HP Inc. (NYSE:HPQ)

Net operating profit after taxes (NOPAT)

The NOPAT showed a fluctuating trend over the six-year period. It started at 4,258 million US dollars in 2013 and increased to a peak of 4,693 million US dollars in 2014. From 2014 onward, there was a general decline, dropping to 3,947 million in 2015, and further decreasing significantly to 2,997 million in 2016. The profit experienced a slight recovery in 2017 to 3,064 million before falling again to 2,027 million in 2018. Overall, the NOPAT in 2018 was less than half of its peak value in 2014, indicating diminishing profitability over the period.

Invested capital

The invested capital exhibited irregular movements with a notable drop in certain years. Initially, the invested capital decreased slightly from 67,461 million US dollars in 2013 to 65,787 million in 2014, then increased to 71,569 million in 2015. Thereafter, there was a sharp decrease to 9,027 million in 2016, followed by moderate increases to 9,763 million in 2017 and a decline to 7,561 million in 2018. This sharp reduction from 2015 to 2016 suggests a significant change in the capital structure or asset base that warrants further investigation.

Return on invested capital (ROIC)

The ROIC demonstrated considerable volatility throughout the period. It ranged between 5.51% and 7.13% from 2013 to 2015, indicating relatively modest returns on the invested capital during these years. However, there was a dramatic increase in 2016, with the ROIC rising to 33.2%, followed by slightly lower but still elevated levels of 31.38% in 2017 and 26.81% in 2018. The spike in ROIC corresponds with the sharp decline in invested capital, suggesting improved efficiency or higher returns generated from a substantially smaller capital base. Despite the highest efficiency occurring in the last three years, the declining absolute NOPAT during this period implies that the company achieved higher returns due primarily to reduced capital rather than increased profit.

The financial data reflects several notable trends across the analyzed periods, indicating shifts in operational efficiency, capital utilization, tax management, and overall profitability.

Operating Profit Margin (OPM)

The operating profit margin exhibited moderate fluctuations between 2013 and 2018. Starting at 5.53% in 2013, it slightly increased to 5.74% in 2014 but then declined to 4.75% in 2015. Subsequently, it peaked at 7.87% in 2016, followed by a gradual decrease to 7.04% in 2017 and further to 5.84% in 2018. This pattern suggests some volatility in operational efficiency, with a peak in 2016 and a decline thereafter.

Turnover of Capital (TO)

Turnover of capital remained relatively stable in the early years, with a minor increase from 1.66 in 2013 to 1.69 in 2014 before dropping to 1.45 in 2015. From 2016 onward, there was a significant increase, rising sharply to 5.34 in 2016 and marginally to 5.35 in 2017, then markedly accelerating to 7.76 in 2018. This indicates greatly improved efficiency in utilizing capital to generate revenue, especially in the later years.

1 – Effective Cash Tax Rate (CTR)

The effective cash tax rate, expressed inversely as 1 minus the tax rate, shows considerable variability. From 68.88% in 2013, it rose steadily to reach a high of 83.35% in 2017, implying a decreasing tax burden or more efficient tax management. However, in 2018, there was a sharp decline to 59.18%, indicating a substantial increase in the effective cash tax rate that year.

Return on Invested Capital (ROIC)

Return on invested capital demonstrated a significant upward trend between 2013 and 2016, jumping from 6.31% to a remarkably high 33.2%. This high level was sustained at 31.38% in 2017 but declined to 26.81% in 2018. The initial improvement likely reflects better profitability and capital efficiency, while the subsequent decline suggests some reduction in returns, though still remaining significantly above earlier levels.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes exhibited a declining trend over the analyzed period. Starting at 6,183 million US dollars in 2013, it slightly increased to 6,378 million in 2014. However, from 2015 onwards, a continuous decrease is observable, reaching 3,425 million US dollars in 2018. The reduction after 2014 indicates a consistent downward pressure on operating profitability before taxes during these years.

Adjusted Net Revenue

Adjusted net revenue remained relatively stable between 2013 and 2015, with values around 111,817 million US dollars in 2013 and a slight decrease to 103,853 million in 2015. However, from 2016 onwards, the values reported show a significant drop in magnitude due to a change in presentation or scope, with figures around 48,159 million US dollars in 2016, increasing gradually to 58,639 million by 2018. This suggests either a substantial restructuring, divestiture, or a change in accounting presentation impacting the comparability of revenue figures before and after 2016.

Operating Profit Margin (OPM)

The operating profit margin displayed fluctuations with an overall moderate level. It started at 5.53% in 2013, peaked slightly at 5.74% in 2014, then declined to 4.75% in 2015. In 2016, there was a notable increase to 7.87%, followed by a decrease to 7.04% in 2017, and further down to 5.84% in 2018. The margin improvement in 2016 indicates a temporary efficiency gain or cost control which was partially reversed in subsequent years.

Overall Insights

There was a general decline in net operating profit before taxes over the six-year period, despite relatively stable revenue figures initially and an apparent revenue presentation change post-2015. The operating profit margin's peak in 2016 suggests some operational improvement during that year, though the margin could not be sustained. The data implies challenges in maintaining profitability, potentially driven by changes in operational scale, market conditions, or structural adjustments within the company.

Adjusted Net Revenue

The adjusted net revenue shows a declining trend from 2013 to 2016, decreasing from 111,817 million US dollars in 2013 to 48,159 million US dollars in 2016. Thereafter, a recovery trend is observable, with revenue increasing to 58,639 million US dollars by 2018. This pattern reflects an initial contraction in revenue followed by a period of growth.

Invested Capital

The invested capital exhibits a downward trend overall but with some fluctuations. It starts at 67,461 million US dollars in 2013, declines slightly to 65,787 million in 2014, then rises to 71,569 million in 2015. A significant drop occurs in 2016 to 9,027 million, after which the invested capital marginally increases to 9,763 million in 2017 and then decreases again to 7,561 million in 2018. This significant reduction after 2015 indicates a strategic divestment or restructuring of capital investments.

Turnover of Capital (TO)

The turnover of capital ratio remained relatively stable around 1.66 to 1.69 from 2013 to 2014, then declined to 1.45 in 2015. From 2016 onward, it increased sharply, reaching 7.76 by 2018. This spike corresponds with the significant decreases in invested capital, suggesting heightened efficiency or asset utilization during the latter years.

Summary of Financial Trends

The data indicates the company experienced a contraction phase between 2013 and 2016 with reduced revenue and adjustments in capital investment. The significant reduction in invested capital after 2015, coupled with the rise in turnover of capital ratio, suggests a strategic shift, possibly focusing on asset-light operations or divestment of underperforming assets. The subsequent recovery in adjusted net revenue alongside increasing capital turnover signals improved operational efficiency and revenue generation relative to the capital employed in recent years.

Cash Operating Taxes

The cash operating taxes showed a declining trend from 2013 through 2017, decreasing from 1,924 million US dollars in 2013 to a low of 612 million in 2017. In 2018, there was a significant increase, with cash operating taxes rising sharply to 1,398 million US dollars.

Net Operating Profit Before Taxes (NOPBT)

NOPBT exhibited a downward trajectory over the examined period. Starting at 6,183 million US dollars in 2013, it declined steadily each year to reach 3,425 million in 2018. The fall was gradual but consistent, with the most pronounced decrease occurring between 2014 and 2016.

Effective Cash Tax Rate (CTR)

The effective cash tax rate decreased notably from 31.12% in 2013 to 16.65% in 2017, indicating a reduction in the proportion of taxes paid relative to operating profit. However, in 2018, the rate surged dramatically to 40.82%, suggesting a substantial increase in tax burden relative to profit in that year.

Overall Insights

Overall, the period from 2013 to 2017 was characterized by declining operating profits and cash taxes, accompanied by a decreasing effective cash tax rate, which may imply improved tax efficiency or changing tax regulations. In contrast, 2018 marked a reversal in these trends, with both cash operating taxes and the effective cash tax rate increasing sharply despite continued declining profits. This shift could indicate changes in tax policy, one-off tax expenses, or variations in tax planning strategies during 2018.