Stryker Corp. (NYSE:SYK)

The financial data reveals several significant trends over the five-year period.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes shows an overall increasing trend from 2017 to 2019, rising from 1,187 million US dollars to 2,347 million US dollars. However, a decline occurs in 2020, dropping to 1,867 million US dollars, followed by a moderate recovery in 2021 to 2,015 million US dollars. This pattern suggests a peak in operating profitability in 2019, a downturn likely influenced by external factors in 2020, and partial recuperation in the subsequent year.

Cost of Capital

The cost of capital remains relatively stable throughout the period, fluctuating marginally between 13% and 13.33%. This stability indicates consistent capital costs and potentially reflects a steady risk profile and market conditions related to financing during these years.

Invested Capital

Invested capital expands steadily from 17,502 million dollars in 2017 to 27,132 million dollars in 2020, marking a significant increase in capital deployment. However, in 2021, invested capital decreases slightly to 26,516 million dollars. The general upward trend demonstrates continued investment or asset accumulation over most of the period, with a minor contraction or optimization occurring in the final year.

Economic Profit

Economic profit, which measures the value created beyond the cost of capital, remains negative throughout the entire period. It improves from -1,145 million dollars in 2017 to -659 million dollars in 2018 but then worsens to -1,659 million dollars in 2020. In 2021, it slightly improves to -1,500 million dollars but remains significantly negative. This persistent negative economic profit suggests that despite increasing NOPAT and invested capital, the company has not generated returns exceeding its cost of capital, indicating challenges in value creation.

In summary, while operating profitability (NOPAT) initially improved and capital investment increased substantially, the firm has struggled to generate positive economic profit, indicating that returns have not kept pace with the costs associated with its capital. Stability in the cost of capital has not translated into economic value generation, pointing to potential inefficiencies or external pressures affecting overall financial performance 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

Economic profit displayed notable fluctuations over the analyzed period. Initially, it was significantly negative at -1145 million US dollars in 2017, improving to -659 million US dollars in 2018. Subsequently, the figure deteriorated slightly to -733 million in 2019 before declining sharply to -1659 million in 2020. In 2021, economic profit improved somewhat but remained strongly negative at -1500 million US dollars. This pattern suggests persistent difficulty in generating returns above the cost of capital, with the most significant downturn occurring in 2020.

Invested Capital

Invested capital exhibited a consistent upward trend from 2017 through 2020, increasing from 17,502 million US dollars to 27,132 million US dollars. In 2021, a modest decrease was observed, with invested capital declining slightly to 26,516 million US dollars. This overall growth in invested capital over the five-year span indicates continued investment in assets or business expansion, albeit with a slight contraction in the final year.

Economic Spread Ratio

The economic spread ratio, a measure of the profitability relative to invested capital, mirrored the trends seen in economic profit. It was significantly negative at -6.54% in 2017, improving to -3.18% in 2018 and remaining stable around -3.15% in 2019. However, a deterioration occurred in 2020 with the spread decreasing to -6.12%, followed by a slight recovery to -5.66% in 2021. These values indicate that the return on invested capital consistently fell short of the cost of capital throughout the period, with the lowest profitability evident in 2017 and 2020.

Summary

Overall, the financial indicators suggest a challenging environment regarding value creation. Despite a steady increase in invested capital over most of the period, the company consistently reported negative economic profit and economic spread ratios. The marked deterioration in 2020 may reflect increased costs or decreased returns, while partial recoveries in 2021 indicate some improvement but not sufficient to achieve positive economic profit or spread. These trends highlight the need for strategic actions aimed at improving capital efficiency and generating returns above the cost of capital.

The financial data over the five-year period reveals a mixed performance characterized by increasing net sales but persistent negative economic profit and economic profit margins.

Net Sales

There is a consistent upward trend in net sales, starting at $12,444 million in 2017 and rising steadily each year to reach $17,108 million in 2021. This represents a notable growth in revenue generation, suggesting expanding market presence or product demand over the period.

Economic Profit

Despite the growth in net sales, economic profit remains negative throughout the period. The company experienced a sharp decline in 2020, reaching its lowest point at -$1,659 million, followed by a slight improvement in 2021 to -$1,500 million. However, the overall trend indicates continuing challenges in generating economic profit, implying that the company's returns do not exceed the cost of capital.

Economic Profit Margin

The economic profit margin, expressed as a percentage, mirrors the trends in economic profit. It remains in negative territory for all years, starting at -9.2% in 2017 and showing some improvement in 2018 and 2019 at around -4.9%. In 2020, the margin deteriorated significantly to -11.56%, before improving somewhat to -8.77% in 2021. This pattern suggests recurring inefficiencies or high capital costs that impact profitability despite growing sales.

In summary, while revenue growth is a positive indicator, the persistent negative economic profit and margins signal underlying issues with cost structure or capital utilization. The substantial drop in 2020 may be linked to external disruptions or internal challenges, with partial recovery in 2021. Continued focus on improving operational efficiency and capital deployment could be critical to achieving positive economic profit in future periods.