Stryker Corp. (NYSE:SYK)

The analysis of the financial data over the five-year period reveals several notable trends and insights.

Net Operating Profit After Taxes (NOPAT)

There was a significant increase in NOPAT from 2017 to 2018, rising from 1,187 million US dollars to 2,098 million US dollars. This positive momentum continued into 2019 with a further increase to 2,347 million US dollars. However, in 2020, NOPAT declined sharply to 1,867 million US dollars, before recovering slightly to 2,015 million US dollars in 2021. This indicates a period of growth followed by a decline and partial recovery, which may be influenced by external or internal factors affecting profitability.

Cost of Capital

The cost of capital remained relatively stable over the period, fluctuating marginally between 13% and 13.33%. This consistency suggests that the cost associated with financing the company’s investments has not undergone significant change, providing a stable benchmark for evaluating returns on invested capital.

Invested Capital

Invested capital showed a consistent upward trend from 2017 through 2020, increasing from 17,502 million US dollars to 27,132 million US dollars. In 2021, there was a slight reduction to 26,516 million US dollars. Overall, this indicates a substantial rise in the assets or capital employed by the company over time, reflecting perhaps expansion or asset accumulation until a minor contraction in the final year.

Economic Profit

Economic profit was negative throughout the period, indicating that the company did not generate returns above its cost of capital in any of these years. Although the negative value improved from -1,146 million US dollars in 2017 to -660 million US dollars in 2018, it deteriorated again to -734 million US dollars in 2019. A sharp decline occurred in 2020, with economic profit plummeting to -1,661 million US dollars, followed by a slight improvement to -1,502 million US dollars in 2021. These figures suggest that despite increasing invested capital and fluctuating NOPAT, the company faced challenges in generating sufficient economic returns above its capital costs.

In summary, the company experienced growth in operating profit and invested capital over the period, though the gains in profitability were interrupted by a decline during 2020. The cost of capital remained stable, yet economic profit stayed negative throughout, highlighting an ongoing issue with generating returns that exceed the company's capital costs. The considerable drop in economic profit in 2020 and only partial recovery afterward warrants further investigation into operational efficiency or external impacts during this period.

Net Earnings

Net earnings experienced significant volatility over the five-year period. Beginning at 1,020 million US dollars in 2017, the figure surged remarkably to 3,553 million US dollars in 2018, representing a substantial one-year increase. However, this peak was not sustained, as net earnings declined sharply to 2,083 million US dollars in 2019 and further decreased to 1,599 million US dollars in 2020. In 2021, net earnings showed a partial recovery, increasing to 1,994 million US dollars, but remained below the peak level attained in 2018.

Net Operating Profit After Taxes (NOPAT)

NOPAT displayed a more consistent and generally upward trajectory compared to net earnings. Starting at 1,187 million US dollars in 2017, NOPAT increased steadily to 2,098 million US dollars in 2018 and further to 2,347 million US dollars in 2019. Despite a decline in 2020 to 1,867 million US dollars, likely reflecting operational challenges during that year, NOPAT rebounded in 2021 to 2,015 million US dollars. Overall, NOPAT demonstrated more resilience and less volatility than net earnings.

Comparative Insights

Comparing the two metrics reveals that net operating profit after taxes maintained a more stable and sustained improvement trajectory relative to net earnings, which exhibited marked fluctuations. The disparity in patterns suggests that non-operating factors or extraordinary items may have influenced net earnings particularly in 2018, 2019, and 2020. The decrease observed in both measures during 2020 aligns temporally with global disruptions impacting corporate performance. The subsequent partial recovery in 2021 indicates improved financial performance, though net earnings have yet to reach prior peak levels.

Income Tax Expense (Benefit)

The income tax expense exhibits significant volatility over the analyzed period. In 2017, the expense was positive at 1,043 million USD, indicating a tax liability. However, in 2018, there was a notable reversal with a tax benefit of 1,197 million USD, representing a significant reduction in tax expense or recognition of deferred tax assets. In the subsequent years, the income tax expense resumed positive values, recorded at 479 million USD in 2019, decreasing to 355 million USD in 2020, and further declining to 287 million USD by the end of 2021. This trend suggests a normalization of tax expense after the considerable benefit observed in 2018, with a consistent downward trajectory in tax expense amounts during the latter years.

Cash Operating Taxes

Cash operating taxes show a different behavior compared to the income tax expense line. Starting at 1,076 million USD in 2017, there is a sharp decline to 417 million USD in 2018. For the years 2019 and 2020, cash operating taxes remain relatively stable at 383 million USD and 354 million USD, respectively. In 2021, an increase occurs, rising to 583 million USD. This increase may indicate a higher tax cash outflow in the most recent year, potentially due to changes in taxable income, tax policy, or timing differences in tax payments. Overall, cash operating taxes appear to stabilize after the initial decrease, with a notable uptick in the final year of the period analyzed.

Total reported debt & leases

The total reported debt and leases exhibited an increasing trend from 2017 to 2020, rising from $7,518 million to $14,425 million. This represents a significant increase in leverage over the four-year period. However, in 2021, there was a reduction to $12,901 million, indicating some deleveraging or repayment of obligations after the peak in 2020.

Total Stryker shareholders’ equity

Shareholders’ equity showed consistent growth throughout the period under review. Starting at $9,966 million in 2017, equity steadily increased each year, reaching $14,877 million by 2021. This progression suggests ongoing retention of earnings or issuance of equity contributing to strengthening the capital base.

Invested capital

Invested capital followed an upward trajectory from 2017 to 2020, growing from $17,502 million to $27,132 million. This growth aligns with the increases in both debt and equity, reflecting expanded investment in assets or operations. In 2021, invested capital slightly decreased to $26,516 million, likely influenced by the reduction in total debt and leases observed in the same year.

Economic Profit

The economic profit shows a consistently negative trend throughout the observed period. Starting at -1146 million US dollars in 2017, the loss decreased to -660 million US dollars in 2018, indicating an improvement. However, from 2018 onwards, economic profit deteriorated, reaching -1661 million US dollars in 2020, the lowest in the period, followed by a slight recovery to -1502 million US dollars in 2021. This pattern suggests fluctuations in profitability with a general tendency toward deeper economic losses over time.

Invested Capital

Invested capital exhibits a steady increase from 17502 million US dollars in 2017 to a peak of 27132 million US dollars in 2020. Thereafter, a marginal decrease to 26516 million US dollars is observed in 2021. The continuous growth in invested capital until 2020 suggests ongoing investments or expansion activities, with the slight decline in 2021 potentially indicating divestitures, asset disposals, or a change in investment strategy.

Economic Spread Ratio

The economic spread ratio remains negative throughout the time frame, indicating the invested capital is generating returns below the cost of capital. The ratio improved from -6.55% in 2017 to -3.16% in 2019, reflecting a narrowing loss in value creation. However, the ratio deteriorated again to -6.12% in 2020 and slightly improved to -5.66% in 2021. This trend closely mirrors the pattern observed in economic profit, reinforcing concerns about the profitability and efficiency of capital allocation over the years.

Summary of Financial Trends

Overall, the data indicates that despite an increase in invested capital, the company has struggled to generate positive economic profit, as evidenced by consistently negative and fluctuating economic spread ratios. The initial improvement in economic profit and spread ratio up to 2018 and 2019 was not sustained, with subsequent years showing a decline in economic performance. The rise in invested capital coupled with negative economic spread suggests challenges in deriving sufficient returns from investments, potentially impacting long-term value creation.

The financial data over the five-year period indicates several notable trends in key performance indicators.

Net Sales

Net sales demonstrated a generally upward trajectory, increasing from US$12,444 million in 2017 to US$17,108 million in 2021. This represents a considerable growth in revenue, with particularly strong increases during the years 2018 and 2019, a slight decline in 2020, followed by a substantial recovery in 2021.

Economic Profit

Economic profit remained negative throughout the period, indicating that the company did not generate profits above its cost of capital. The loss narrowed significantly from -US$1,146 million in 2017 to -US$660 million in 2018 but then fluctuated, worsening to -US$734 million in 2019. Notably, there was a sharp deterioration in 2020 to -US$1,661 million, with a modest improvement in 2021 to -US$1,502 million. These fluctuations suggest challenges in maintaining value creation despite growing sales.

Economic Profit Margin

The economic profit margin mirrored the economic profit trend. Starting at -9.21% in 2017, it improved to -4.86% in 2018 but slightly declined to -4.93% in 2019. The margin worsened markedly in 2020 to -11.57%, coinciding with the increased economic losses, before improving somewhat to -8.78% in 2021. The persistent negative margin underscores ongoing difficulties in generating returns exceeding the company’s capital costs despite revenue growth.

Overall, the data shows that while sales growth has been strong, profitability as measured by economic profit and its margin has remained negative and volatile. This suggests potential issues with cost management or capital efficiency that have prevented the company from converting increased sales into economic value. The sharp deterioration in 2020 might reflect extraordinary challenges during that year, with only partial recovery by 2021.