Raytheon Co. (NYSE:RTN)

The financial performance, as measured by economic profit, demonstrates a fluctuating pattern over the five-year period. While net operating profit after taxes generally increased, the economic profit itself remained negative throughout, though with a decreasing magnitude of loss.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited an overall upward trend, increasing from US$2,171 million in 2015 to US$3,427 million in 2019. However, there was a slight decrease between 2016 and 2017. This suggests improving operational profitability over the period, despite the initial dip.

Cost of Capital

The cost of capital experienced a consistent increase from 13.49% in 2015 to 14.31% in 2019. This rise indicates increasing financing costs, potentially due to changes in market interest rates or the company’s risk profile. The increasing cost of capital contributes to the persistent negative economic profit.

Invested Capital

Invested capital showed a steady increase from US$22,413 million in 2015 to US$26,688 million in 2019. This growth suggests continued investment in the business, potentially for expansion or modernization. The increase in invested capital, coupled with a rising cost of capital, places greater pressure on generating sufficient returns.

Economic Profit

Economic profit remained negative throughout the observed period, ranging from a loss of US$944 million in 2017 to a loss of US$392 million in 2019. Although the magnitude of the loss decreased over time, the company did not generate returns exceeding its cost of capital. The reduction in the economic loss from 2018 to 2019 aligns with the increase in NOPAT and may indicate improving efficiency in capital allocation, but further improvement is needed to achieve positive economic profit.

In summary, while operational profitability improved and invested capital grew, the increasing cost of capital prevented the generation of positive economic profit. The trend suggests a narrowing gap between returns and the cost of capital, but continued focus on improving returns relative to capital employed is necessary.

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$852 million in 2015. It improved to a loss of US$767 million in 2016, before worsening to a loss of US$944 million in 2017. Subsequent years saw consistent improvement, with losses decreasing to US$661 million in 2018 and further to US$392 million in 2019. This indicates a diminishing, though still present, shortfall in generating returns exceeding the cost of capital.

Invested Capital

Invested capital increased steadily 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 consistent growth suggests ongoing investment in the business.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, began at -3.80% in 2015. It improved to -3.26% in 2016, then deteriorated to -4.01% in 2017. A notable improvement occurred in 2018, with the ratio reaching -2.54%. This positive trend continued into 2019, with the ratio further improving to -1.47%. The increasing values suggest a growing efficiency in generating returns on invested capital, despite the continued negative economic profit.

In summary, while the company experienced consistent negative economic profit, the trend in the economic spread ratio indicates an increasing ability to generate returns relative to the cost of capital. The growth in invested capital alongside the improving spread ratio suggests that investments are becoming more effective, though not yet sufficient to generate positive economic profit.

The economic profit margin exhibited a fluctuating, yet generally improving, trend between 2015 and 2019. While consistently negative throughout the period, the magnitude of the loss decreased over time. This suggests a gradual improvement in the company’s ability to generate returns exceeding its cost of capital, although it remained unprofitable from an economic value perspective.

Economic Profit Margin

The economic profit margin began at -3.67% in 2015, indicating that for every dollar of sales, the company experienced an economic loss of 3.67 cents. A slight improvement was observed in 2016, with the margin increasing to -3.19%. However, the margin deteriorated in 2017, reaching -3.72%, the lowest point in the observed period.

A notable positive shift occurred in 2018, with the economic profit margin improving to -2.44%. This improvement continued into 2019, with the margin reaching -1.34%, representing the smallest economic loss over the five-year period. This indicates a strengthening of economic profitability, despite remaining negative.

The trend in economic profit mirrors the economic profit margin. Economic profit decreased from a loss of US$852 million in 2015 to a loss of US$767 million in 2016, then increased to a loss of US$944 million in 2017. The loss decreased to US$661 million in 2018 and further to US$392 million in 2019. This pattern aligns with the observed improvements in the economic profit margin.

Net sales demonstrated consistent growth throughout the period, increasing from US$23,247 million in 2015 to US$29,176 million in 2019. This revenue growth occurred concurrently with the improving, though still negative, economic profit margin, suggesting that increased sales volume did not fully offset the cost of capital, but contributed to a lessening of the economic loss.