Edwards Lifesciences Corp. (NYSE:EW)

The economic performance analysis from 2017 to 2021 indicates a significant overall expansion in economic value creation, characterized by a period of volatility in 2020 followed by a substantial recovery in 2021.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a general upward trajectory, rising from 615,066 thousand USD in 2017 to 1,468,252 thousand USD in 2021. A temporary contraction occurred in 2020, with profit decreasing to 768,464 thousand USD, before achieving a sharp increase in the final year of the period.

Cost of Capital

The cost of capital remained highly stable throughout the analyzed timeframe, exhibiting only a marginal increase from 18.00% in 2017 to 18.48% in 2021. This stability suggests a consistent weighted average cost of capital despite changes in operating scale.

Invested Capital

Invested capital increased steadily from 2,855,739 thousand USD in 2017 to a peak of 3,937,900 thousand USD in 2020. A slight reduction to 3,791,600 thousand USD was recorded in 2021, indicating a potential shift toward higher capital efficiency or a reduction in asset intensity.

Economic Profit

Economic profit exhibited significant fluctuations, growing from 100,953 thousand USD in 2017 to 369,558 thousand USD in 2019. A sharp decline to 42,936 thousand USD was observed in 2020, driven by the simultaneous decrease in NOPAT and an increase in the capital charge from higher invested capital. However, 2021 saw a dramatic surge to 767,742 thousand USD, marking the highest level of economic profit in the five-year period and confirming a strong capacity to generate returns above the cost of capital.

The financial data indicates variations and notable trends in profitability measures over the five-year period.

Net Income

Net income displayed an overall upward trend from 2017 through 2021. Starting at approximately 583.6 million US dollars in 2017, it increased to 722.2 million in 2018, followed by a significant rise to nearly 1.05 billion in 2019. Although there was a decline in 2020 to 823.4 million, the figure rebounded strongly in 2021, reaching a high of about 1.5 billion US dollars. This pattern suggests a robust profitability growth trajectory with a temporary setback in 2020.

Net Operating Profit After Taxes (NOPAT)

NOPAT also showed a general upward pattern in line with net income, beginning at approximately 615.1 million US dollars in 2017 and increasing to 704.3 million in 2018. It then rose sharply to about 1.05 billion in 2019 before declining to 768.5 million in 2020. Similar to net income, NOPAT recovered in 2021, reaching approximately 1.47 billion US dollars. The fluctuations in NOPAT largely mirror those in net income, indicating consistent operational profitability trends adjusted for taxes.

In summary, both net income and NOPAT experienced significant growth over the period, with a noticeable dip in 2020 likely influenced by external factors affecting profitability that year. The strong recovery in 2021 highlights resilience and an improved operating performance post-2020.

An analysis of the financial data over the five-year period reveals distinct trends in both income tax provision and cash operating taxes.

Income Tax Provision

The income tax provision shows significant fluctuation during the period. Initially, it starts at a relatively high value in 2017, then declines sharply in 2018. This is followed by an increase in 2019, a slight decrease in 2020, and a considerable rise again in 2021. Overall, the income tax provision does not establish a consistent upward or downward trend but rather exhibits volatility with a strong rebound in the final year observed.

Cash Operating Taxes

Cash operating taxes depict a generally increasing trend throughout the period. Starting from a moderate level in 2017, there is a considerable drop in 2018. Following this, a continuous rise is observed through 2019, 2020, and a significant increase in 2021. This pattern indicates growing cash tax outflows, especially pronounced in the latter years, suggesting either higher taxable income or changes in tax payment practices.

Comparative Observations

When comparing the two metrics, cash operating taxes remain consistently below income tax provisions in most years except for 2018 when cash operating taxes are notably higher. This divergence indicates potential differences in timing or recognition between the tax expense reported under accounting standards and the actual cash taxes paid. The growing gap in recent years could imply deferred tax liabilities or other tax-related timing differences.

Total reported debt & leases

The total reported debt and leases demonstrate a significant decrease from 1,103,939 thousand US dollars in 2017 to 676,404 thousand US dollars in 2018. After this sharp reduction, the values remain relatively stable with slight fluctuations, recorded as 678,800 thousand in 2019, 694,900 thousand in 2020, and a minor decrease to 690,300 thousand in 2021. This indicates a strategic reduction in debt levels followed by maintenance of a consistent debt position over the subsequent years.

Stockholders’ equity

Stockholders' equity exhibits a consistent upward trend throughout the observed period. Beginning at 2,956,200 thousand US dollars in 2017, equity grows moderately to 3,140,400 thousand in 2018. Thereafter, a more pronounced increase is observed with figures reaching 4,148,300 thousand in 2019, 4,574,300 thousand in 2020, and a significant rise to 5,835,900 thousand in 2021. This steady increase suggests ongoing equity strengthening, potential reinvestment of earnings, or capital raising activities enhancing the financial base of the entity.

Invested capital

Invested capital shows an initial slight increase from 2,855,739 thousand US dollars in 2017 to 2,904,204 thousand in 2018, followed by a notable increase to 3,697,400 thousand in 2019 and further to 3,937,900 thousand in 2020. However, a decrease is evident in 2021, with invested capital reducing to 3,791,600 thousand. This pattern indicates growing investment in assets or operations until 2020, with a partial reduction or divestment in 2021, reflecting a possible shift in investment strategy or asset base optimization.

The analysis of economic value creation between 2017 and 2021 reveals a period of significant volatility, characterized by a steady initial ascent, a sharp contraction in 2020, and a substantial recovery by the end of the period.

Economic Profit Trends

Economic profit demonstrated growth in the early part of the period, increasing from US$ 100,953 thousand in 2017 to US$ 369,558 thousand in 2019. A marked decline was observed in 2020, with profit falling to US$ 42,936 thousand. However, this was followed by a significant surge in 2021, reaching a peak of US$ 767,742 thousand, representing a considerable expansion in value creation over the cost of capital.

Invested Capital Dynamics

Invested capital exhibited a general upward trajectory from 2017 through 2020, growing from US$ 2,855,739 thousand to a peak of US$ 3,937,900 thousand. In 2021, a slight contraction in the capital base was noted, with the figure adjusting to US$ 3,791,600 thousand.

Economic Spread Ratio Performance

The economic spread ratio, which measures the efficiency of value generation relative to capital employed, rose from 3.54% in 2017 to 10.00% in 2019. A critical compression occurred in 2020, where the ratio dropped to 1.09%, indicating that the return on capital barely exceeded the required cost. This trend reversed sharply in 2021, with the ratio expanding to 20.25%, the highest level in the five-year period, signaling a highly efficient utilization of invested capital to generate economic surplus.

The analysis of the financial performance between 2017 and 2021 reveals a volatile yet overall upward trajectory in economic value creation. While net sales demonstrated consistent growth, economic profit experienced significant fluctuations, culminating in a substantial expansion of the economic profit margin by the end of the period.

Net Sales Trends

A steady increase in top-line revenue is observed, with net sales growing from US$ 3.44 billion in 2017 to US$ 5.23 billion in 2021. The most significant growth occurred between 2018 and 2019, followed by a period of stagnation in 2020, and a strong recovery in 2021.

Economic Profit Volatility

Economic profit showed an initial growth phase, rising from US$ 100.95 million in 2017 to a peak of US$ 369.56 million in 2019. A sharp contraction occurred in 2020, where economic profit plummeted to US$ 42.94 million. This decline was followed by a rapid and aggressive recovery in 2021, reaching a five-year high of US$ 767.74 million.

Economic Profit Margin Analysis

The economic profit margin mirrored the volatility of the absolute economic profit. The margin expanded from 2.94% in 2017 to 8.50% in 2019, indicating increasing efficiency in generating value above the cost of capital. The margin collapsed to 0.98% in 2020, coinciding with the period of stagnant sales and sharply reduced economic profit. However, by 2021, the margin reached its peak at 14.67%, representing a significant improvement in capital efficiency and value creation relative to sales.

The divergence between net sales and economic profit in 2020 suggests that while revenue was maintained, the cost of capital or operating expenses increased significantly, nearly eroding the economic profit. The subsequent surge in 2021 indicates a strong operational rebound and a heightened ability to generate returns exceeding the required cost of capital.