IQVIA Holdings Inc. (NYSE:IQV)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) exhibits fluctuation, it has not been sufficient to overcome the cost of capital applied to the invested capital base.

NOPAT Trend

Net operating profit after taxes increased from US$444 million in 2018 to US$449 million in 2019, representing a modest gain. A significant increase is then observed in 2020, reaching US$718 million, followed by a substantial rise to US$1,678 million in 2021. However, NOPAT decreased in 2022 to US$1,268 million, indicating a decline from the prior year’s peak.

Cost of Capital Trend

The cost of capital shows a generally increasing trend throughout the period. Starting at 16.61% in 2018, it rose to 17.83% in 2022. The increases are incremental, but consistent, suggesting a potentially increasing risk profile or changes in market conditions affecting funding costs.

Invested Capital Trend

Invested capital has generally increased over the five-year period. Beginning at US$20,458 million in 2018, it experienced a slight decrease in 2019 to US$20,313 million. Subsequent years show growth, reaching US$21,926 million in 2022. This indicates ongoing investment in the business, despite the negative economic profit.

Economic Profit Trend

Economic profit remained negative throughout the observed period, ranging from -US$2,954 million in 2018 to -US$2,070 million in 2021. While the deficit narrowed in 2021, it widened again in 2022 to -US$2,642 million. This suggests that, despite increases in NOPAT and invested capital, the returns generated are not exceeding the cost of funding those investments.

The consistent negative economic profit indicates that the company is not generating returns sufficient to cover its cost of capital. While NOPAT experienced a peak in 2021, the increasing cost of capital and continued investment have not resulted in positive economic value creation.

Net Income Attributable to IQVIA Holdings Inc.

The net income exhibited a fluctuating trend over the reviewed period. Starting at 259 million US dollars in 2018, there was a decline to 191 million in 2019. This was followed by an increase to 279 million in 2020. The year 2021 marked a significant spike in net income, reaching 966 million, the highest during the period. In 2022, net income continued to rise, although at a slower pace, reaching 1,091 million US dollars.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed a general upward trajectory with some variability. It started at 444 million US dollars in 2018 and remained relatively stable in 2019 with a marginal increase to 449 million. A more pronounced growth occurred in 2020, with NOPAT rising to 718 million. In 2021, the figure more than doubled compared to the previous year, reaching 1,678 million. However, in 2022, NOPAT decreased to 1,268 million, reflecting a contraction compared to 2021 but remaining significantly higher than the values before 2021.

Overall Observations

The data indicates that both net income and NOPAT experienced substantial growth particularly in 2021. However, while net income maintained an upward trend into 2022, NOPAT showed a decrease in the last year. This divergence may suggest changes in operational efficiency or tax impact in the most recent period. The significant increase in 2021 could be indicative of strong operational performance or other one-time factors contributing to profitability during that year.

The analysis of the income tax expense and cash operating taxes over the five-year period reveals a clear upward trend for both financial items.

Income Tax Expense

The income tax expense exhibited fluctuations in the initial years but showed a significant increase toward the end of the period. Starting at 59 million USD in 2018, the expense nearly doubled in 2019 to 116 million USD, then decreased to 72 million USD in 2020. However, there was a notable rise in subsequent years, reaching 163 million USD in 2021 and peaking at 260 million USD by the end of 2022. This pattern indicates increasing tax liabilities, especially in the last two years under review.

Cash Operating Taxes

Cash operating taxes also followed an upward trajectory, albeit with more stability year-over-year. From 340 million USD in 2018, the amount increased modestly to 356 million USD in 2019, followed by a slight dip to 334 million USD in 2020. Afterwards, there was a steady increase, with cash taxes rising to 390 million USD in 2021 and further climbing to 469 million USD in 2022. This steady growth highlights increasing cash tax payments, which may reflect higher taxable income or changes in tax legislation or business operations.

Overall, both the income tax expense and cash operating taxes have trended upward over the five-year span, with the largest increases occurring in the most recent years. This suggests a rising tax burden, which could impact net profitability and cash flows. The disparity between the income tax expense and cash operating taxes in absolute terms may also suggest timing differences or adjustments in deferred tax accounting.

Total reported debt & leases

The total reported debt and leases show a general increasing trend over the observed period. Starting at 11,620 million US dollars at the end of 2018, the amount increased steadily, reaching 13,351 million US dollars by the end of 2022. Despite a slight decrease in 2021 compared to 2020, the overall trajectory indicates a rising debt and lease liability commitment.

Equity attributable to IQVIA Holdings Inc.’s stockholders

Equity attributable to the company’s stockholders exhibits a declining pattern through the period. Beginning at 6,714 million US dollars in 2018, equity decreased to 6,003 million in 2019 and remained relatively flat through 2020 and 2021 around the 6,000 million mark. By the end of 2022, equity further dropped to 5,765 million dollars. This downward trend suggests a reduction in net assets available to shareholders over these years.

Invested capital

Invested capital shows a modest but consistent upward trend from 20,458 million US dollars at the end of 2018 to 21,926 million US dollars by the end of 2022. This increase is gradual and steady, reflecting a growth in the total sources of funding, including both debt and equity, utilized by the company in its operations.

The period between 2018 and 2022 demonstrates a consistent pattern of negative economic profit, alongside increasing invested capital. This results in consistently negative economic spread ratios throughout the observed timeframe. While the magnitude of the economic profit losses fluctuates, the overall trend indicates a persistent inability to generate returns exceeding the cost of capital.

Economic Profit

Economic profit exhibits volatility, beginning at a loss of US$2,954 million in 2018 and decreasing to a loss of US$2,070 million in 2021. However, the loss increased again in 2022, reaching US$2,642 million. This suggests periods of improved, but ultimately unsustainable, performance followed by a return to substantial negative economic profit.

Invested Capital

Invested capital shows a steady upward trend, increasing from US$20,458 million in 2018 to US$21,926 million in 2022. This indicates continued investment in the business, despite the consistent negative economic profit. The increasing capital base, without a corresponding improvement in profitability, exacerbates the negative economic profit.

Economic Spread Ratio

The economic spread ratio remains negative throughout the period, ranging from -14.44% to -9.75%. The ratio initially worsens from -14.44% in 2018 to -14.48% in 2019. A gradual improvement is observed through 2021, reaching -9.75%. However, the ratio deteriorates again in 2022, ending at -12.05%. This pattern mirrors the fluctuations in economic profit, confirming that returns are consistently below the cost of capital, and that the gap widened in the most recent year.

In summary, the analysis reveals a business consistently destroying economic value. Despite increasing investment, the company has not been able to generate sufficient returns to cover its cost of capital. The slight improvement observed in 2021 was not sustained, and the economic spread ratio worsened in 2022, indicating a continued need for strategic adjustments to improve profitability and capital allocation.

The economic profit margin exhibited a generally improving trend from 2018 to 2021, followed by a deterioration in the most recent period. While remaining negative throughout the observed timeframe, the magnitude of the loss decreased before increasing again in 2022. This suggests fluctuations in the company’s ability to generate returns exceeding its cost of capital.

Economic Profit Margin Trend

The economic profit margin began at -28.31% in 2018 and demonstrated a consistent, albeit gradual, improvement through 2021, reaching -14.33%. This indicates a lessening of the economic loss relative to revenue. However, in 2022, the margin worsened to -18.37%, reversing the prior positive trend. This recent shift warrants further investigation.

Adjusted revenues increased steadily from 2018 to 2021, coinciding with the improvement in the economic profit margin. The revenue growth from 2020 to 2021 was particularly substantial. However, adjusted revenues experienced a slight decrease in 2022, which may have contributed to the decline in the economic profit margin.

Relationship between Revenue and Economic Profit Margin

The period of revenue expansion from 2018 to 2021 correlated with a diminishing economic loss, as reflected in the improving economic profit margin. The slight revenue contraction in 2022 appears to have coincided with a renewed deterioration in the economic profit margin, suggesting a sensitivity of profitability to revenue fluctuations.

Economic profit itself remained negative across all periods. While the absolute value of the economic loss decreased from 2018 to 2021, it increased again in 2022. This indicates that, despite revenue growth in earlier years, the company consistently failed to generate returns that covered its cost of capital, and this situation worsened in the latest year.

Economic Profit

The negative economic profit values throughout the period indicate that the company’s after-tax operating profit was insufficient to cover its weighted average cost of capital. The increase in economic loss from 2021 (-2,070 million) to 2022 (-2,642 million) suggests a widening gap between profitability and the cost of funding operations.