Linde plc (NASDAQ:LIN)

The financial performance, as measured by economic profit, demonstrates a consistent pattern of negative value creation over the five-year period. While net operating profit after taxes (NOPAT) increased significantly, it has not been sufficient to overcome the cost of capital applied to the invested capital base.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a substantial increase from US$2,699 million in 2020 to US$6,814 million in 2024. The most significant jump occurred between 2021 and 2022, followed by continued growth in 2023 and 2024, though at a slower rate. This indicates improving operational profitability.

Cost of Capital

The cost of capital remained relatively stable, fluctuating between 12.89% and 13.48% throughout the period. A slight upward trend was observed from 2020 to 2023, peaking at 13.48% before decreasing marginally in 2024 to 13.37%. This suggests consistent investor expectations regarding risk and return.

Invested Capital

Invested capital experienced a decrease from US$78,771 million in 2020 to US$72,560 million in 2021. It then remained relatively flat between 2021 and 2023, before increasing to US$74,884 million in 2024. This suggests a period of capital efficiency followed by reinvestment in the business.

Economic Profit

Economic profit remained negative throughout the analyzed period, ranging from -US$7,452 million in 2020 to -US$3,195 million in 2024. While the magnitude of the loss decreased consistently year-over-year, indicating improved performance, the company did not generate returns exceeding its cost of capital. The reduction in the economic loss correlates with the increase in NOPAT, partially offsetting the cost of capital applied to the invested capital.

In summary, the company demonstrates improving operational profitability as evidenced by the increasing NOPAT. However, the cost of capital continues to exceed the returns generated from invested capital, resulting in a persistent economic loss. The trend suggests a narrowing gap between cost of capital and returns, but further improvement in profitability relative to invested capital is necessary to achieve positive economic profit.

Net Income Trend

The net income exhibited a consistent upward trajectory across the periods analyzed. Starting at 2,501 million US dollars at the end of 2020, it increased notably to 3,826 million in 2021. The growth trend continued, reaching 4,147 million in 2022. The most substantial rise occurred between 2022 and 2023, with net income climbing sharply to 6,199 million. The upward trend persisted into 2024, culminating in a net income of 6,565 million. This steady increase suggests enhanced profitability and potentially successful operational strategies or favorable market conditions over these years.

Net Operating Profit After Taxes (NOPAT) Trend

Similar to net income, NOPAT showed generally favorable growth during the observed timeframe. Beginning at 2,699 million US dollars at the end of 2020, it rose to 3,800 million in 2021, nearly matching the growth pace of net income during the same period. From 2021 to 2022, growth slowed considerably, with NOPAT increasing marginally to 3,833 million. However, the year 2023 marked a sharp increase to 6,386 million, paralleling the significant jump in net income. The upward momentum continued into 2024, with NOPAT reaching 6,814 million. This pattern reflects improving operating efficiency and effective tax management, particularly highlighted by the strong rebound after 2022.

Comparative Observations

Both net income and NOPAT followed closely aligned trajectories, indicating that earnings growth was supported by operating performance improvements. The substantial increases in both metrics occurring between 2022 and 2023 suggest a pivotal year for operational and profitability enhancement. The consistent growth in both figures over the five-year period indicates stable financial health and profitability expansion.

The financial data showcases two key tax-related metrics for the analyzed periods: provision for income taxes and cash operating taxes, both expressed in millions of US dollars. Over the five-year horizon from the end of 2020 to the end of 2024, both metrics exhibit an upward trajectory indicating increasing tax liabilities and operational tax payments.

Provision for Income Taxes

The provision for income taxes shows a consistent increase each year. Starting at 847 million US dollars at the end of 2020, the figure rises to 1,262 million in 2021, reflecting approximately a 49% increase year over year. Subsequent increases are observed with values reaching 1,434 million in 2022, 1,814 million in 2023, and peaking at 2,002 million by the end of 2024. The incremental growth suggests higher taxable income or changes in tax rates or regulations affecting income tax provisions.

Cash Operating Taxes

Cash operating taxes also demonstrate a steady upward trend over the same period. Beginning at 1,245 million US dollars in 2020, this amount increases to 1,537 million in 2021, and rises further to 1,835 million in 2022. The upward momentum continues with 1,947 million recorded in 2023 and 2,205 million by the close of 2024. The progression suggests increased actual cash outflows related to operating tax obligations, consistent with or possibly exceeding the growth pattern of the income tax provision.

In summary, both tax provisions and actual tax payments display a pattern of continuous growth with cash operating taxes consistently higher than provisions for income taxes. This could indicate a timing difference between accrued taxes and cash payments, additional tax obligations beyond income tax, or other operating tax factors influencing the cash tax outflows. The rising trend across both lines suggests the company is experiencing increasing tax costs as part of its operational and profitability changes during the observed periods.

The financial data over the five-year period exhibit notable trends in the company's capital structure and investment levels. The total reported debt and leases show a general upward trajectory, increasing from US$17,223 million in 2020 to US$22,609 million in 2024. This indicates a rising reliance on debt financing over the period, with a significant jump between 2021 and 2022, followed by continued growth in subsequent years.

Concurrently, shareholders' equity demonstrates a consistent decline from US$47,317 million in 2020 to US$38,092 million in 2024. This steady decrease suggests erosion in the company’s net equity base, which could reflect dividend distributions, share repurchases, or losses not apparent from the data provided but warrants further investigation. The reduction in equity, coupled with rising debt levels, points to a shifting balance of the company’s financing sources.

Invested capital remains relatively stable throughout the period, beginning at US$78,771 million in 2020 and experiencing minor fluctuations, ending slightly lower at US$74,884 million in 2024. The investment base appears largely maintained despite the changes in the composition of equity and debt. This stability in invested capital suggests that the company is sustaining its asset base or capital employed at a consistent level while adjusting its financing structures.

Debt Trend

Total reported debt & leases increased by approximately 31% over the five years, indicating enhanced leverage or increased borrowing capacity.

Equity Trend

Total shareholders' equity decreased by about 20%, which could impact the company’s financial flexibility and investor perception.

Invested Capital

Invested capital shows a slight decline of around 5%, suggesting stable asset deployment but potential changes in asset composition or valuation.

Overall Analysis

The simultaneous rise in debt and decline in equity, with stable invested capital, implies a strategic shift towards greater leverage. This could affect the risk profile and cost of capital, highlighting the importance of monitoring debt servicing capacity and equity trends in future periods.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern over the five-year period. Economic profit remains negative throughout, though the magnitude of the loss decreases over time. Invested capital exhibits relative stability with a slight upward trend in later years. The economic spread ratio, reflecting the efficiency of capital allocation, shows improvement but remains negative.

Economic Profit

Economic profit begins at a loss of US$7,452 million in 2020 and gradually decreases in absolute value to a loss of US$3,195 million by 2024. This suggests a progressive improvement in the company’s ability to generate returns exceeding its cost of capital, although it has not yet achieved positive economic profit.

Invested Capital

Invested capital decreased from US$78,771 million in 2020 to US$72,560 million in 2021. It then remained relatively stable between US$72,341 million and US$73,409 million for 2021 through 2023, before increasing to US$74,884 million in 2024. This indicates a period of capital consolidation followed by modest reinvestment.

Economic Spread Ratio

The economic spread ratio, initially at -9.46% in 2020, shows a consistent, albeit slow, upward trend. It improves to -4.27% by 2024. This improvement correlates with the decreasing magnitude of the economic profit loss, indicating that the company is becoming more efficient in deploying its invested capital, but still underperforming relative to its cost of capital. The negative values consistently demonstrate that returns on invested capital are less than the cost of that capital.

Overall, the trend suggests a positive trajectory in financial performance, with diminishing losses and improving capital efficiency. However, continued negative economic profit and a negative economic spread ratio indicate that the company has not yet achieved a level of profitability that fully satisfies investor expectations regarding returns on investment.

The financial performance, as indicated by economic profit and its margin, demonstrates a consistent pattern of negative economic profit over the five-year period from 2020 to 2024. However, the magnitude of the economic loss has decreased over time, accompanied by an improving economic profit margin.

Economic Profit

Economic profit exhibits a decreasing negative value. Starting at a loss of US$7,452 million in 2020, the loss lessened to US$5,800 million in 2021, remained relatively stable at US$5,806 million in 2022, and further improved to US$3,510 million in 2023. This trend continued into 2024, with the economic loss reported at US$3,195 million. This suggests a gradual improvement in the company’s ability to generate returns exceeding its cost of capital, although it remains negative overall.

Sales

Sales experienced growth from 2020 to 2023, increasing from US$27,243 million to US$32,854 million. A slight increase in sales was observed in 2024, reaching US$33,005 million. While sales growth is positive, it has not been sufficient to translate into positive economic profit.

Economic Profit Margin

The economic profit margin, initially at -27.36% in 2020, shows a clear upward trend. It improved to -18.84% in 2021, -17.40% in 2022, -10.69% in 2023, and further to -9.68% in 2024. This indicates that, while still negative, the proportion of each sales dollar lost in economic profit is decreasing. The improvement in the margin correlates with the decreasing magnitude of the economic loss and the growth in sales.

In summary, the company consistently reports negative economic profit, but both the absolute loss and the economic profit margin are trending favorably. The observed improvements suggest increasing efficiency in capital allocation or a reduction in the cost of capital relative to revenue generation, though further investigation would be needed to confirm the underlying drivers.