. A decrease is observed from 1,834,584 thousand USD in 2018 to 1,589,874 thousand USD in 2019, followed by an increase to 1,905,104 thousand USD in 2020. A significant rise is evident in 2021, with the figure reaching 3,401,751 thousand USD, and a slight increase to 3,489,418 thousand USD in 2022. This pattern suggests a substantial increase in debt and leasing obligations, particularly in the latest two years.

Stockholders’ equity

Stockholders’ equity showed a consistent upward trend from 596,338 thousand USD in 2018 to 1,152,783 thousand USD in 2020. In 2021, there is a marked surge to 4,802,481 thousand USD, which continues growing modestly to 4,962,566 thousand USD in 2022. This sharp increase in equity in 2021 and 2022 indicates a significant strengthening of the company’s capital base during this period.

Invested capital

Invested capital figures reveal a gradual rise from 2,393,541 thousand USD in 2018 to 3,091,935 thousand USD in 2020. A dramatic escalation occurred in 2021, reaching 8,507,614 thousand USD, with a marginal increase to 8,565,898 thousand USD in 2022. The pattern mirrors the equity and debt trends, suggesting major investments or acquisitions contributing to the surge in invested capital during these years.

Overall, the data indicates that while the company maintained relatively stable levels of debt and equity in the earlier years, a pronounced increase occurred starting in 2021. This shift points to strategic financial decisions involving increased leverage and capital infusion, reflecting potential growth initiatives or restructuring efforts. The concurrent rise in invested capital underscores a period of expansion or significant asset accumulation.

The financial data reveals a significant fluctuation in the company's economic profit over the observed periods. Initially, the company reported a positive economic profit, which then turned negative for two consecutive years before recovering strongly in the final two years. This pattern indicates varying levels of profitability and operational efficiency during the period examined.

Economic Profit

The economic profit was positive at the starting point but declined sharply, turning negative in the second and third years, with the largest loss recorded in the third year. This negative trend suggests the company struggled to generate returns above its cost of capital during this period. However, the subsequent recovery saw economic profit not only return to positive territory but also increase substantially, reaching its highest level in the final year. This substantial improvement may reflect enhanced operational performance or strategic initiatives that yielded greater value creation.

Invested Capital

Invested capital showed a steady increase across the timeline, with a marked acceleration in the fourth and fifth years. This growth indicates continued investment in assets, expansion activities, or possibly acquisitions. The significant rise in invested capital during the final two years correlates with the recovery in economic profit, suggesting that the newly invested capital was deployed effectively to generate higher returns.

Economic Spread Ratio

The economic spread ratio followed a pattern consistent with the changes in economic profit. Initially positive, it declined to negative values for two years, reflecting returns below the company’s cost of capital. The recovery phase saw the ratio return to positive and improve dramatically by the end of the period, reaching a notably high level. This improvement implies an increasing efficiency in utilizing invested capital to generate returns exceeding its cost, which is a positive indicator of value creation.

Overall, the period examined demonstrates a trajectory of initial financial challenges with negative economic returns, followed by strong recovery and improved capital utilization. The significant increase in economic profit and economic spread ratio in the final years, coupled with growing invested capital, points to successful strategic and operational adjustments leading to enhanced profitability and value generation for the company.

Economic Profit

The economic profit experienced considerable fluctuations throughout the analyzed period. Initially, it was positive at $18.2 million in 2018 but declined sharply to a negative $58.7 million in 2019 and further to a negative $203.2 million in 2020, indicating a period of economic losses. However, a notable recovery occurred afterward, with economic profit turning positive again in 2021 at approximately $102.9 million and substantially increasing to $1.11 billion by the end of 2022. This trend shows a strong turnaround in the company’s ability to generate value over these years.

Net Sales

Net sales demonstrated a generally increasing trend over the five-year period. There was a slight decrease from $7.72 billion in 2018 to $7.28 billion in 2019, followed by a moderate rise to $8.56 billion in 2020. The growth accelerated significantly in 2021 and 2022, with net sales reaching $19.89 billion and $22.73 billion respectively. This substantial growth in sales in the latter years indicates expanded business operations or increased demand.

Economic Profit Margin

The economic profit margin followed a pattern consistent with the economic profit values. Starting at a small positive margin of 0.24% in 2018, it dropped to negative margins of -0.81% in 2019 and -2.37% in 2020, reflecting profitability challenges. In 2021, the margin returned to a positive 0.52%, and then increased significantly to 4.9% in 2022. These figures indicate improved operational efficiency and profitability relative to sales in the most recent years.

Summary

The company faced economic profit declines and negative margins in 2019 and 2020 despite a slight recovery in net sales. However, strong growth in net sales from 2021 onward combined with a marked improvement in economic profit and margins suggests effective turnaround strategies and better market conditions. The amplified economic profit and profit margin in 2022 highlight enhanced value creation and financial health compared to the earlier years.