Honeywell International Inc. (NASDAQ:HON)

The financial data presents several key metrics over a five-year period, reflecting the operational performance, capital efficiency, and value creation status. The main focus is on net operating profit after taxes (NOPAT), the cost of capital, invested capital, and the resulting economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows fluctuations during the period under review. It increased from 5376 million USD in 2020 to a peak of 5961 million USD in 2021, followed by a decline to 5460 million USD in 2022. Subsequently, it rebounded moderately to 5956 million USD in 2023 and slightly increased to 5978 million USD in 2024. Despite some volatility, NOPAT generally remained near the 5900 million USD level in the later years, indicating relative stability with minor variations.

Cost of Capital

The cost of capital exhibited a modest upward trend from 13.33% in 2020 to 13.66% in 2022. After 2022, it began to decline, reaching 12.98% by the end of 2024. This suggests an initial increase in the required return on investment, possibly due to market or risk factors, which later eased, lowering the capital expense and potentially benefiting investment decisions in the most recent periods.

Invested Capital

Invested capital fluctuated slightly between 2020 and 2023, with values in the range of approximately 47 to 49 billion USD. A notable increase occurred in 2024, with invested capital rising significantly to 60.3 billion USD. This sharp increase could indicate substantial capital expenditure, acquisitions, or other investments expanding the asset base. The previous stability followed by a large increment marks a strategic shift in capital deployment.

Economic Profit

Economic profit displayed negative values throughout the period, indicating that the company did not generate returns above its cost of capital in any year. The loss narrowed from -1175 million USD in 2020 to -510 million USD in 2021, showing improved efficiency or profitability relative to invested capital. However, economic profit deteriorated again in 2022 to -1007 million USD, improved somewhat in 2023 to -560 million USD, and then steeply declined to -1856 million USD in 2024. The sharp drop in 2024 signals that despite increased invested capital and a stable NOPAT, the returns were insufficient relative to the cost of capital, resulting in larger economic losses.

Overall, the company maintained relatively stable operating profit levels with some variability, while experiencing a fluctuating yet generally decreasing cost of capital post-2022. The significant increase in invested capital in the final year was not accompanied by proportionate profit growth, leading to a marked deterioration in economic profit, which remained negative throughout the period. This pattern suggests challenges in generating value above the capital cost, especially apparent in the most recent year analyzed.

The financial data reveals the following trends for the analyzed period:

Net Income Attributable

The net income attributable to the entity showed a positive growth trend overall. Starting from approximately $4,779 million at the end of 2020, it increased to $5,542 million in 2021, reflecting a strong upward movement. However, there was a decline in 2022 to about $4,966 million, indicating a possible short-term setback or increased costs impacting profitability. The amount rebounded in 2023, reaching $5,658 million, and continued a slight increase into 2024, ending at $5,705 million. This pattern suggests resilience and recovery after the dip in 2022, with sustained profitability gains in the subsequent years.

Net Operating Profit After Taxes (NOPAT)

NOPAT figures display a somewhat similar pattern to net income but overall maintain higher absolute values. The measure rose from $5,376 million in 2020 to $5,961 million in 2021, showing improvement in operations after tax considerations. A decrease occurred in 2022 to $5,460 million, mirroring the net income dip but with a less pronounced decline percentage-wise. Subsequently, NOPAT increased again to $5,956 million in 2023 and remained relatively stable into 2024 at $5,978 million. This trend indicates operational efficiency and effective tax management despite fluctuations, contributing to a steady NOPAT performance post-2022.

Overall, the data points to a company experiencing growth after 2020, facing a temporary decrease in 2022 in both net income and NOPAT, and then recovering with stable or increasing profitability through 2023 and 2024. The recovery phase suggests effective management responses to prior challenges, with consistent operational profit maintenance after tax effects considered.

The analysis of the financial data reveals a fluctuating trend in tax-related expenses over the five-year period from 2020 to 2024.

Tax Expense

This item shows variability, with an initial increase from 1147 million US dollars in 2020 to a peak of 1625 million in 2021. Afterward, there was a decline to 1412 million in 2022, followed by a modest increase to 1487 million in 2023 and a slight decrease to 1473 million in 2024. Overall, the tax expense exhibits moderate fluctuations without a clear linear trend, suggesting changes in taxable income, tax rates, or tax planning strategies may have impacted this item.

Cash Operating Taxes

Cash operating taxes display a somewhat different pattern, with an increase from 1380 million in 2020 to a higher level of 1503 million in 2021. A further rise is noted in 2022 to 1654 million, followed by a decline to 1434 million in 2023. However, 2024 shows a significant increase to 1847 million, which is the highest value in the period analyzed. This suggests increased cash tax payments in the latest year, potentially due to changes in taxable income recognition, tax prepayments, or adjustments of prior tax obligations.

Comparing the two metrics, cash operating taxes consistently remain above the reported tax expense for most years, with the gap widening notably in 2024. This divergence may indicate timing differences between tax expense recognition in financial statements and actual cash tax outflows. The variability and the recent increase in cash operating taxes could signal changes in tax policy, effective tax rates, or operational results impacting tax liabilities.

The annual financial data reflects several significant trends concerning the company's debt levels, equity position, and overall invested capital.

Total reported debt & leases

There is a noticeable fluctuation in the total reported debt and leases over the five-year period. Starting from a relatively high level of 23,212 million USD at the end of 2020, the debt decreased to approximately 20,631 million USD in 2021 and remained fairly stable through 2022 at 20,537 million USD. In 2023, a slight increase to 21,536 million USD is observed. However, by the end of 2024, the debt surged markedly to 32,225 million USD, which represents a significant rise compared to previous years, indicating potential changes in financing strategy or increased borrowing.

Total Honeywell shareowners’ equity

The company's shareholders’ equity shows a more volatile but overall stable pattern. It initially increased from 17,549 million USD in 2020 to a peak of 18,569 million USD in 2021, followed by a decline to 16,697 million USD in 2022, and further down to a low of 15,856 million USD in 2023. By the end of 2024, equity recovered somewhat to 18,619 million USD, slightly surpassing the earlier peak. This fluctuation suggests periods of either retained earnings variation or equity adjustments, potentially influenced by market conditions and company performance.

Invested capital

The invested capital shows a gradual downward trend from 49,130 million USD in 2020 to a low of 47,332 million USD in 2022. It then moderately rebounds to 48,147 million USD in 2023 before exhibiting a substantial increase to 60,349 million USD in 2024. The sharp rise in invested capital in the final year correlates with the marked increase in debt, which may suggest the company has undertaken major investments financed predominantly through increased borrowing.

In summary, the data reveals that the company maintained relatively stable debt and equity figures between 2020 and 2023, with minor fluctuations. However, the year 2024 shows a pronounced increase in debt alongside a significant expansion in invested capital and a rebound in shareholder equity. These patterns may reflect strategic initiatives involving large-scale investments and changes in capital structure, indicating a more aggressive financial posture in the most recent year.

Economic Profit

The economic profit has shown considerable fluctuation over the five-year period. Starting at a significant negative value of -1175 million US dollars in 2020, it improved markedly in 2021 to -510 million. However, this improvement was not sustained as economic profit declined again in 2022 to -1007 million, followed by a partial recovery to -560 million in 2023. The year 2024 saw a steep decline to -1856 million, indicating a worsening economic profit position compared to all prior years in the dataset.

Invested Capital

Invested capital exhibited a general declining trend from 2020 to 2022, moving from 49,130 million US dollars to 47,332 million. This was followed by a slight increase in 2023 to 48,147 million and a pronounced rise in 2024 to 60,349 million. The substantial increase in 2024 suggests significant new investments or capital allocation during that year, reaching the highest recorded invested capital in the period analyzed.

Economic Spread Ratio

The economic spread ratio, representing the return spread on invested capital, has remained negative throughout the timeline, indicating that the company’s returns have consistently fallen below its cost of capital. The ratio improved slightly from -2.39% in 2020 to -1.06% in 2021, before deteriorating again in 2022 to -2.13%. A moderate improvement was seen in 2023 at -1.16%, but the ratio further worsened in 2024, reaching -3.08%, the lowest point in the presented data. This trend underscores ongoing challenges in generating positive economic value despite investments.

Adjusted Net Sales

The adjusted net sales demonstrate a consistent upward trend over the five-year period. Beginning at $33,125 million at the end of 2020, the sales increased steadily each year, reaching $38,524 million by the end of 2024. This represents an overall growth of approximately 16% over the period, indicating positive top-line performance and potential market expansion or improved sales effectiveness.

Economic Profit

The economic profit figures exhibit considerable volatility and negative values throughout the observed timeframe. Despite the increase in net sales, economic profit remains negative in all years, signaling that the company may not be generating returns above its cost of capital. The economic profit improved from -$1,175 million in 2020 to -$510 million in 2021, suggesting some recovery or operational improvements during that year. However, this was followed by a decline to -$1,007 million in 2022 and further fluctuations with -$560 million in 2023 before deteriorating significantly to -$1,856 million in 2024. The uptick in losses in 2024 is notable and may indicate rising costs, increased capital charges, or other adverse factors impacting profitability despite higher sales.

Economic Profit Margin

The economic profit margin remains negative throughout the period, mirroring the economic profit trend. Starting at -3.55% in 2020, it improved to -1.48% in 2021 but then worsened again to -2.81% in 2022. A temporary recovery occurred in 2023 when the margin improved slightly to -1.54%. However, there is a sharp decline in 2024, where the margin drops to -4.82%. This margin trend indicates that the company struggles to generate sufficient returns relative to the invested capital and that efficiency or capital cost issues may have intensified in the latest year, impacting the overall economic value creation.

Overall Insights

While the company’s adjusted net sales have shown steady growth over the five years, economic profit metrics reveal ongoing challenges in generating value beyond capital costs. The recurring negative economic profit and declining margin in the most recent year suggest that rising expenses or capital costs could be eroding profitability. Management may need to focus on cost control, improving operational efficiency, or reassessing investment strategies to reverse the downward trend in economic profit and economic profit margin. The volatility in economic profit, despite sales growth, highlights the importance of addressing underlying profitability issues to achieve sustainable financial health.