Edwards Lifesciences Corp. (NYSE:EW)

The period under review demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) generally increased, though with a notable decline in 2020. The cost of capital remained relatively stable, while invested capital exhibited an overall upward trend, with a decrease observed in the most recent year. These factors combined to produce significant variations in economic profit over the five-year span.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$615.07 million in 2017 to US$704.25 million in 2018, representing a growth of approximately 14.5%. A substantial increase was then observed in 2019, reaching US$1,050.29 million. However, 2020 saw a decrease to US$768.46 million, before rebounding strongly in 2021 to US$1,468.25 million. This suggests potential cyclicality or the impact of specific events affecting operational profitability.

Cost of Capital

The cost of capital experienced a modest increase over the period, rising from 17.91% in 2017 to 18.38% in 2021. This increase, while consistent, was relatively small and likely reflects broader changes in market interest rates or the company’s risk profile. The stability suggests a consistent approach to capital structure and financing.

Invested Capital

Invested capital generally trended upward, increasing from US$2,855.74 million in 2017 to US$3,937.90 million in 2020. This indicates a growing need for capital to support operations and expansion. However, a decrease to US$3,791.60 million was recorded in 2021, potentially due to asset sales, improved capital efficiency, or changes in working capital management.

Economic Profit

Economic profit mirrored the fluctuations in NOPAT and was influenced by the relatively stable cost of capital and invested capital. It rose from US$103.59 million in 2017 to US$173.64 million in 2018, and then significantly to US$373.05 million in 2019. The decline in NOPAT in 2020 resulted in a substantial drop in economic profit to US$46.66 million. A strong recovery was then seen in 2021, with economic profit reaching US$771.34 million, the highest value in the observed period. This demonstrates a strong correlation between operational profitability and the generation of economic value.

Overall, the analysis reveals a period of growth and volatility. While the company generally improved its ability to generate economic profit, the significant dip in 2020 highlights potential vulnerabilities to external factors or internal operational challenges. The strong rebound in 2021 suggests effective recovery strategies or favorable market conditions.

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 economic spread ratio demonstrates significant fluctuation over the observed period. Initial values indicate a positive economic spread, which increased substantially before declining and then recovering strongly. Economic profit also exhibits considerable variability, while invested capital generally trends upward, though with a recent decrease.

Economic Spread Ratio

The economic spread ratio began at 3.63% in 2017 and increased to 5.98% in 2018, indicating improving returns relative to the cost of capital. This positive trend continued with a substantial increase to 10.09% in 2019, representing a peak in performance during the analyzed timeframe. A significant decline occurred in 2020, with the ratio falling to 1.18%, suggesting a substantial reduction in the spread between returns and the cost of capital. However, the ratio experienced a dramatic recovery in 2021, reaching 20.34%, exceeding all prior values and indicating a substantial improvement in profitability relative to invested capital.

Economic Profit

Economic profit mirrored the trend of the economic spread ratio, increasing from US$103,590 thousand in 2017 to US$173,639 thousand in 2018. The largest increase occurred between 2018 and 2019, reaching US$373,053 thousand. A substantial decrease was observed in 2020, with economic profit falling to US$46,661 thousand. The final year, 2021, saw a significant rebound, with economic profit reaching US$771,340 thousand, the highest value recorded during the period.

Invested Capital

Invested capital generally increased throughout the period, rising from US$2,855,739 thousand in 2017 to US$3,937,900 thousand in 2020. However, a decrease was observed in 2021, with invested capital falling to US$3,791,600 thousand. This suggests a potential shift in capital allocation strategy or a reduction in capital-intensive projects during the final year.

The substantial increase in the economic spread ratio in 2021, coupled with the corresponding increase in economic profit, suggests a period of highly efficient capital allocation and strong profitability. The decrease in invested capital in 2021, despite the increase in economic profit, further supports this conclusion.

The economic profit margin exhibited significant fluctuation between 2017 and 2021. Initial increases were followed by a substantial decline and then a marked recovery, culminating in a peak in the most recent year observed.

Economic Profit Margin Trend

In 2017, the economic profit margin stood at 3.02%. This figure increased to 4.66% in 2018, continuing upward to reach 8.58% in 2019. A considerable decrease was then noted in 2020, with the margin falling to 1.06%. However, 2021 witnessed a dramatic resurgence, with the economic profit margin climbing to 14.74%.

The economic profit itself mirrored this trend. While economic profit increased from US$103,590 thousand in 2017 to US$373,053 thousand in 2019, it experienced a sharp contraction to US$46,661 thousand in 2020. The subsequent year saw a substantial increase, reaching US$771,340 thousand in 2021.

Relationship to Net Sales

Net sales demonstrated a consistent upward trend throughout the period, increasing from US$3,435,300 thousand in 2017 to US$5,232,500 thousand in 2021. The volatility in the economic profit margin suggests that while sales were generally increasing, the efficiency with which those sales translated into economic profit varied considerably year to year.

The significant increase in the economic profit margin in 2021, coupled with the substantial rise in economic profit, indicates a period of enhanced profitability relative to the capital employed. The dip in 2020 warrants further investigation to understand the underlying factors contributing to the reduced margin despite continued sales growth.