Johnson & Johnson (NYSE:JNJ)

The financial data indicates notable fluctuations in the company's profitability and capital investment over the five-year period, with some areas showing volatility and other metrics maintaining relative consistency.

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows an increasing trend from 2020 to 2021, rising from 13,736 million to 18,861 million US dollars, representing a strong growth in operating performance. However, there is a decline in the following year to 16,117 million, followed by a more pronounced drop to 8,905 million in 2023. Although there is a partial recovery to 11,461 million in 2024, the profit remains significantly below the peak observed in 2021.

Cost of Capital

The cost of capital remains relatively stable across the five years, fluctuating mildly between 9.19% and 9.34%. This suggests that the company’s capital expenses and associated risks have remained consistent without significant shifts in market or business risk perceptions.

Invested Capital

The invested capital experienced relatively steady values with some variations. It was approximately 98,344 million US dollars in 2020, slightly decreasing to 98,066 million in 2021 before increasing sharply to 113,818 million in 2022. The figure then dropped back to 99,118 million in 2023, followed by a rise to 106,513 million in 2024. This variance indicates fluctuating levels of capital deployment, perhaps driven by acquisition, divestiture, or reinvestment strategies.

Economic Profit

Economic profit displayed a strong increase in 2021 at 9,778 million from 4,693 million in 2020, suggesting enhanced value creation beyond the cost of capital. However, subsequent years show a decline to 5,591 million in 2022 and a negative economic profit of -353 million in 2023, indicating value destruction during that year. The company managed a recovery in 2024, reaching 1,598 million, but economic profit remains well below the earlier high, suggesting challenges in sustaining economic value consistently.

Overall, the financial performance reflects volatility in profitability and economic value creation, despite a stable cost of capital. The invested capital shows variability, possibly linked to strategic decisions impacting operating results. The negative economic profit in 2023 is a notable concern, indicating a period where returns did not cover the cost of capital, although the partial recovery in 2024 offers some positive outlook. Continued monitoring of operating profit and capital efficiency will be critical for assessing future value generation.

The financial data reveals significant fluctuations across the analyzed periods in key profitability indicators. Net earnings demonstrated an overall volatile pattern, with a marked increase from 14,714 million US dollars in 2020 to a peak of 35,153 million in 2023, followed by a sharp decline to 14,066 million in 2024. This trend suggests periods of substantial profit growth interrupted by a sudden reduction in the latest year.

Similarly, Net Operating Profit After Taxes (NOPAT) followed a comparable trend but with less pronounced peaks and troughs. Starting at 13,736 million US dollars in 2020, NOPAT increased steadily to 18,861 million in 2021, then decreased to 16,117 million in 2022, sharply dropped to 8,905 million in 2023, and slightly recovered to 11,461 million in 2024. The dip in 2023 is noteworthy, indicating operational challenges or increased costs impacting profitability before partial recovery.

Net Earnings Trend

Initial steady growth followed by a significant peak in 2023 and subsequent sharp decline in 2024.

NOPAT Trend

General growth with moderate fluctuations until 2022, a steep decrease in 2023, and a modest rebound in 2024.

Comparison between Net Earnings and NOPAT

Net earnings portray higher volatility, while NOPAT reflects more stability but still impacted by operational difficulties in 2023.

Implications

The 2023 period represents a critical year where operational profitability suffered a significant setback, potentially due to external factors or internal inefficiencies. The rebound in NOPAT in 2024, although positive, remains below earlier highs, suggesting ongoing challenges.

Provision for taxes on income

The provision for taxes on income demonstrates notable variability over the five-year period. It started at 1,783 million US dollars at the end of 2020, increased moderately to 1,898 million in 2021, and then saw a considerable surge to 3,784 million in 2022. This sharp increase was followed by a significant decline to 1,736 million in 2023. In 2024, it rebounded to 2,621 million, indicating some recovery but remaining below the 2022 peak. This pattern suggests fluctuations in taxable income or changes in tax regulations affecting the provision amounts.

Cash operating taxes

Cash operating taxes show a consistent upward trend from 2020 to 2023, starting at 2,949 million US dollars and rising steadily through the years to reach a peak of 5,700 million in 2023. However, in 2024, cash operating taxes decreased to 4,692 million, representing a reduction compared to the previous year but still above the earlier years. This pattern highlights increasing tax cash outflows over time with a slight moderation in the most recent year, which could reflect changes in cash tax payments or timing differences.

Total reported debt & leases

The total reported debt and leases demonstrated variability over the five-year period. Starting at 36,366 million USD in 2020, the figure decreased moderately to 34,751 million USD in 2021, indicating a reduction in debt obligations. However, a significant increase occurred in 2022, rising sharply to 40,959 million USD. This was followed by a notable reduction to 30,432 million USD in 2023, representing the lowest level in the period observed. In 2024, there was a rebound to 37,834 million USD, suggesting some re-leveraging or new debt acquisitions towards the end of the period.

Shareholders’ equity

Shareholders' equity showed a general upward trend with some fluctuations. It increased substantially from 63,278 million USD in 2020 to 74,023 million USD in 2021. The equity continued to grow but at a slower pace, reaching 76,804 million USD in 2022. In 2023, there was a decline to 68,774 million USD, indicating a possible payout, loss, or other equity-reducing activity during that year. Nevertheless, equity rebounded slightly to 71,490 million USD in 2024, suggesting partial recovery or capital retention.

Invested capital

Invested capital showed mixed trends across the same timeframe. It started at 98,344 million USD in 2020 and remained almost flat in 2021 at 98,066 million USD. In 2022, a significant rise to 113,818 million USD was recorded, representing a peak in capital investment. This was followed by a considerable decrease to 99,118 million USD in 2023, approaching the earlier levels of 2020 and 2021. The invested capital increased again in 2024 to 106,513 million USD, reflecting renewed capital deployment or asset acquisition activities.

Overall Analysis

The financial data reveals a pattern of volatility in debt and invested capital, while equity generally increased but with some retrenchment in the middle of the period. The fluctuations in total reported debt & leases and invested capital suggest dynamic capital structure management and investment strategy adjustments over the five years. The trends imply that the company might have been actively balancing between leveraging for growth and deleveraging to maintain financial stability. The changes in shareholders’ equity reflect underlying operational results and capital transactions during this period, with a temporary decline offset by subsequent recovery.

The annual financial data presents key metrics for evaluating economic profitability and capital efficiency over a five-year period.

Economic Profit

The economic profit exhibited considerable volatility during the period. It increased substantially from 4,693 million US dollars at the end of 2020 to a peak of 9,778 million in 2021, indicating a strong improvement in value creation. However, it dropped sharply to 5,591 million in 2022, followed by a negative economic profit of -353 million in 2023, signalling a period of economic loss. The figure rebounded to 1,598 million in 2024, suggesting a return to positive profitability but at a lower level compared to the earlier peak.

Invested Capital

The invested capital demonstrated relative stability with a mild upward trend. Starting at 98,344 million US dollars in 2020, it remained almost flat in 2021 at 98,066 million. There was a significant increase in 2022 to 113,818 million, followed by a decrease to 99,118 million in 2023. The capital then rose again to 106,513 million in 2024. This pattern indicates fluctuations in investment levels, potentially reflecting strategic adjustments or asset reallocation in response to business conditions.

Economic Spread Ratio

The economic spread ratio, which measures the return on invested capital relative to its cost, followed a trend similar to economic profit. It nearly doubled from 4.77% in 2020 to 9.97% in 2021, reflecting improved capital efficiency. The ratio then decreased sharply to 4.91% in 2022 and turned negative to -0.36% in 2023, corresponding with the negative economic profit. In 2024, it recovered to 1.5%, indicating a modest positive spread, though still well below the peak observed in 2021.

Overall, the data reveals a cycle of strong economic performance peaking in 2021, followed by a downturn culminating in a loss in 2023, with early signs of recovery in 2024. The fluctuations in invested capital suggest active management of resources, while the economic spread ratio highlights varying effectiveness in value generation over the period.

Economic Profit

The economic profit shows substantial fluctuation over the analyzed periods. It increased significantly from 4,693 million US dollars at the end of 2020 to a peak of 9,778 million US dollars in 2021. However, this was followed by a notable decline to 5,591 million in 2022, and a transition into a negative value of -353 million in 2023, indicating a loss in economic profit for that year. By the end of 2024, a recovery is observed with economic profit rising again to 1,598 million US dollars, albeit still below the peak levels experienced in 2021.

Sales to Customers

Sales figures depict a somewhat volatile but generally stable pattern. Beginning at 82,584 million US dollars in 2020, sales increased consistently to 93,775 million in 2021 and slightly more to 94,943 million in 2022. In 2023, sales experienced a marked decline to 85,159 million, followed by a modest improvement to 88,821 million by the end of 2024. Despite the fluctuations, sales remain within a relatively narrow range, showing resilience overall.

Economic Profit Margin

The economic profit margin mirrors the trends seen in the economic profit itself, highlighting variability in profitability relative to sales. Starting at 5.68% in 2020, the margin nearly doubled to 10.43% in 2021, indicating improved efficiency or higher returns on sales. It then fell sharply to 5.89% in 2022 and further declined to a negative margin of -0.41% in 2023, reflecting the economic profit loss observed that year. A partial rebound occurs in 2024, with the margin increasing to 1.8%, yet remaining below the levels of earlier years.

Summary of Observations

The overall trend reveals a peak in profitability and profit margins during 2021, followed by a decline through 2023 where both economic profit and margin turned negative, suggesting challenging conditions impacting the company’s returns. Sales, while affected, did not decline as drastically, implying that the downturn in economic profit margin was likely due to increased costs, pricing pressures, or other factors affecting profit conversion from sales. The partial recovery in 2024 indicates some improvement in economic profit and margin, although still below the highest levels seen in 2021, signaling a need for continued focus on efficiency and profitability enhancement measures.