Roper Technologies Inc. (NASDAQ:ROP)

The analysis of the financial data over the five-year period reveals several significant trends and insights regarding the company's profitability and capital efficiency, as detailed below.

Net Operating Profit After Taxes (NOPAT)

The NOPAT increased substantially from 2018 to 2019, rising from approximately 1.15 billion US dollars to nearly 1.99 billion US dollars. However, this growth was not sustained, as NOPAT declined to about 1.25 billion in 2020. Subsequently, modest increases were observed in 2021, reaching approximately 1.34 billion, followed by a slight decrease in 2022 to around 1.28 billion. The overall pattern indicates volatility in operating profitability with no consistent upward trajectory after 2019.

Cost of Capital

The cost of capital demonstrated relative stability throughout the years, fluctuating narrowly between 12.5% and 13.63%. The lowest cost was noted in 2020 at 12.5%, while the highest was in 2022 at 13.63%. This consistent cost suggests a stable environment regarding the company’s required rate of return on invested capital.

Invested Capital

Invested capital exhibited a pronounced upward trend over the examined period. Starting from approximately 14.79 billion US dollars in 2018, it increased steadily each year, reaching nearly 26.22 billion by 2022. This growth represents a significant expansion in the capital base employed by the company, with the largest increase occurring between 2019 and 2020.

Economic Profit

Economic profit, which accounts for the cost of capital, remained negative throughout the period analyzed. Although the negative value decreased from -847.7 million in 2018 to -331.3 million in 2019, indicating some improvement, the trend reversed sharply afterward. Economic profit declined severely to -1.62 billion in 2020 and remained relatively stable at similar negative levels in 2021. A further deterioration occurred in 2022 with a value nearing -2.30 billion. This consistent negative economic profit suggests that the company's returns on its invested capital have not been sufficient to cover the cost of that capital, indicating potential value destruction over the period.

In summary, while the company experienced an initial increase in operating profit and continued growth in its invested capital base, the persistent negative economic profit highlights challenges in generating returns above the cost of capital. The volatility in NOPAT coupled with rising invested capital and stable cost of capital has contributed to an increasingly negative economic profit, potentially signaling inefficiencies or unfavorable investment returns in recent years.

Net Earnings

Net earnings exhibited considerable fluctuation over the analyzed period. Beginning at approximately $944 million in 2018, earnings nearly doubled to about $1.77 billion in 2019. However, there was a notable decline to roughly $950 million in 2020, followed by a moderate increase to approximately $1.15 billion in 2021. The most significant change occurred in 2022, when net earnings surged sharply to approximately $4.54 billion, representing the highest value in the time series by a wide margin. This pattern indicates substantial volatility, with a pronounced financial performance improvement in the latest year.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed a relatively more stable trajectory compared to net earnings. Starting at about $1.15 billion in 2018, NOPAT increased substantially to nearly $2.0 billion in 2019. After this peak, it declined to roughly $1.25 billion in 2020 but experienced a slight recovery in 2021 with a value of approximately $1.34 billion. In 2022, NOPAT decreased marginally to about $1.28 billion. Despite some fluctuations, the variations in NOPAT were less extreme, suggesting consistent operating profitability even during periods of net earnings volatility.

Comparative Insights

When comparing net earnings and NOPAT trends, it is evident that while both metrics showed increases in 2019, net earnings were subject to greater volatility in the subsequent years. The sharp rise in net earnings in 2022 was not paralleled to the same extent by NOPAT, which remained relatively stable. This may indicate that extraordinary or non-operational factors significantly influenced net earnings in that year. Overall, operating profitability remained relatively steady throughout the period, despite fluctuations in reported net income.

Income Tax Expense

The income tax expense shows a notable increase from 254,000 thousand US dollars in 2018 to a peak of 459,500 thousand US dollars in 2019. Following this peak, there is a sharp decline to 259,600 thousand US dollars in 2020, indicating a significant fluctuation. The values then exhibit a gradual increase in the subsequent years, rising to 288,400 thousand US dollars in 2021 and slightly further to 296,400 thousand US dollars in 2022. Overall, the tax expense demonstrates volatility over the five-year period while maintaining a level in the upper 200,000s to near 300,000 thousand US dollars range in the latest years.

Cash Operating Taxes

Cash operating taxes also exhibit a fluctuating pattern. Starting at 356,809 thousand US dollars in 2018, the figure grows substantially to 590,630 thousand US dollars in 2019, nearly a 65% increase. This is followed by a considerable reduction to 364,900 thousand US dollars in 2020. Subsequently, the cash operating taxes decline slightly in 2021 to 332,378 thousand US dollars, before escalating again sharply in 2022 to 511,065 thousand US dollars. Despite the fluctuations, the overall trend indicates significant variability with the cash operating taxes generally remaining above 300,000 thousand US dollars except for the exceptional peak and trough years.

Comparison and Insights

Both income tax expense and cash operating taxes experience their highest values in 2019, succeeded by a sharp decrease in 2020. The income tax expense shows more stability from 2020 onwards relative to cash operating taxes, which remains more volatile, especially with the substantial increase in 2022. This variance between income tax expense and cash operating taxes could suggest changes in tax payment timings or strategies impacting cash flow versus accounting recognition. The patterns imply that while accounting tax expenses are somewhat steady post-2020, actual cash tax payments are subject to larger swings.

Total Reported Debt & Leases

The total reported debt and leases increased significantly from 2018 to 2020, rising from approximately $5.19 billion to $9.85 billion. However, in the following years, debt decreased, falling to about $8.15 billion in 2021 and further to $6.87 billion by the end of 2022. This trend indicates an initial period of increased leverage followed by a reduction in debt obligations over the last two years of the period analyzed.

Stockholders’ Equity

Stockholders’ equity showed consistent growth throughout the entire time frame. Starting at around $7.74 billion in 2018, equity increased steadily each year, reaching approximately $16.04 billion by the end of 2022. The growth became more pronounced from 2021 to 2022, suggesting a strong strengthening of the company's capital base during the most recent year.

Invested Capital

Invested capital mirrored the trends observed in equity and debt, rising from about $14.79 billion in 2018 to a peak of $23 billion in 2020. A slight decrease occurred in 2021 to roughly $22.5 billion, followed by a rebound to approximately $26.2 billion in 2022. This reflects overall growth in the capital deployed by the company with some variability corresponding to changes in debt and equity levels.

Economic Profit

The economic profit values indicate a consistent negative trend across the years. Starting from -847,661 thousand US dollars in 2018, there was a reduction in losses in 2019 to -331,297 thousand US dollars. However, from 2020 onwards, economic profit deteriorated significantly again, reaching -1,625,071 thousand US dollars in 2021 and further declining to -2,298,725 thousand US dollars by 2022.

Invested Capital

The invested capital has shown a steady increase throughout the period under review. Beginning at 14,785,177 thousand US dollars in 2018, it rose to 17,154,600 thousand US dollars in 2019. This upward trend continued sharply in 2020 to 23,002,900 thousand US dollars, with a slight dip in 2021 to 22,504,600 thousand US dollars, followed by an increase to 26,216,800 thousand US dollars in 2022.

Economic Spread Ratio

The economic spread ratio consistently remained negative, indicating that the returns on invested capital were below the cost of capital during the entire period. Starting at -5.73% in 2018, the ratio improved to -1.93% in 2019 but worsened again in the subsequent years. The ratio declined to -7.05% in 2020, slightly decreased to -7.23% in 2021, and further deteriorated to -8.77% in 2022.

Overall Analysis

Despite the continuous increase in invested capital, the company experienced persistent negative economic profit, culminating in increasing losses over the last three years. The economic spread ratio reflects this as it remained negative and showed worsening performance, suggesting that the company’s investments are currently not generating adequate returns in excess of their cost of capital. This combination signals challenges in value creation and operational efficiency, warranting further investigation into underlying factors impacting profitability.

Economic Profit

The economic profit exhibited a fluctuating yet predominantly negative trend throughout the period. Beginning at -847,661 thousand US dollars in 2018, there was an improvement in 2019 to -331,297 thousand US dollars. However, from 2020 onwards, economic profit deteriorated substantially, reaching -1,621,502 thousand in 2020 and stabilizing at a similar negative level in 2021 (-1,626,071 thousand). The most significant decline occurred in 2022, with economic profit dropping sharply to -2,298,725 thousand US dollars, indicating increasing economic losses attributable to the company’s operations.

Adjusted Net Revenues

Adjusted net revenues showed a steady increasing trend from 2018 through 2021. Revenues increased from 5,300,700 thousand US dollars in 2018 to a peak of 5,950,400 thousand in 2021. In 2022, revenues declined to 5,677,800 thousand US dollars, marking the first decrease after four years of growth. This recent decline suggests potential challenges in maintaining revenue growth or market pressures impacting sales.

Economic Profit Margin

The economic profit margin followed a negative trajectory throughout the entire period, mirroring the trends observed in economic profit. The margin improved significantly from -15.99% in 2018 to -6% in 2019, indicating a reduction in losses relative to net revenues. However, from 2020 onward, the margin deteriorated markedly, dropping to -28.45% in 2020 and slightly improving but remaining broadly stable at -27.33% in 2021. The deterioration intensified further in 2022 with a steep decline to -40.49%, highlighting worsening profitability performance in relation to revenues.

Overall Analysis

Overall, the data reveal that despite a generally positive trend in adjusted net revenues until 2021, the company consistently experienced negative economic profit and margins, with substantial worsening after 2019. The improvement in 2019 may indicate some efficiency gains or favorable conditions, but these gains were not sustained. The significant decline in economic profit and margin in the last two years, particularly in 2022, points toward increasing economic inefficiencies or cost pressures that overshadow revenue growth. The decline in revenues in 2022 coupled with worsening margins may indicate underlying operational or market challenges that require strategic attention to restore economic profitability.