Stryker Corp. (NYSE:SYK)

The financial performance between 2017 and 2021 is characterized by a persistent inability to generate positive economic profit, indicating that the returns generated from operations were insufficient to cover the cost of the capital employed during this period.

Net Operating Profit After Taxes (NOPAT)

A growth trajectory was observed from 2017 to 2019, with NOPAT increasing from US$ 1,187 million to a peak of US$ 2,347 million. A notable contraction occurred in 2020, where the figure dropped to US$ 1,867 million, followed by a partial recovery to US$ 2,015 million in 2021.

Invested Capital

There was a consistent expansion of the invested capital base from 2017 through 2020, rising from US$ 17,502 million to a maximum of US$ 27,132 million. A slight reduction in invested capital was recorded in 2021, bringing the total to US$ 26,516 million.

Cost of Capital

The cost of capital remained highly stable over the five-year horizon, fluctuating minimally between 15.12% and 15.51%. This suggests a constant threshold for the required rate of return across the analyzed timeframe.

Economic Profit Analysis

Economic profit remained negative throughout the entire period, signifying continuous value destruction. Although the deficit narrowed slightly in 2018, it widened significantly in 2020 to reach US$ -2,236 million. This decline in 2020 is attributed to the simultaneous increase in invested capital and the decrease in NOPAT. By 2021, a marginal improvement was noted, with economic profit moving to US$ -2,077 million, though it remained substantially below the break-even point.

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.

The financial performance from 2017 to 2021 reflects a consistent failure to generate positive economic value, as evidenced by negative economic profit and a negative economic spread ratio throughout the period. While there were intermittent periods of relative improvement, the entity consistently operated below its cost of capital.

Economic Profit Trends

Economic profit remained negative for the entire five-year duration. A reduction in losses was observed between 2017 and 2018, moving from -1,528 million US$ to -1,109 million US$. However, this trend reversed sharply in 2020, where economic profit reached its lowest point at -2,236 million US$, before recovering slightly to -2,077 million US$ in 2021.

Invested Capital Expansion

There was a sustained increase in invested capital from 2017 to 2020, rising from 17,502 million US$ to a peak of 27,132 million US$. This growth indicates a significant expansion of the capital base. A slight contraction occurred in 2021, with invested capital decreasing to 26,516 million US$.

Economic Spread Ratio Analysis

The economic spread ratio remained negative throughout the period, confirming that the return on invested capital did not exceed the weighted average cost of capital. The ratio improved from -8.73% in 2017 to -5.32% by 2019. A significant deterioration followed in 2020, with the ratio dropping to -8.24%, followed by a marginal improvement to -7.83% in 2021. The correlation between the economic spread ratio and economic profit suggests that the decline in 2020 was driven by a substantial widening of the gap between capital returns and capital costs.

Between 2017 and 2021, the organization consistently reported negative economic profit, indicating that the returns generated were insufficient to cover the cost of capital employed. While net sales showed a general upward trajectory over the five-year period, the economic profit margin remained in negative territory, reflecting a persistent inability to create economic value above the required rate of return.

Economic Profit Trends

Economic profit exhibited significant volatility, starting at -1,528 million USD in 2017 and improving to -1,109 million USD in 2018. This improvement was reversed in 2020, when losses expanded to a period low of -2,236 million USD. A marginal recovery was observed in 2021, with the figure adjusting to -2,077 million USD.

Revenue Growth and Volatility

Net sales demonstrated a generally positive trend, rising from 12,444 million USD in 2017 to 14,884 million USD in 2019. A temporary contraction occurred in 2020, where sales decreased to 14,351 million USD, followed by a sharp increase in 2021 to 17,108 million USD, the highest revenue level recorded in the analyzed timeframe.

Economic Profit Margin Analysis

The economic profit margin fluctuated in alignment with the absolute economic profit and revenue shifts. The margin improved from -12.28% in 2017 to -8.15% in 2018, remaining relatively stable through 2019 at -8.31%. A severe deterioration was noted in 2020, with the margin dropping to -15.58%. By 2021, the margin recovered to -12.14%, essentially returning to 2017 levels despite the substantial growth in net sales.