Air Products & Chemicals Inc. (NYSE:APD)

The financial data reflects key performance indicators over a six-year period, highlighting trends in net operating profit after taxes (NOPAT), cost of capital, invested capital, and economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced fluctuations with a general upward trend. Starting from approximately 1.42 billion USD in 2015, it increased to a peak around 2.18 billion USD by 2020. A notable dip occurred in 2017, where NOPAT declined to about 1.27 billion USD, but subsequent years showed recovery and growth surpassing earlier levels.

Cost of Capital

The cost of capital exhibited a steady increase from 11.44% in 2015 to a high of 12.88% in 2019, followed by a slight reduction to 12.09% in 2020. This indicates a generally increasing expense associated with financing the company's operations, with a marginal improvement in the most recent year.

Invested Capital

Invested capital showed consistent growth across the timeline, rising from approximately 14.3 billion USD in 2015 to over 20.8 billion USD in 2020. This upward trend suggests ongoing investment in assets or business expansion.

Economic Profit

Economic profit remained negative throughout the period, indicating that the company's returns did not exceed its cost of capital. The negative economic profit improved from a loss of about 222 million USD in 2015 to a smaller loss near 138 million USD in 2019, though the loss widened again in 2020 to approximately 335 million USD. The fluctuations reveal challenges in generating value beyond capital costs despite increased operating profits and invested capital.

Overall, the company showed growth in operating profit and capital investment; however, rising capital costs and persistent negative economic profit suggest that returns have not efficiently compensated for capital costs during this period. The decline in economic profit in 2020 despite higher NOPAT may reflect increased capital deployment or changes in cost structure impacting value creation.

Net Income Attributable to Air Products

The net income exhibited notable volatility over the analyzed periods. There was a significant decline from 1,277,900 thousand US dollars in 2015 to 631,100 thousand US dollars in 2016, marking a substantial reduction. This was followed by a remarkable recovery in 2017, where net income more than quadrupled to 3,000,400 thousand US dollars. Subsequently, net income decreased considerably to 1,497,800 thousand US dollars in 2018 before gradually increasing again in 2019 and 2020 to 1,760,000 and 1,886,700 thousand US dollars respectively. Overall, the data reflect episodic fluctuations with a general upward trend in the last two years.

Net Operating Profit After Taxes (NOPAT)

The NOPAT showed a more consistent pattern compared to net income. It increased from 1,418,609 thousand US dollars in 2015 to 1,657,195 thousand US dollars in 2016, demonstrating growth. However, in 2017, NOPAT decreased to 1,274,219 thousand US dollars, representing a decline after the previous growth. From 2017 onwards, NOPAT exhibited an upward trajectory, reaching 1,476,037 thousand US dollars in 2018, and significantly increasing to 2,040,608 thousand US dollars in 2019, followed by further improvement to 2,189,491 thousand US dollars in 2020. This reflects an overall positive trend in operating profitability in the later years.

Comparative Analysis

While net income showed substantial volatility with marked peaks and troughs, NOPAT reflected a steadier and more consistent increase over time. The sharp fluctuations in net income could indicate the impact of non-operational factors such as extraordinary items, taxes, or accounting adjustments. In contrast, the rising NOPAT suggests improving operational efficiency and profitability from core business activities, particularly evident in the substantial growth from 2018 through 2020.

Income Tax Provision

The income tax provision showed a fluctuating trend over the analyzed periods. Starting at 415,900 thousand US dollars in 2015, it increased significantly to 586,500 thousand in 2016. In 2017, there was a notable decline to 260,900 thousand, followed by a recovery to 524,300 thousand in 2018. The provision then slightly decreased to 480,100 thousand in 2019 and remained almost stable at 478,400 thousand in 2020. This pattern indicates variability in income tax obligation, with a peak in 2016, a trough in 2017, and relative stabilization in the latest years.

Cash Operating Taxes

Cash operating taxes demonstrated a generally decreasing trend after 2016. Initially, there was an increase from 451,612 thousand US dollars in 2015 to 577,067 thousand in 2016. However, subsequent years saw a decline to 350,387 thousand in 2017, followed by a transient increase to 617,809 thousand in 2018, the highest in the analyzed range. The values then dropped substantially to 457,325 thousand in 2019 and further to 338,146 thousand in 2020. This suggests a reduction in the cash outflow related to operating taxes in recent years, despite some volatility earlier in the period.

The analyzed financial data reveals several notable trends in the company's capital structure over the six-year period ending September 30, 2020.

Total reported debt & leases

The total debt and leases experienced variability during the period. From 2015 to 2016, debt slightly increased, reaching around 6.42 billion USD. However, a significant reduction followed in the subsequent years, with debt levels decreasing markedly to approximately 3.59 billion USD by 2019. In 2020, there was a sharp increase to over 8.31 billion USD, representing the highest debt level in the period under review. This pattern suggests potentially strategic borrowing or financing activities, with a conservative approach in the middle years and a notable spike in the latest year.

Total Air Products shareholders’ equity

Shareholders’ equity showed a generally increasing trend throughout the period. Starting at about 7.25 billion USD in 2015, it experienced a slight decline in 2016 but then consistently grew each year, reaching approximately 12.08 billion USD by 2020. This steady growth in equity indicates strengthening capitalization and possibly accumulated earnings or capital injections supporting the company's financial position.

Invested capital

Invested capital, reflecting the total funds used for operational assets, showed a continuous upward trend from around 14.34 billion USD in 2015 to over 20.88 billion USD in 2020. The increase was gradual from 2015 through 2019, with a more pronounced escalation in 2020. The upward movement suggests ongoing investment in company assets, which may align with growth initiatives or strategic expansion.

Overall, the data indicates the company maintained a robust equity base while managing its debt levels with some fluctuation, culminating in a significant rise in debt in 2020. Concurrently, continued investment in capital assets is evident, possibly reflecting growth or modernization efforts. The combination of higher equity and invested capital alongside increased debt in the latest year could imply a leveraged approach to fund expansion or other financial strategies.

The financial data over the six-year period reveals notable fluctuations and varied trends in key financial metrics. The analysis focuses on economic profit, invested capital, and the economic spread ratio, providing insights into the company's economic performance and investment efficiency.

Economic Profit

The economic profit demonstrates a fluctuating trend, with significant negative values throughout the period. Starting at approximately -222.4 million US dollars in 2015, the economic loss diminishes notably in 2016 to about -93.3 million US dollars, indicating an improvement. However, the following two years witness a steep decline, with economic profit dropping to -659.5 million in 2017 and -601.5 million in 2018, reflecting substantial economic losses. In 2019, the loss reduces dramatically to -138.4 million, suggesting some recovery, but in 2020, it increases again to -335.2 million, indicating renewed challenges in generating economic profit.

Invested Capital

Invested capital exhibits a steadily increasing pattern over the observed years. Beginning at about 14.3 billion US dollars in 2015, it rises annually to reach approximately 20.9 billion US dollars by 2020. This consistent increase suggests ongoing investment into the company’s operations or assets, reflecting growth or expansion efforts despite fluctuations in economic profit.

Economic Spread Ratio

The economic spread ratio, which measures the return over the cost of capital, remains negative throughout the period. It starts at -1.55% in 2015 and improves to -0.61% in 2016, indicating a reduction in economic loss relative to invested capital. However, 2017 and 2018 show deeper negative spreads of -4.21% and -3.6%, respectively, corresponding with the worsening economic profit observed in those years. By 2019, the ratio improves significantly to -0.82%, aligning with the partial recovery in economic profit. Nevertheless, in 2020, it declines again to -1.61%, indicating a less favorable return compared to the previous year.

Overall, the data suggests that while the company has been engaging in increased capital investment consistently, these investments have not translated into positive economic profit during the reported period. The negative economic spread ratio throughout the years implies the company has faced challenges in generating returns above its cost of capital. The fluctuations in economic profit and spread ratio highlight periods of both significant underperformance and partial recovery, indicating variable operational efficiency or external market influences impacting financial outcomes.

Sales Trend

Sales exhibited a declining trend overall, decreasing from 9,894,900 thousand US dollars in 2015 to 8,856,300 thousand US dollars in 2020. The most notable drop occurred between 2016 and 2017, where sales fell from approximately 9,524,400 thousand to 8,187,600 thousand US dollars. Despite a partial recovery in 2018 and 2019, sales figures slightly decreased again in 2020.

Economic Profit Analysis

Economic profit remained negative throughout the period, indicating consistent economic losses. The economic profit value was -222,355 thousand US dollars in 2015, improving significantly to -93,276 thousand US dollars in 2016. However, there was a sharp decline in 2017 where the economic profit plummeted to -659,520 thousand US dollars, marking the worst performance in the timeframe. From 2018 onward, there was a gradual but partial recovery, with economic profit improving to -335,216 thousand US dollars by 2020.

Economic Profit Margin

The economic profit margin followed a pattern consistent with the economic profit trend, remaining negative in all years. It was at its lowest in 2017 at -8.06%, reflecting the period of maximum economic loss. The margin moderately improved in 2016 and then again after 2017, reaching -3.79% in 2020. The fluctuations suggest ongoing challenges in generating returns above the cost of capital, with some recent improvement but still far from profitability.

Overall Insights

The data indicate that the company experienced a challenging financial period during these years, characterized by decreasing sales and sustained economic losses. The steep drop in economic profit and profit margin in 2017 signifies a particularly difficult year, possibly due to operational inefficiencies, increased costs, or market conditions. Although there has been some recovery in recent years, the economic profit margins remain negative, suggesting the necessity for strategic action to enhance profitability and operational efficiency.