Raytheon Co. (NYSE:RTN)

The period between 2015 and 2019 demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) generally increased over the five-year period, while the cost of capital and invested capital also exhibited increases. However, economic profit, which considers both profitability and the cost of capital, remained negative throughout the analyzed timeframe, though with a decreasing magnitude of loss.

NOPAT Trend

Net operating profit after taxes increased from US$2,171 million in 2015 to US$3,427 million in 2019. There was a slight dip in 2017, but overall, NOPAT shows a positive trend, indicating improving operational profitability.

Cost of Capital Trend

The cost of capital experienced a consistent upward trend, rising from 13.50% in 2015 to 14.32% in 2019. This suggests increasing financing costs, potentially due to changes in interest rates or perceived risk.

Invested Capital Trend

Invested capital increased steadily from US$22,413 million in 2015 to US$26,688 million in 2019. This indicates a growing capital base, likely driven by investments in operations or acquisitions.

Economic Profit Trend

Economic profit remained negative throughout the period, ranging from a loss of US$946 million in 2017 to a loss of US$395 million in 2019. While consistently negative, the magnitude of the loss decreased each year, suggesting that the company’s profitability is gradually approaching the level required to cover its cost of capital. The largest loss occurred in 2017, coinciding with a slight decrease in NOPAT and an increase in the cost of capital.

Despite increasing NOPAT, the consistent negative economic profit indicates that the returns generated by the invested capital are not yet sufficient to cover the cost of that capital. The decreasing magnitude of the loss suggests a positive trajectory, but continued monitoring is warranted to determine if the company can achieve positive economic profit in future periods.

Net income attributable to Raytheon Company

The net income shows a generally positive trend over the five-year period. Starting at 2,074 million US dollars in 2015, there was a modest increase in 2016 to 2,211 million. However, the net income slightly declined in 2017 to 2,024 million. From 2017 onwards, the net income rose significantly, reaching 2,909 million in 2018 and further increasing to 3,343 million by the end of 2019. This pattern indicates recovery and robust growth in profitability in the latter years.

Net operating profit after taxes (NOPAT)

NOPAT also demonstrates an upward trajectory across the reported years. The value grew steadily from 2,171 million US dollars in 2015 to 2,456 million in 2016. A slight decline occurred in 2017, with NOPAT at 2,393 million, mirroring the dip seen in net income for that year. In 2018, NOPAT increased sharply to 3,010 million and continued its upward movement to 3,427 million in 2019. This trend underscores improving operational efficiency and effective tax management contributing to profit growth over the period.

Overall Trend Analysis

The data reveals a consistent improvement in both net income and NOPAT from 2015 to 2019, notwithstanding the minor setbacks in 2017. The stronger gains after 2017 suggest enhanced operational performance and possibly favorable market or internal conditions. The parallel movement between net income and NOPAT implies that the operating profits, after accounting for taxes, significantly drive the net profitability of the company.

The financial data indicates a fluctuating pattern in the provisions for federal and foreign income taxes over the five-year period. Starting at 733 million US dollars in 2015, the provision increased steadily to reach a peak of 1,114 million in 2017. However, in 2018, the provision experienced a significant decline to 264 million, followed by a recovery to 658 million in 2019. This trend suggests variability in the company's taxable income or changes in tax rates or policies during these years.

Regarding cash operating taxes, the figures show a less consistent trend. The amount decreased slightly from 881 million in 2015 to 840 million in 2016, then rose to 939 million in 2017. Similar to the provision for income taxes, cash operating taxes dropped considerably in 2018 to 327 million before increasing again to 721 million in 2019. The parallel movements in both provision and cash taxes in 2018 and 2019 indicate an underlying correlation in tax strategies or tax liabilities paid.

Provision for Federal and Foreign Income Taxes

General upward trend from 2015 to 2017, followed by a sharp decline in 2018 and partial rebound in 2019

Reflects volatility possibly due to changes in earnings before tax, tax regulations, or deferred tax assets/liabilities adjustments

Cash Operating Taxes

Slight fluctuations with a significant drop in 2018 and a recovery in 2019

Movements suggest impact from operational cash flows and timing differences in tax payments

Comparison and Insights

Both tax-related figures exhibit synchronized declines in 2018, indicating potential operational or fiscal events affecting tax computations or payments during that year

The rebound in 2019 points to normalization or adjustments after an anomalous fiscal period

Total reported debt & leases

The total reported debt and leases demonstrate a gradual declining trend over the analyzed period. Starting from 6,306 million US dollars in 2015, the figure increased slightly in 2016 to 6,421 million but began to decrease thereafter. By 2019, the total reported debt and leases had reduced to 5,679 million, reflecting a consistent effort to manage and reduce debt levels over time.

Total Raytheon Company stockholders’ equity

The stockholders’ equity shows a generally positive upward trend from 2015 to 2019. It started at 10,128 million US dollars in 2015 and experienced a minor decline through 2017, reaching 9,963 million. However, a significant recovery occurred in 2018 and 2019, with equity increasing to 11,472 million and then to 12,223 million respectively. This growth suggests an improvement in the company’s net asset base and potential retention of earnings or capital injection during these latter years.

Invested capital

Invested capital shows a steady increase over the period examined. Beginning at 22,413 million US dollars in 2015, it rose each year, attaining 23,509 million in 2016 and edging slightly upward to 23,548 million in 2017. Subsequently, there was a more pronounced increase in 2018 to 26,081 million, continuing to grow in 2019 to 26,688 million. This upward trend indicates ongoing capital investment or asset expansion, potentially supporting future growth initiatives.

The period between 2015 and 2019 demonstrates a fluctuating, but generally improving, financial performance as measured by economic value added metrics. Economic profit consistently remained negative throughout the analyzed timeframe, though the magnitude of the loss decreased over the years. Invested capital exhibited a steady increase, while the economic spread ratio, reflecting the efficiency of capital deployment, showed a trend towards improvement.

Economic Profit

Economic profit began at a loss of US$854 million in 2015. It improved to a loss of US$769 million in 2016, before worsening to a loss of US$946 million in 2017. Subsequent years saw improvements, with losses decreasing to US$664 million in 2018 and further to US$395 million in 2019. This indicates a diminishing, though persistent, shortfall in generating returns exceeding the cost of capital.

Invested Capital

Invested capital increased consistently throughout the period. Starting at US$22,413 million in 2015, it rose to US$23,509 million in 2016, US$23,548 million in 2017, US$26,081 million in 2018, and reached US$26,688 million in 2019. This suggests continued investment in the business, despite the negative economic profit.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, began at -3.81% in 2015. It improved to -3.27% in 2016, then deteriorated to -4.02% in 2017. A notable improvement occurred in 2018, with the ratio reaching -2.55%, and continued in 2019, reaching -1.48%. This upward trend suggests increasing efficiency in generating returns on invested capital, even though economic profit remained negative. The narrowing negative spread indicates a decreasing gap between the cost of capital and the return generated.

In summary, while the organization consistently experienced negative economic profit, the trend suggests a positive trajectory in capital efficiency, as evidenced by the improving economic spread ratio. The continued growth in invested capital alongside this improvement warrants further investigation to determine the long-term sustainability of this trend and its impact on overall value creation.

The economic profit margin exhibited fluctuations over the five-year period. While remaining negative throughout, the magnitude of the negative margin decreased from 2015 to 2019, indicating an improving, though still unprofitable, economic performance.

Economic Profit Margin Trend

The economic profit margin began at -3.67% in 2015. A decrease was observed in 2016 to -3.20%, followed by a further decline to -3.73% in 2017. A notable improvement occurred in 2018, with the margin increasing to -2.45%. This positive trend continued into 2019, reaching -1.35%, representing the least negative margin within the observed period.

The trend in economic profit mirrors the economic profit margin. Economic profit decreased from -854 million in 2015 to -946 million in 2017, then improved to -395 million in 2019. This suggests that while the company consistently destroyed economic value, the rate of destruction lessened over time.

Relationship between Net Sales and Economic Profit Margin

Net sales increased consistently throughout the period, from 23,247 million in 2015 to 29,176 million in 2019. Despite this revenue growth, the economic profit margin remained negative, indicating that the increase in sales was not sufficient to generate a positive economic return. The improvement in the margin from 2017 to 2019 coincided with the largest increases in net sales, suggesting a potential correlation between revenue growth and economic profitability, although the relationship is not fully positive.

The consistent negative economic profit margin suggests that the company’s cost of capital was not being adequately covered by its operating profits. The observed trend, however, indicates a gradual improvement in the company’s ability to generate returns relative to its cost of capital.