Honeywell International Inc. (NASDAQ:HON)

The period under review demonstrates a consistent pattern of negative economic profit. Net operating profit after taxes (NOPAT) fluctuated over the five-year span, while the cost of capital decreased slightly and invested capital increased substantially. These factors combined to produce a worsening economic profit position.

NOPAT Trend

Net operating profit after taxes began at US$5,961 million in 2021, decreased to US$5,460 million in 2022, recovered to US$5,956 million in 2023, and slightly increased to US$5,978 million in 2024. A decline to US$5,535 million was observed in 2025. While there were periods of recovery, NOPAT did not consistently increase over the entire period.

Cost of Capital Trend

The cost of capital was 14.24% in 2021, rose to 14.53% in 2022, decreased to 14.39% in 2023, and then experienced a more significant decrease to 13.79% in 2024. It remained relatively stable at 13.86% in 2025. The overall trend indicates a modest reduction in the cost of funding over the period.

Invested Capital Trend

Invested capital remained relatively stable between 2021 and 2023, fluctuating between US$47,332 million and US$48,349 million. A substantial increase was observed in 2024, reaching US$60,349 million, and continued to rise to US$61,387 million in 2025. This represents a significant expansion of the capital base.

Economic Profit Trend

Economic profit was negative throughout the entire period. It started at a loss of US$922 million in 2021, worsened to a loss of US$1,417 million in 2022, improved slightly to a loss of US$972 million in 2023, but then deteriorated significantly to a loss of US$2,342 million in 2024. The negative economic profit further declined to US$2,977 million in 2025. The increasing magnitude of the loss suggests that the company is not generating returns exceeding its cost of capital, and the situation is worsening.

The combination of fluctuating NOPAT, a decreasing cost of capital, and a rapidly increasing invested capital base resulted in a consistently negative and worsening economic profit. The substantial growth in invested capital, without a corresponding increase in NOPAT sufficient to offset the cost of that capital, is the primary driver of this trend.

Net income attributable to Honeywell and Net Operating Profit After Taxes (NOPAT) exhibited varied performance between 2021 and 2025. NOPAT demonstrated relative stability compared to net income, with fluctuations occurring within a defined range. A review of the figures reveals specific trends worthy of note.

NOPAT Trend

NOPAT began at US$5,961 million in 2021, decreased to US$5,460 million in 2022, and then recovered to US$5,956 million in 2023. This was followed by a slight increase to US$5,978 million in 2024 before declining to US$5,535 million in 2025. The period between 2022 and 2023 shows the most significant positive change, while the decrease from 2024 to 2025 represents the largest single-year decline within the observed timeframe.

Net Income Trend

Net income attributable to Honeywell started at US$5,542 million in 2021, decreased to US$4,966 million in 2022, increased substantially to US$5,658 million in 2023, and continued to rise to US$5,705 million in 2024. However, it experienced a notable decrease to US$4,729 million in 2025. The volatility in net income is more pronounced than that observed in NOPAT.

Relationship between NOPAT and Net Income

In 2021, NOPAT exceeded net income by US$419 million. This difference narrowed in 2022 to US$506 million, with NOPAT still exceeding net income. The gap widened again in 2023 to US$692 million, and remained substantial in 2024 at US$727 million. However, in 2025, NOPAT exceeded net income by US$806 million, indicating a larger divergence than in previous years. This suggests that factors beyond core operating profitability are increasingly influencing reported net income.

The observed trends suggest that while core operating profitability, as measured by NOPAT, has remained relatively stable, net income is subject to greater fluctuations. The increasing difference between NOPAT and net income in the later years warrants further investigation to identify the contributing factors, such as changes in non-operating items or tax rates.

The reported tax expense and cash operating taxes exhibit distinct patterns over the five-year period. While both figures generally fluctuate, a notable divergence emerges, particularly in the later years. Tax expense demonstrates a decreasing trend from 2021 to 2025, while cash operating taxes show more variability.

Tax Expense Trend

Tax expense decreased from US$1,625 million in 2021 to US$1,008 million in 2025. A slight increase was observed between 2021 and 2022, followed by relative stability between 2022 and 2024 before a more substantial decline in 2025. This suggests potential changes in the company’s effective tax rate or taxable income.

Cash Operating Taxes Trend

Cash operating taxes increased from US$1,503 million in 2021 to US$1,654 million in 2022, representing a notable increase. This was followed by a decrease to US$1,434 million in 2023, then a significant rise to US$1,847 million in 2024. Finally, cash operating taxes decreased to US$1,204 million in 2025. The volatility in cash operating taxes suggests potential timing differences between reported tax expense and actual cash outflows for taxes.

Relationship Between Tax Expense and Cash Operating Taxes

In 2021 and 2022, cash operating taxes were relatively close to the reported tax expense. However, from 2023 onwards, a growing difference is apparent. In 2024, cash operating taxes exceeded tax expense by a considerable margin (US$374 million), while in 2025, tax expense exceeded cash operating taxes by US$204 million. This discrepancy could be attributed to deferred tax assets or liabilities, tax credits, or changes in tax laws impacting the timing of cash payments.

The observed trends indicate a potential decoupling between accounting-based tax expense and the actual cash taxes paid by the company. Further investigation into the underlying causes of these differences is warranted to fully understand the implications for economic value added (EVA) calculations and overall financial performance.

Analysis of the presented financial information reveals trends in the company’s capital structure over the five-year period. Invested capital demonstrates a generally increasing trajectory, while both total reported debt & leases and total shareowners’ equity exhibit more fluctuating patterns.

Invested Capital

Invested capital remained relatively stable between 2021 and 2023, fluctuating around the US$48 billion mark. A significant increase is observed in 2024, reaching US$60.349 billion, and continues to rise in 2025 to US$61.387 billion. This suggests an expansion of the company’s asset base funded by both debt and equity.

Total Reported Debt & Leases

Total reported debt & leases decreased slightly from US$20.631 billion in 2021 to US$20.537 billion in 2022. It then increased to US$21.536 billion in 2023 before experiencing a substantial rise to US$32.225 billion in 2024. This upward trend continues into 2025, reaching US$35.563 billion. The increases in 2024 and 2025 indicate a greater reliance on debt financing.

Total Honeywell Shareowners’ Equity

Total shareowners’ equity decreased from US$18.569 billion in 2021 to US$16.697 billion in 2022 and further declined to US$15.856 billion in 2023. A partial recovery is seen in 2024, with equity increasing to US$18.619 billion, but it then falls again in 2025 to US$13.904 billion. This suggests potential share repurchases, dividend payouts, or retained earnings impacts contributing to the fluctuations.

The combined effect of these trends is a growing reliance on debt to fund the increasing invested capital, particularly evident in the later years of the period. While invested capital has increased consistently since 2024, the shareowners’ equity has shown volatility, with a notable decrease in 2025. This shift in the capital structure warrants further investigation to assess its implications for the company’s financial risk and future performance.

The economic spread ratio demonstrates a consistent decline over the five-year period. Economic profit consistently registers as negative, while invested capital fluctuates. The relationship between these two metrics results in a progressively worsening economic spread ratio.

Economic Spread Ratio

The economic spread ratio moved from -1.91% in 2021 to -4.85% in 2025. This indicates a widening gap between the company’s return on invested capital and its cost of capital. The most significant decrease occurred between 2023 and 2024, moving from -2.02% to -3.88%, and continued into 2025.

Invested capital experienced a decrease from 2021 to 2022, followed by a slight increase in 2023. A more substantial increase is observed between 2023 and 2024, and continues into 2025. However, this increase in invested capital has not translated into improved economic profit.

Economic Profit

Economic profit shows a pattern of negative values throughout the period. The magnitude of the loss increased from US$922 million in 2021 to US$2,977 million in 2025. The largest single-year decrease in economic profit occurred between 2022 and 2023, and again between 2023 and 2024.

The combined trend of decreasing economic spread and increasing negative economic profit suggests the company is generating returns that are increasingly below its cost of capital. The rising invested capital, coupled with declining profitability, is exacerbating this issue.

The economic profit margin exhibited a consistent decline over the five-year period. While economic profit remained negative throughout, the magnitude of the loss increased year over year, directly impacting the economic profit margin.

Economic Profit

Economic profit demonstrated a negative trend, starting at a loss of US$922 million in 2021 and escalating to a loss of US$2,977 million by 2025. The largest single-year decrease occurred between 2023 and 2024, with the loss nearly doubling.

Adjusted Net Sales

Adjusted net sales generally increased from 2021 to 2024, rising from US$34,591 million to US$38,524 million. However, a slight decrease was observed in 2025, with sales falling to US$37,818 million. Despite the overall growth in sales, it did not translate into positive economic profit.

Economic Profit Margin

The economic profit margin began at -2.66% in 2021 and deteriorated to -7.87% in 2025. This indicates a worsening ability to generate returns exceeding the cost of capital. The margin experienced its most significant decline between 2023 and 2024, moving from -2.67% to -6.08%, suggesting a substantial increase in the gap between returns and the cost of capital during that period. The continued decline into 2025 reinforces this trend.

The consistent negative economic profit, coupled with the declining economic profit margin, suggests increasing challenges in creating shareholder value. While adjusted net sales experienced growth for a portion of the period, the cost of generating those sales, relative to the capital employed, appears to be increasing.