Stryker Corp. (NYSE:SYK)

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

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows an overall increasing trend from 2017 to 2019, rising from $1,187 million to $2,347 million. However, there is a decline observed in 2020, where NOPAT decreases to $1,867 million, followed by a modest recovery to $2,015 million in 2021. This suggests some volatility and possibly external or internal challenges impacting profitability in 2020.

Cost of Capital

The cost of capital remains relatively stable throughout the period, slightly decreasing from 13.33% in 2017 to a low of 13.01% in 2020 before a slight increase to 13.27% in 2021. This indicates a fairly consistent capital cost environment with mild fluctuations.

Invested Capital

Invested capital exhibits a steady increase from $17,502 million in 2017 to a peak of $27,132 million in 2020, followed by a slight decrease to $26,516 million in 2021. The rising invested capital up to 2020 indicates continued investment and asset growth, while the decline in 2021 may reflect strategic asset optimization or divestitures.

Economic Profit

Economic profit remains consistently negative throughout the period, indicating that the returns did not exceed the cost of capital. The negative value lessens from -$1,147 million in 2017 to -$661 million in 2018, suggesting improved value creation. However, it worsens subsequently, reaching -$1,661 million in 2020, and slightly improves to -$1,502 million in 2021. This pattern underscores challenges in achieving profitability above the investors' expected returns, especially in 2020.

In summary, the data indicate growth in operating profit and invested capital through 2019, followed by downturns in 2020 likely tied to broader economic conditions. Despite increased operating profits relative to 2017, the company struggles to generate positive economic profit, implying inefficiencies or returns insufficient to cover the cost of capital over the examined 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 exhibited a volatile trend over the five-year period, starting with a significant negative value of -1,147 million USD in 2017. It improved notably in 2018 to -661 million USD but deteriorated again to -735 million USD in 2019. A sharp decline followed in 2020, reaching the lowest point of -1,661 million USD, before slightly recovering to -1,502 million USD in 2021. Overall, economic profit remained negative throughout, indicating persistent economic losses.

Invested Capital

Invested capital showed a consistent upward trajectory from 17,502 million USD in 2017 to a peak of 27,132 million USD in 2020. However, there was a marginal decline to 26,516 million USD in 2021. This trend signifies a substantial increase in the capital invested over the period, with a minor contraction in the final year.

Economic Spread Ratio

The economic spread ratio remained negative during the entire period, starting at -6.55% in 2017. It improved significantly in 2018 and 2019 to approximately -3.18% and -3.16%, respectively. However, it worsened again in 2020 to -6.12%, before slightly easing to -5.67% in 2021. This pattern implies that the returns generated on invested capital consistently fell short of the cost of capital, with some fluctuation in the degree of underperformance.

Net Sales

Net sales showed a generally increasing trend over the five-year period. Beginning at $12,444 million in 2017, sales increased steadily to $13,601 million in 2018 and $14,884 million in 2019. There was a slight decline in 2020 to $14,351 million, likely influenced by external factors during that year, but sales rebounded strongly in 2021 to a peak of $17,108 million.

Economic Profit

The economic profit figures were negative throughout the period, indicating that the company did not generate value above its cost of capital in any year. The losses fluctuated, starting at -$1,147 million in 2017, improving to -$661 million in 2018, but slightly worsened to -$735 million in 2019. In 2020, economic profit deteriorated markedly to -$1,661 million, before showing some improvement in 2021 to -$1,502 million.

Economic Profit Margin

The economic profit margin, expressed as a percentage of net sales, mirrored the economic profit trend and remained negative throughout. It improved from -9.22% in 2017 to -4.86% in 2018, remaining relatively stable at -4.94% in 2019. However, it declined significantly to -11.58% in 2020, before partially recovering to -8.78% in 2021.

Overall Insights

The data indicates that while net sales grew steadily over the period, the economic profit and corresponding margin remained negative, signaling ongoing challenges in achieving returns above the cost of capital. The pronounced downturn in 2020 in both economic profit and its margin suggests that that year was particularly difficult financially. Although there was a partial recovery in 2021, economic profitability remained substantially below breakeven, implying a continued need for strategic focus on improving cost efficiency or revenue quality to convert higher sales into economic profit.