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, before recovering strongly in 2021. The cost of capital exhibited a consistent, albeit slight, upward trend throughout the period. Invested capital also increased overall, with a decrease observed in the most recent year. Consequently, economic profit experienced significant variation.

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$1.05 billion. However, 2020 saw a decrease to US$768.46 million, likely influenced by external factors. NOPAT rebounded significantly in 2021, reaching US$1.47 billion, the highest value in the observed period.

Cost of Capital

The cost of capital showed a steady increase over the five-year period, rising from 17.88% in 2017 to 18.35% in 2021. This incremental rise suggests a potentially increasing risk profile or changes in the company’s capital structure and market conditions.

Invested Capital

Invested capital generally trended upward, increasing from US$2.86 billion in 2017 to US$3.94 billion in 2020. However, a decrease to US$3.79 billion was recorded in 2021. This suggests a potential shift in capital allocation strategy or asset management during that year.

Economic Profit

Economic profit mirrored the fluctuations in NOPAT and was also influenced by the rising cost of capital. It increased from US$104.56 million in 2017 to US$174.65 million in 2018. The largest increase occurred between 2018 and 2019, reaching US$374.34 million. A substantial decline to US$48.03 million was observed in 2020, coinciding with the decrease in NOPAT. Economic profit then experienced a dramatic recovery in 2021, reaching US$772.67 million, driven by the significant increase in NOPAT.

The substantial increase in economic profit in 2021 indicates a strong ability to generate returns exceeding the cost of capital. The dip in 2020 warrants further investigation to understand the underlying causes and assess the sustainability of the recovery observed in the following year. The consistent rise in the cost of capital should be monitored as it could potentially impact future economic profit generation.

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 five-year period. Initial values indicate a positive trend, followed by a substantial decline, and then a marked recovery. Economic profit also exhibits considerable variability, while invested capital generally increases before a slight decrease in the final year.

Economic Spread Ratio

The economic spread ratio began at 3.66% in 2017 and increased to 6.01% in 2018, suggesting improving profitability relative to invested capital. This upward trend continued, reaching a peak of 10.12% in 2019, indicating a strong economic advantage. A significant decrease occurred in 2020, with the ratio falling to 1.22%, representing a substantial reduction in the spread between return on capital and the cost of capital. However, the ratio experienced a dramatic recovery in 2021, rising to 20.38%, exceeding all prior values and indicating a substantial improvement in economic performance.

Economic Profit

Economic profit mirrored the trend of the economic spread ratio to some extent. It increased from US$104,562 thousand in 2017 to US$174,648 thousand in 2018, and then experienced a substantial increase to US$374,341 thousand in 2019. A sharp decline was observed in 2020, with economic profit falling to US$48,034 thousand. The final year, 2021, saw a significant rebound, with economic profit reaching US$772,666 thousand, the highest value in the observed period.

Invested Capital

Invested capital generally increased throughout the period. It rose from US$2,855,739 thousand in 2017 to US$2,904,204 thousand in 2018, and continued to increase to US$3,697,400 thousand in 2019 and US$3,937,900 thousand in 2020. A slight decrease was observed in 2021, with invested capital falling to US$3,791,600 thousand. Despite this final year decrease, the overall trend indicates a growing capital base.

The substantial increase in the economic spread ratio and economic profit in 2021, coupled with a relatively stable invested capital, suggests a significant improvement in the efficiency with which capital is being utilized. The dip in 2020 warrants further investigation to understand the underlying causes of the reduced economic performance.

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

Economic Profit Margin Trend

In 2017, the economic profit margin stood at 3.04%. This value increased to 4.69% in 2018, and continued its upward trajectory, reaching 8.61% in 2019. A marked decrease occurred in 2020, with the margin falling to 1.10%. However, a strong recovery was observed in 2021, as the economic profit margin rose sharply to 14.77%.

The economic profit itself demonstrated a similar pattern of growth, decline, and recovery. While economic profit increased substantially from 2017 to 2019, the decrease in 2020 directly impacted the economic profit margin. The substantial increase in economic profit in 2021 was the primary driver of the significant improvement in the economic profit margin during that year.

Relationship to Net Sales

Net sales generally increased over the period, moving from US$3,435,300 thousand in 2017 to US$5,232,500 thousand in 2021. The economic profit margin’s fluctuations were not directly correlated with the consistent growth in net sales. The significant drop in margin in 2020 occurred despite relatively stable net sales compared to the prior year, suggesting a change in underlying cost structures or capital efficiency. The substantial margin increase in 2021 occurred alongside a larger increase in net sales, indicating a potential synergy between revenue growth and profitability.

The volatility in the economic profit margin suggests potential sensitivity to factors beyond revenue growth, such as cost of capital, operating expenses, or asset utilization. Further investigation into these areas would be necessary to fully understand the drivers behind these fluctuations.