Pfizer Inc. (NYSE:PFE)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited substantial volatility, beginning at US$6,095 million in 2020, increasing dramatically to US$18,394 million in 2021, and peaking at US$31,018 million in 2022. A sharp decline followed in 2023, resulting in a net loss of US$1,277 million, before a partial recovery to US$7,374 million in 2024.

The cost of capital showed a generally increasing trend from 10.79% in 2020 to 11.57% in 2022, before decreasing to 9.85% in 2023 and slightly increasing again to 10.06% in 2024. Invested capital also experienced considerable variation, decreasing from US$103,898 million in 2020 to US$87,670 million in 2021, then increasing to US$110,746 million in 2022. A substantial rise was observed in 2023, reaching US$154,882 million, followed by a decrease to US$135,777 million in 2024.

Economic Profit Trend

Economic profit mirrored the volatility in NOPAT. A negative economic profit of US$5,119 million was recorded in 2020. This shifted to a positive US$8,456 million in 2021 and further increased to US$18,200 million in 2022. The most significant change occurred in 2023, with economic profit plummeting to a loss of US$16,540 million. A partial recovery was seen in 2024, with economic profit reported as a loss of US$6,282 million. The fluctuations suggest a sensitivity of economic profit to changes in NOPAT.

Relationship between NOPAT and Economic Profit

The strong correlation between NOPAT and economic profit is evident. The years with higher NOPAT (2021 and 2022) corresponded with positive and substantial economic profits. Conversely, the year with a negative NOPAT (2023) resulted in a significant economic loss. This indicates that NOPAT is a primary driver of economic profit for the period.

Impact of Invested Capital

While NOPAT appears to be the dominant factor, changes in invested capital also influenced economic profit. The increase in invested capital in 2023, coupled with the negative NOPAT, contributed to the substantial economic loss observed in that year. The subsequent decrease in invested capital in 2024 partially offset the negative impact of the still-moderate NOPAT.

Cost of Capital Considerations

The cost of capital remained relatively stable, with fluctuations within a limited range. While the cost of capital did influence the calculation of economic profit, its impact was less pronounced than the changes in NOPAT and invested capital. The decrease in cost of capital in 2023 did not fully mitigate the substantial economic loss, suggesting that the decline in NOPAT was the primary driver of the negative result.

The financial data reveals notable fluctuations in profitability measures over the five-year period under review. Both net income attributable to common shareholders and net operating profit after taxes (NOPAT) exhibit significant variability, indicating shifts in operational efficiency and overall financial performance.

Net Income Attributable to Pfizer Inc. Common Shareholders

The net income increased substantially from 9,616 million USD in 2020 to a peak of 31,372 million USD in 2022. This growth signals a period of heightened profitability. However, the figure declined sharply to 2,119 million USD in 2023, representing a significant downturn. The net income rebounded in 2024 to 8,031 million USD, yet remained well below the peak levels observed in 2021 and 2022.

Net Operating Profit After Taxes (NOPAT)

The NOPAT followed a similar trajectory as net income. It rose from 6,095 million USD in 2020 to a maximum of 31,018 million USD in 2022, demonstrating improved operational performance and effective tax management during this period. In 2023, NOPAT turned negative to -1,277 million USD, reflecting operational challenges and possibly extraordinary items impacting profitability. The measure recovered moderately in 2024, reaching 7,374 million USD, yet still significantly lower compared to the peak years.

Overall, the data indicates a strong growth trend in profitability through 2022, followed by a pronounced decline in 2023, and a partial recovery in 2024. The volatile pattern suggests the presence of external or internal factors causing fluctuations in earnings and operating profitability, which could merit further investigation to understand the underlying drivers and sustainability of recent earnings levels.

Provision (benefit) for taxes on income

The provision for taxes on income demonstrated significant volatility over the observed periods. Initially, it increased notably from 477 million USD in 2020 to a peak of 3,328 million USD in 2022. Subsequently, it shifted to a negative value, indicating a tax benefit, with -1,115 million USD recorded in 2023, followed by a marginal negative provision of -28 million USD in 2024. This pattern suggests a possible influence of tax credits, adjustments, or one-time events impacting the effective tax expense.

Cash operating taxes

Cash operating taxes exhibited a rising trend from 2,090 million USD in 2020 to a peak of 7,967 million USD in 2022. After reaching this high point, there was a pronounced decline to 2,113 million USD in 2023. The figure modestly increased again to 2,426 million USD in 2024. This fluctuation indicates variability in the company’s cash tax obligations, potentially reflecting changes in taxable income, tax planning strategies, or timing differences in tax payments.

The data reveals significant fluctuations across the reported financial items over the five-year period from 2020 to 2024.

Total reported debt & leases

This figure remained relatively stable between 2020 and 2022, with values around 41,000 million US dollars. However, it increased substantially in 2023 to over 75,000 million US dollars, representing almost a doubling compared to the previous year. In 2024, there was a decrease to approximately 67,000 million US dollars, though this figure remained markedly higher than the levels seen from 2020 to 2022.

Total Pfizer Inc. shareholders’ equity

Shareholders’ equity exhibited a generally increasing trend from 63,238 million US dollars in 2020, rising steadily to a peak of 95,661 million US dollars in 2022. Following this apex, the equity declined moderately in the succeeding two years, reaching 88,203 million US dollars by the end of 2024. Despite the decrease post-2022, the equity values in 2023 and 2024 remained higher than the initial 2020 level.

Invested capital

Invested capital presents a more volatile trend. Starting at 103,898 million US dollars in 2020, it decreased to 87,670 million US dollars in 2021, indicating a contraction. This was followed by a substantial increase in 2022 to 110,746 million US dollars and an even sharper rise in 2023 to 154,882 million US dollars. By 2024, invested capital receded to 135,777 million US dollars but remained significantly above the 2020 level.

Overall, the data highlights a phase of increased leverage in 2023, as reflected by the sharp rise in total reported debt and leases, coupled with a significant buildup of invested capital during the same period. Shareholders’ equity expanded robustly through 2022, peaking before experiencing moderate declines, suggesting possible distribution of earnings or adjustments in retained earnings. The trends indicate dynamic financial management actions influencing capital structure and investment intensity, especially from 2022 through 2024.

The economic spread ratio exhibited significant fluctuations between 2020 and 2024. Initially negative, it demonstrated substantial improvement before declining again. Economic profit followed a similar volatile pattern, moving from a loss to a significant gain and then back to a loss. Invested capital also showed considerable variation over the period.

Economic Spread Ratio

In 2020, the economic spread ratio was -4.93%, indicating that the company’s return on invested capital was less than its cost of capital. A marked improvement occurred in 2021, with the ratio rising to 9.65%, suggesting the company generated returns exceeding its cost of capital. This positive trend continued into 2022, reaching a peak of 16.43%, representing a substantial margin by which returns surpassed the cost of capital. However, the ratio experienced a sharp decline in 2023, falling to -10.68%, signifying a return below the cost of capital. This negative trend persisted into 2024, with the ratio moderating slightly to -4.63%, but remaining below zero.

Economic Profit

Economic profit mirrored the fluctuations observed in the economic spread ratio. A loss of US$5,119 million was recorded in 2020. This was followed by a substantial gain of US$8,456 million in 2021, and a further increase to US$18,200 million in 2022. A significant reversal occurred in 2023, resulting in a loss of US$16,540 million. The loss continued in 2024, although reduced to US$6,282 million.

Invested Capital

Invested capital decreased from US$103,898 million in 2020 to US$87,670 million in 2021. It then increased to US$110,746 million in 2022, followed by a substantial rise to US$154,882 million in 2023. In 2024, invested capital decreased to US$135,777 million. The changes in invested capital do not appear to directly correlate with the economic spread ratio, suggesting other factors are influencing profitability.

The period under review demonstrates a cyclical pattern in financial performance. While the company experienced periods of strong economic profit and a positive economic spread, these were interspersed with periods of loss and returns below the cost of capital. The substantial fluctuations warrant further investigation to identify the underlying drivers of these changes.

The economic profit margin exhibited significant fluctuations between 2020 and 2024. Initial observations reveal a substantial swing from a negative value in 2020 to positive values in 2021 and 2022, followed by a return to negative values in 2023 and 2024.

Economic Profit Margin Trend

In 2020, the economic profit margin was -11.99%. This indicates that the company’s economic profit was negative relative to its revenues. A dramatic improvement occurred in 2021, with the margin increasing to 10.29%, signifying a positive economic profit. The margin continued to rise in 2022, reaching a peak of 17.99%, demonstrating strong economic value creation. However, this positive trend reversed in 2023, with the margin plummeting to -27.77%, representing a substantial economic loss. The margin partially recovered in 2024 to -9.87%, but remained negative, suggesting continued underperformance in economic profit generation.

The economic profit margin’s volatility appears closely linked to the fluctuations in economic profit itself. The substantial increase in revenues from 2020 to 2022 did not consistently translate into improved economic profit margins, as evidenced by the sharp decline in 2023 despite a still-significant revenue base. The 2024 figures suggest a stabilization of revenues, but the economic profit margin remains below 2020 levels.

Revenue Correlation

Revenues increased significantly from $42,678 million in 2020 to $82,145 million in 2021 and further to $101,175 million in 2022. While the economic profit margin improved alongside revenue growth in 2021 and 2022, the decrease in revenues to $59,553 million in 2023 coincided with a dramatic drop in the economic profit margin. A slight revenue increase to $63,627 million in 2024 did not fully offset the negative economic profit margin.

The observed pattern suggests that revenue growth alone is not sufficient to guarantee positive economic profit. Factors influencing the cost of capital and operational efficiency likely play a crucial role in determining the economic profit margin, and their impact appears to have been particularly pronounced in 2023 and 2024.