Air Products &amp; Chemicals Inc. (NYSE:APD)

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

Air Products & Chemicals Inc., effective income tax rate (EITR) reconciliation

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
U.S. federal statutory tax rate	21.00%	21.00%	24.50%	35.00%	35.00%	35.00%
State taxes, net of federal benefit	0.60%	1.00%	1.00%	1.00%	1.10%	1.00%
Income from equity affiliates	-2.30%	-2.00%	-2.10%	-2.00%	-2.40%	-3.00%
Foreign tax differentials	0.10%	1.00%	-1.00%	-7.90%	-7.00%	-6.60%
Tax on foreign repatriated earnings	0.90%	0.10%	-0.40%	-2.20%	-2.30%	-1.60%
Share-based compensation	-0.80%	-0.60%	-1.00%	-1.20%	0.00%	0.00%
Tax restructuring benefit	0.00%	0.00%	-1.80%	0.00%	0.00%	0.00%
Domestic production activities	0.00%	0.00%	-0.40%	-0.80%	-0.80%	-0.90%
Non-deductible goodwill impairment charge	0.00%	0.00%	0.00%	3.60%	0.00%	0.00%
Non-U.S. subsidiary tax election	0.00%	0.00%	0.00%	-7.70%	0.00%	0.00%
Business separation costs	0.00%	0.00%	0.00%	0.20%	3.10%	0.00%
Other	0.20%	-1.40%	-1.20%	0.40%	0.80%	0.10%
Effective tax rate, before tax reform	19.70%	19.10%	17.60%	18.40%	27.50%	24.00%
Tax reform repatriation	0.00%	1.90%	19.50%	0.00%	0.00%	0.00%
Tax reform rate change and other	0.00%	0.00%	-11.10%	0.00%	0.00%	0.00%
Effective tax rate	19.70%	21.00%	26.00%	18.40%	27.50%	24.00%

The effective income tax rate exhibited significant volatility between 2015 and 2020, fluctuating from a low of 18.40% in 2017 to a peak of 27.50% in 2016. This variance is primarily attributed to changes in the U.S. federal statutory tax rate and the implementation of tax reform measures.

Statutory Rate Evolution: A structural shift in the tax environment is evident as the U.S. federal statutory tax rate remained constant at 35.00% from 2015 through 2017, before decreasing to 24.50% in 2018 and stabilizing at 21.00% for 2019 and 2020.
Tax Reform Impacts: The transition period in 2018 was marked by opposing tax reform effects. While a rate change and other adjustments provided a significant reduction of 11.10%, these gains were offset by a 19.50% increase resulting from tax reform repatriation. This combination contributed to an increase in the effective tax rate to 26.00% in 2018, despite the lower statutory rate.
Foreign Tax and Repatriation Dynamics: Foreign tax differentials served as a consistent downward driver of the tax rate from 2015 to 2017, ranging from -6.60% to -7.90%. However, following the 2018 tax reform, this effect diminished significantly, becoming negligible or slightly positive by 2020. Similarly, the tax on foreign repatriated earnings shifted from a tax-reducing factor (between -1.60% and -2.30% from 2015-2017) to a tax-increasing factor by 2020.
Operational and Non-Recurring Adjustments: Various specific items influenced annual rates. In 2017, a non-U.S. subsidiary tax election provided a substantial reduction of 7.70%, which partially offset a 3.60% increase from non-deductible goodwill impairment charges. From 2017 onward, share-based compensation consistently reduced the effective tax rate, with its impact ranging between -0.60% and -1.20%.

By 2020, the effective tax rate converged toward 19.70%, reflecting a more stabilized tax environment characterized by a lower statutory rate and the exhaustion of major one-time tax reform adjustments.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

Air Products & Chemicals Inc., components of deferred tax assets and liabilities

US$ in thousands

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Retirement benefits and compensation accruals	209,000)	227,100)	153,100)	370,100)	537,900)	468,700)
Tax loss carryforwards	112,600)	140,600)	143,500)	64,500)	93,000)	116,700)
Tax credits and other tax carryforwards	40,300)	31,100)	17,100)	76,100)	56,000)	43,800)
Reserves and accruals	67,000)	69,600)	42,500)	88,200)	80,100)	71,900)
Partnership and other investments	—)	—)	—)	—)	4,800)	—)
Currency losses	30,400)	—)	3,800)	20,700)	—)	—)
Other	64,600)	57,700)	45,400)	37,200)	45,800)	57,300)
Gross deferred tax assets	523,900)	526,100)	405,400)	656,800)	817,600)	758,400)
Valuation allowance	(95,000)	(92,100)	(105,000)	(107,700)	(155,200)	(103,600)
Net deferred tax assets	428,900)	434,000)	300,400)	549,100)	662,400)	654,800)
Plant and equipment	(1,110,900)	(954,600)	(811,800)	(1,035,600)	(1,034,800)	(1,124,600)
Currency gains	—)	(23,900)	—)	—)	(46,400)	(65,700)
Unremitted earnings of foreign entities	(58,700)	(31,000)	(36,100)	(20,900)	(5,400)	(34,300)
Partnership and other investments	(19,300)	(14,800)	(16,300)	(5,400)	—)	—)
Intangible assets	(83,600)	(80,000)	(84,300)	(81,900)	(134,100)	(135,600)
Other	(3,900)	(8,300)	(5,600)	(9,200)	(16,100)	(15,300)
Deferred tax liabilities	(1,276,400)	(1,112,600)	(954,100)	(1,153,000)	(1,236,800)	(1,375,500)
Net deferred income tax asset (liability)	(847,500)	(678,600)	(653,700)	(603,900)	(574,400)	(720,700)

The net deferred income tax position remains a liability throughout the period from 2015 to 2020, with the net liability increasing from 720.7 million US dollars to 847.5 million US dollars. This trajectory reflects a general decline in net deferred tax assets coupled with the sustained magnitude of deferred tax liabilities associated with capital-intensive assets.

Analysis of Deferred Tax Assets: Gross deferred tax assets exhibited significant volatility, peaking at 817.6 million US dollars in 2016 before declining to 523.9 million US dollars by 2020. The primary driver of this fluctuation was retirement benefits and compensation accruals, which decreased from a high of 537.9 million US dollars in 2016 to 153.1 million US dollars in 2018, followed by a partial recovery. Tax loss carryforwards remained a consistent component, though they fluctuated between 64.5 million and 143.5 million US dollars over the six-year period.
Valuation Allowance and Net Asset Realization: A valuation allowance was consistently applied to offset a portion of the gross deferred tax assets, ranging from 92.1 million to 155.2 million US dollars. As a result, net deferred tax assets trended downward from 654.8 million US dollars in 2015 to 428.9 million US dollars in 2020, which constrained the ability of these assets to offset the growing tax liabilities.
Components of Deferred Tax Liabilities: Deferred tax liabilities were heavily dominated by plant and equipment, which represented the largest single liability component across all reported years. Although this liability decreased to 811.8 million US dollars in 2018, it climbed back to 1.11 billion US dollars by 2020. Additionally, liabilities for unremitted earnings of foreign entities showed an upward trend toward the end of the period, increasing from 31.0 million US dollars in 2019 to 58.7 million US dollars in 2020.
Net Deferred Tax Position Summary: The net deferred tax liability experienced a period of fluctuation, reaching a low of 574.4 million US dollars in 2016 before trending upward to 847.5 million US dollars by 2020. The widening gap between deferred tax assets and liabilities indicates an increasing future tax obligation, largely driven by the recovery of plant and equipment liabilities and the reduction in retirement-related tax assets.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

Air Products & Chemicals Inc., deferred tax assets and liabilities, classification

US$ in thousands

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Current deferred tax assets (included in Other receivables and current assets)	—)	—)	—)	—)	—)	117,200)
Noncurrent deferred tax assets (included in Other noncurrent assets)	115,100)	115,200)	121,400)	174,500)	192,700)	69,000)
Current deferred tax liabilities (included in Payables and accrued liabilities)	—)	—)	—)	—)	—)	3,600)
Noncurrent deferred tax liabilities	962,600)	793,800)	775,100)	778,400)	767,100)	903,300)

The financial position regarding deferred taxes is characterized by a consistent and significant net noncurrent deferred tax liability. The magnitude of noncurrent liabilities substantially outweighs the corresponding assets throughout the observed period, indicating long-term future tax obligations resulting from temporary differences between accounting and tax reporting.

Noncurrent Deferred Tax Assets: A substantial increase was recorded in 2016, where noncurrent deferred tax assets rose from $69 million to $192.7 million. Following this peak, a gradual downward trend is observed, with the balance decreasing to $115.1 million by September 30, 2020. This pattern suggests a period of asset accumulation followed by a steady realization or reversal of the underlying temporary differences.
Noncurrent Deferred Tax Liabilities: Noncurrent deferred tax liabilities exhibited volatility, beginning with a decrease from $903.3 million in 2015 to $767.1 million in 2016. Between 2016 and 2019, these liabilities remained relatively stable, fluctuating within a narrow range between $767.1 million and $793.8 million. However, a sharp increase occurred in 2020, with the liability rising to $962.6 million, marking the highest level in the analyzed timeframe.
Net Deferred Tax Position: The net noncurrent deferred tax liability position expanded significantly over the duration of the analysis. While the net liability stood at approximately $834.3 million in 2015, it increased to $847.5 million by 2020. The combination of declining noncurrent assets and surging noncurrent liabilities in the final year underscores an expanding future tax obligation.
Current Tax Components: Data for current deferred tax assets and liabilities was exclusively available for the period ending September 30, 2015, reporting $117.2 million in assets and $3.6 million in liabilities. The absence of subsequent data for these current items indicates a shift in classification or a lack of material current deferred tax balances in the following years.

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Air Products & Chemicals Inc., Financial Data: Reported vs. Adjusted

Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

Air Products & Chemicals Inc., adjustments to financial statements

US$ in thousands

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Adjustment to Current Assets
Current assets (as reported)	8,684,900)	4,618,300)	5,082,200)	5,876,700)	4,317,300)	2,910,800)
Less: Current deferred tax assets, net	—)	—)	—)	—)	—)	117,200)
Current assets (adjusted)	8,684,900)	4,618,300)	5,082,200)	5,876,700)	4,317,300)	2,793,600)
Adjustment to Total Assets
Total assets (as reported)	25,168,500)	18,942,800)	19,178,300)	18,467,200)	18,055,300)	17,438,100)
Less: Current deferred tax assets, net	—)	—)	—)	—)	—)	117,200)
Less: Noncurrent deferred tax assets, net	115,100)	115,200)	121,400)	174,500)	192,700)	69,000)
Total assets (adjusted)	25,053,400)	18,827,600)	19,056,900)	18,292,700)	17,862,600)	17,251,900)
Adjustment to Current Liabilities
Current liabilities (as reported)	2,416,700)	1,820,900)	2,338,300)	2,489,000)	3,283,300)	3,648,100)
Less: Current deferred tax liabilities, net	—)	—)	—)	—)	—)	3,600)
Current liabilities (adjusted)	2,416,700)	1,820,900)	2,338,300)	2,489,000)	3,283,300)	3,644,500)
Adjustment to Total Liabilities
Total liabilities (as reported)	12,725,400)	7,554,500)	8,002,000)	8,281,700)	10,841,900)	10,057,000)
Less: Current deferred tax liabilities, net	—)	—)	—)	—)	—)	3,600)
Less: Noncurrent deferred tax liabilities, net	962,600)	793,800)	775,100)	778,400)	767,100)	903,300)
Total liabilities (adjusted)	11,762,800)	6,760,700)	7,226,900)	7,503,300)	10,074,800)	9,150,100)
Adjustment to Total Air Products Shareholders’ Equity
Total Air Products shareholders’ equity (as reported)	12,079,800)	11,053,600)	10,857,500)	10,086,200)	7,079,600)	7,249,000)
Less: Net deferred tax assets (liabilities)	(847,500)	(678,600)	(653,700)	(603,900)	(574,400)	(720,700)
Total Air Products shareholders’ equity (adjusted)	12,927,300)	11,732,200)	11,511,200)	10,690,100)	7,654,000)	7,969,700)
Adjustment to Net Income Attributable To Air Products
Net income attributable to Air Products (as reported)	1,886,700)	1,760,000)	1,497,800)	3,000,400)	631,100)	1,277,900)
Add: Deferred income tax expense (benefit)	165,000)	57,600)	(55,400)	(38,000)	62,900)	2,900)
Net income attributable to Air Products (adjusted)	2,051,700)	1,817,600)	1,442,400)	2,962,400)	694,000)	1,280,800)

The adjustment of financial statements through the removal of deferred taxes reveals a consistent divergence between reported and adjusted values from 2015 to 2020. The primary impact of these adjustments is a systemic reduction in total liabilities and a corresponding increase in shareholders' equity, suggesting that deferred tax liabilities constitute a significant portion of the reported balance sheet.

Asset Analysis: A marginal reduction is observed in adjusted total assets compared to reported total assets across all periods. For instance, in 2020, reported total assets of 25,168,500 thousand US$ were adjusted downward to 25,053,400 thousand US$. Current assets remained largely unaffected in most years, with the exception of 2015, where a decrease from 2,910,800 thousand US$ to 2,793,600 thousand US$ was noted.
Liability Analysis: The removal of deferred taxes results in a substantial and consistent decrease in total liabilities. The most pronounced variance occurred in 2020, where reported total liabilities of 12,725,400 thousand US$ were reduced to 11,762,800 thousand US$ in the adjusted figures. Current liabilities remained almost identical to reported figures, indicating that the tax adjustments are concentrated within non-current liability accounts.
Equity Analysis: Adjusted shareholders' equity is consistently higher than reported equity throughout the six-year period. This trend indicates that the net effect of removing both deferred tax assets and liabilities is a positive adjustment to the equity base. By 2020, adjusted equity reached 12,927,300 thousand US$, compared to the reported 12,079,800 thousand US$, reflecting a strengthened net asset position once deferred tax complexities are removed.
Net Income Analysis: The impact of tax adjustments on net income attributable to shareholders is variable. Between 2015 and 2018, the adjusted net income fluctuated, showing slight increases in some years and decreases in others. However, a trend toward positive adjustments emerged in the final two years; in 2020, adjusted net income was 2,051,700 thousand US$, exceeding the reported 1,886,700 thousand US$.

Overall, the removal of deferred taxes presents a more favorable view of the balance sheet by reducing the total liability burden and increasing the book value of equity. This adjustment highlights a significant net deferred tax liability position that, when neutralized, enhances the reported financial solvency and net income in the latter part of the analyzed period.

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Air Products & Chemicals Inc., Financial Ratios: Reported vs. Adjusted

Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

Air Products & Chemicals Inc., adjusted financial ratios

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Current Ratio
Reported current ratio	3.59	2.54	2.17	2.36	1.31	0.80
Adjusted current ratio	3.59	2.54	2.17	2.36	1.31	0.77
Net Profit Margin
Reported net profit margin	21.30%	19.73%	16.77%	36.65%	6.63%	12.91%
Adjusted net profit margin	23.17%	20.38%	16.15%	36.18%	7.29%	12.94%
Total Asset Turnover
Reported total asset turnover	0.35	0.47	0.47	0.44	0.53	0.57
Adjusted total asset turnover	0.35	0.47	0.47	0.45	0.53	0.57
Financial Leverage
Reported financial leverage	2.08	1.71	1.77	1.83	2.55	2.41
Adjusted financial leverage	1.94	1.60	1.66	1.71	2.33	2.16
Return on Equity (ROE)
Reported ROE	15.62%	15.92%	13.80%	29.75%	8.91%	17.63%
Adjusted ROE	15.87%	15.49%	12.53%	27.71%	9.07%	16.07%
Return on Assets (ROA)
Reported ROA	7.50%	9.29%	7.81%	16.25%	3.50%	7.33%
Adjusted ROA	8.19%	9.65%	7.57%	16.19%	3.89%	7.42%

The financial performance from 2015 to 2020 is characterized by a substantial improvement in liquidity, a general decline in asset efficiency, and significant volatility in profitability. The removal of deferred taxes reveals a consistent divergence between reported and adjusted figures, most notably within solvency and return metrics.

Liquidity Trends: A strong upward trend is observed in the current ratio, which rose from 0.80 in 2015 to 3.59 by 2020. The variance between reported and adjusted current ratios is minimal, indicating that deferred tax adjustments have a negligible impact on the assessment of short-term liquidity.
Profitability and Efficiency: Net profit margins exhibited extreme volatility, peaking at 36.65% in 2017 before stabilizing in the 16% to 23% range. Adjusted net profit margins are generally higher than reported margins from 2018 onward, suggesting that the removal of deferred taxes presents a more favorable view of operational profitability. Conversely, total asset turnover shows a gradual decline from 0.57 in 2015 to 0.35 in 2020, reflecting a decrease in the efficiency of asset utilization to generate revenue.
Financial Leverage and Solvency: Financial leverage decreased from 2015 through 2019 before increasing to 2.08 in 2020. A consistent gap exists between reported and adjusted leverage, with adjusted figures remaining lower throughout the period. This indicates that deferred tax liabilities contribute significantly to the reported leverage, and their removal portrays a lower overall debt burden relative to equity.
Returns on Investment: Both Return on Equity (ROE) and Return on Assets (ROA) followed the volatile trajectory of the net profit margin, with a prominent peak in 2017. Adjusted ROA is consistently higher than reported ROA, whereas adjusted ROE is generally lower than reported ROE. This suggests that the removal of deferred taxes increases the perceived efficiency of asset employment while slightly moderating the perceived return on shareholder equity.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
As Reported
Selected Financial Data (US$ in thousands)
Current assets	8,684,900)	4,618,300)	5,082,200)	5,876,700)	4,317,300)	2,910,800)
Current liabilities	2,416,700)	1,820,900)	2,338,300)	2,489,000)	3,283,300)	3,648,100)
Liquidity Ratio
Current ratio¹	3.59	2.54	2.17	2.36	1.31	0.80
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted current assets	8,684,900)	4,618,300)	5,082,200)	5,876,700)	4,317,300)	2,793,600)
Adjusted current liabilities	2,416,700)	1,820,900)	2,338,300)	2,489,000)	3,283,300)	3,644,500)
Liquidity Ratio
Adjusted current ratio²	3.59	2.54	2.17	2.36	1.31	0.77

2020 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 8,684,900 ÷ 2,416,700 = 3.59

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 8,684,900 ÷ 2,416,700 = 3.59

The financial data indicates a significant and consistent improvement in the short-term liquidity position from 2015 to 2020. The current ratio, both reported and adjusted, transitioned from a sub-1.0 level in 2015 to a peak of 3.59 by 2020, signaling a substantial increase in the ability to cover short-term obligations with current assets.

Asset and Liability Trends: Current assets exhibited a general growth trajectory, rising from 2.91 billion USD in 2015 to 8.68 billion USD in 2020. While a slight contraction occurred between 2017 and 2019, the 2020 fiscal year saw a sharp increase, nearly doubling the assets held in the previous year. Conversely, current liabilities followed a downward trend for the majority of the period, decreasing from 3.65 billion USD in 2015 to a low of 1.82 billion USD in 2019, before rising to 2.42 billion USD in 2020.
Analysis of the Adjusted Current Ratio: The adjusted current ratio closely mirrors the reported current ratio throughout the six-year period. In 2015, the adjusted ratio was slightly lower at 0.77 compared to the reported 0.80. From 2016 through 2020, there was no divergence between the reported and adjusted figures, as current assets and liabilities remained identical across both metrics. The ratio progressed from 1.31 in 2016 to 2.36 in 2017, stabilized around 2.17 to 2.54 in 2018 and 2019, and ultimately reached 3.59 in 2020.
Liquidity Shift: The shift from a ratio below 1.0 in 2015 to significantly above 3.0 by 2020 represents a fundamental change in the company's working capital management. The combined effect of aggressively expanding current assets and reducing current liabilities through 2019 created a robust liquidity buffer, which was further amplified by the asset surge in 2020.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to Air Products	1,886,700)	1,760,000)	1,497,800)	3,000,400)	631,100)	1,277,900)
Sales	8,856,300)	8,918,900)	8,930,200)	8,187,600)	9,524,400)	9,894,900)
Profitability Ratio
Net profit margin¹	21.30%	19.73%	16.77%	36.65%	6.63%	12.91%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to Air Products	2,051,700)	1,817,600)	1,442,400)	2,962,400)	694,000)	1,280,800)
Sales	8,856,300)	8,918,900)	8,930,200)	8,187,600)	9,524,400)	9,894,900)
Profitability Ratio
Adjusted net profit margin²	23.17%	20.38%	16.15%	36.18%	7.29%	12.94%

2020 Calculations

¹ Net profit margin = 100 × Net income attributable to Air Products ÷ Sales
= 100 × 1,886,700 ÷ 8,856,300 = 21.30%

² Adjusted net profit margin = 100 × Adjusted net income attributable to Air Products ÷ Sales
= 100 × 2,051,700 ÷ 8,856,300 = 23.17%

The financial performance from 2015 to 2020 is characterized by significant volatility in both net income and profit margins, with a notable peak in 2017 followed by a period of steady recovery and growth.

Net Income Trends: Reported net income experienced a sharp decline in 2016, falling to 631.1 million US$ from 1.28 billion US$ in 2015. This was followed by a substantial surge in 2017, reaching a peak of 3 billion US$. Subsequently, income normalized to 1.5 billion US$ in 2018 and maintained a gradual upward trajectory, ending the period at 1.89 billion US$ in 2020.; Adjusted net income followed a similar pattern, though it remained consistently higher than reported net income in the final two years of the period, reaching 2.05 billion US$ by September 30, 2020.
Adjusted Net Profit Margin Analysis: The adjusted net profit margin exhibited extreme fluctuations, dropping to 7.29% in 2016 before spiking to a high of 36.18% in 2017. Following this anomaly, the margin corrected to 16.15% in 2018.; A consistent expansion of the adjusted net profit margin is observed from 2018 through 2020, rising from 16.15% to 20.38% and finally to 23.17%, indicating improved operational efficiency or favorable changes in the cost structure over the latter three years.
Variance Between Reported and Adjusted Metrics: In the early years of the analyzed period, reported and adjusted margins remained closely aligned. However, starting in 2019, a widening gap emerged where adjusted net profit margins consistently exceeded reported margins. By 2020, the adjusted net profit margin of 23.17% was 1.87 percentage points higher than the reported margin of 21.30%, suggesting that non-recurring items or specific accounting adjustments had a progressively larger negative impact on reported earnings relative to adjusted figures.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
As Reported
Selected Financial Data (US$ in thousands)
Sales	8,856,300)	8,918,900)	8,930,200)	8,187,600)	9,524,400)	9,894,900)
Total assets	25,168,500)	18,942,800)	19,178,300)	18,467,200)	18,055,300)	17,438,100)
Activity Ratio
Total asset turnover¹	0.35	0.47	0.47	0.44	0.53	0.57
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Sales	8,856,300)	8,918,900)	8,930,200)	8,187,600)	9,524,400)	9,894,900)
Adjusted total assets	25,053,400)	18,827,600)	19,056,900)	18,292,700)	17,862,600)	17,251,900)
Activity Ratio
Adjusted total asset turnover²	0.35	0.47	0.47	0.45	0.53	0.57

2020 Calculations

¹ Total asset turnover = Sales ÷ Total assets
= 8,856,300 ÷ 25,168,500 = 0.35

² Adjusted total asset turnover = Sales ÷ Adjusted total assets
= 8,856,300 ÷ 25,053,400 = 0.35

The analysis of asset utilization from 2015 to 2020 reveals a general decline in efficiency, characterized by a downward trend in the asset turnover ratio. While the asset base grew steadily for the majority of the period, the ability to generate revenue relative to those assets diminished, culminating in a significant drop in the final year of the observed period.

Adjusted Total Assets Growth: Adjusted total assets exhibited a consistent upward trajectory from 2015 to 2018, rising from 17.25 billion US$ to 19.06 billion US$. A slight contraction occurred in 2019, with assets decreasing to 18.83 billion US$. However, a substantial increase was recorded in 2020, where adjusted total assets surged to 25.05 billion US$, representing a significant expansion of the company's balance sheet.
Adjusted Total Asset Turnover Trends: The adjusted total asset turnover ratio began at 0.57 in 2015 and experienced a gradual decline to 0.45 by 2017. The ratio remained stable at 0.47 through 2018 and 2019 before falling sharply to 0.35 in 2020. This decline indicates that revenue growth did not keep pace with the expansion of the asset base, particularly during the sharp asset increase in 2020.
Comparative Analysis of Reported vs. Adjusted Metrics: There is a minimal variance between reported and adjusted figures throughout the six-year period. The differences in total assets are marginal, and the corresponding turnover ratios are nearly identical, with only a slight divergence observed in 2017 (0.44 reported versus 0.45 adjusted). This suggests that the adjustments made to the asset base have no material impact on the overall interpretation of the company's asset efficiency.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
As Reported
Selected Financial Data (US$ in thousands)
Total assets	25,168,500)	18,942,800)	19,178,300)	18,467,200)	18,055,300)	17,438,100)
Total Air Products shareholders’ equity	12,079,800)	11,053,600)	10,857,500)	10,086,200)	7,079,600)	7,249,000)
Solvency Ratio
Financial leverage¹	2.08	1.71	1.77	1.83	2.55	2.41
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted total assets	25,053,400)	18,827,600)	19,056,900)	18,292,700)	17,862,600)	17,251,900)
Adjusted total Air Products shareholders’ equity	12,927,300)	11,732,200)	11,511,200)	10,690,100)	7,654,000)	7,969,700)
Solvency Ratio
Adjusted financial leverage²	1.94	1.60	1.66	1.71	2.33	2.16

2020 Calculations

¹ Financial leverage = Total assets ÷ Total Air Products shareholders’ equity
= 25,168,500 ÷ 12,079,800 = 2.08

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Air Products shareholders’ equity
= 25,053,400 ÷ 12,927,300 = 1.94

An analysis of the financial position from 2015 to 2020 reveals a general expansion of the balance sheet, characterized by a significant increase in total assets and a steady growth in shareholders' equity. While assets remained relatively stable between 2015 and 2019, a substantial increase occurred in 2020, where reported total assets rose to 25.17 billion US dollars.

Equity Growth and Capital Structure: Shareholders' equity exhibited a notable upward trajectory, particularly between 2016 and 2017, where reported equity increased from 7.08 billion US dollars to 10.09 billion US dollars. This growth continued through 2020, reaching 12.08 billion US dollars. The consistent gap between reported and adjusted equity suggests that adjustments routinely increase the equity base, thereby lowering the calculated financial leverage.
Financial Leverage Trends: The financial leverage ratio followed a U-shaped pattern over the period. Both reported and adjusted leverage peaked in 2016 at 2.55 and 2.33, respectively. This was followed by a period of steady deleveraging through 2019, with adjusted financial leverage reaching a low of 1.60. However, a reversal occurred in 2020, with the adjusted ratio increasing to 1.94, correlating with the sharp increase in total assets.
Impact of Adjustments on Leverage: A consistent variance is observed between reported and adjusted financial leverage, with the adjusted figures remaining lower across all reporting periods. This indicates that the adjustments applied to total assets and shareholders' equity serve to present a more conservative leverage profile. The narrowing of the gap between reported and adjusted leverage over time suggests a change in the magnitude of the underlying adjustments relative to the total balance sheet size.

The overall trend indicates a strategic shift toward a stronger equity position from 2017 onward, which effectively mitigated financial leverage until the asset expansion observed in 2020. The sustained difference between reported and adjusted metrics underscores the influence of specific accounting adjustments on the perceived financial risk of the entity.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to Air Products	1,886,700)	1,760,000)	1,497,800)	3,000,400)	631,100)	1,277,900)
Total Air Products shareholders’ equity	12,079,800)	11,053,600)	10,857,500)	10,086,200)	7,079,600)	7,249,000)
Profitability Ratio
ROE¹	15.62%	15.92%	13.80%	29.75%	8.91%	17.63%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to Air Products	2,051,700)	1,817,600)	1,442,400)	2,962,400)	694,000)	1,280,800)
Adjusted total Air Products shareholders’ equity	12,927,300)	11,732,200)	11,511,200)	10,690,100)	7,654,000)	7,969,700)
Profitability Ratio
Adjusted ROE²	15.87%	15.49%	12.53%	27.71%	9.07%	16.07%

2020 Calculations

¹ ROE = 100 × Net income attributable to Air Products ÷ Total Air Products shareholders’ equity
= 100 × 1,886,700 ÷ 12,079,800 = 15.62%

² Adjusted ROE = 100 × Adjusted net income attributable to Air Products ÷ Adjusted total Air Products shareholders’ equity
= 100 × 2,051,700 ÷ 12,927,300 = 15.87%

The financial performance from 2015 to 2020 is characterized by significant volatility in net income contrasted with a steady expansion of the equity base. While net income experienced sharp fluctuations, shareholders' equity grew consistently, impacting the overall return on equity trends.

Net Income Performance: Both reported and adjusted net income exhibited substantial variance over the six-year period. A significant contraction occurred in 2016, with reported net income dropping to 631.1 million USD. This was followed by a peak in 2017, where reported net income reached 3.0 billion USD. From 2018 onward, earnings stabilized, trending upward from 1.49 billion USD to 1.89 billion USD by September 30, 2020. Adjusted net income generally mirrored these movements, though it remained higher than reported figures in the later years, reaching 2.05 billion USD in 2020.
Shareholders' Equity Expansion: A consistent upward trend is observed in the equity base. Reported total shareholders' equity increased from 7.25 billion USD in 2015 to 12.08 billion USD in 2020. Adjusted total shareholders' equity followed a similar trajectory, rising from 7.97 billion USD to 12.93 billion USD over the same period. This steady growth in the denominator of the ROE calculation suggests a strengthening capital position, which serves to moderate the impact of income volatility on returns.
Return on Equity (ROE) Analysis: The ROE figures demonstrate high sensitivity to the volatility of net income. The reported ROE reached a maximum of 29.75% in 2017, coinciding with the peak in net income, and a minimum of 8.91% in 2016. By 2020, the reported ROE stabilized at 15.62%. The adjusted ROE consistently tracked the reported ROE, although it was generally lower during the high-growth period of 2017 (27.71%) and slightly higher in 2020 (15.87%), indicating that adjustments to income and equity have a narrowing effect on the variance between reported and adjusted returns over time.

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Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to Air Products	1,886,700)	1,760,000)	1,497,800)	3,000,400)	631,100)	1,277,900)
Total assets	25,168,500)	18,942,800)	19,178,300)	18,467,200)	18,055,300)	17,438,100)
Profitability Ratio
ROA¹	7.50%	9.29%	7.81%	16.25%	3.50%	7.33%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to Air Products	2,051,700)	1,817,600)	1,442,400)	2,962,400)	694,000)	1,280,800)
Adjusted total assets	25,053,400)	18,827,600)	19,056,900)	18,292,700)	17,862,600)	17,251,900)
Profitability Ratio
Adjusted ROA²	8.19%	9.65%	7.57%	16.19%	3.89%	7.42%

2020 Calculations

¹ ROA = 100 × Net income attributable to Air Products ÷ Total assets
= 100 × 1,886,700 ÷ 25,168,500 = 7.50%

² Adjusted ROA = 100 × Adjusted net income attributable to Air Products ÷ Adjusted total assets
= 100 × 2,051,700 ÷ 25,053,400 = 8.19%

The financial performance from 2015 to 2020 is characterized by significant volatility in net income and a substantial expansion of the asset base in the final year of the period. While reported and adjusted figures generally move in tandem, the adjusted metrics provide a slightly different perspective on the operational efficiency of the organization.

Net Income Trends: Net income exhibited high variability over the six-year period. A notable decline occurred in 2016, where reported net income fell to 631.1 million USD, followed by a sharp increase to a peak of 3.00 billion USD in 2017. From 2018 through 2020, income levels stabilized, trending upward from 1.50 billion USD to 1.89 billion USD. Adjusted net income typically remained higher than reported figures in the later years, particularly in 2020, where the adjusted figure reached 2.05 billion USD compared to the reported 1.89 billion USD.
Asset Base Evolution: Total assets experienced moderate and steady growth between 2015 and 2019, increasing from approximately 17.44 billion USD to 18.94 billion USD. However, a significant expansion occurred in 2020, with reported total assets rising to 25.17 billion USD. This represents a substantial increase in the company's resource base within a single fiscal year, which serves as a primary driver for the subsequent changes in return ratios.
Return on Assets (ROA) Analysis: The Return on Assets reflected the volatility of the net income and the growth of the asset base. Both reported and adjusted ROA reached a peak in 2017 at 16.25% and 16.19%, respectively. Following this peak, ROA normalized in 2018 and saw a slight recovery in 2019. In 2020, despite an increase in adjusted net income, the adjusted ROA declined to 8.19% from the previous year's 9.65%. This decline is attributable to the disproportionate increase in total assets, which diluted the return percentage despite higher earnings.
Reported vs. Adjusted Divergence: A consistent pattern is observed where adjusted ROA typically exceeds reported ROA, particularly during periods of lower performance or asset expansion. In 2020, the gap between reported ROA (7.50%) and adjusted ROA (8.19%) widened, suggesting that the adjustments made to net income and total assets provided a more favorable view of asset utilization than the reported figures alone.

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