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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Air Products & Chemicals Inc., economic profit calculation

US$ in thousands

12 months ended:	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Net operating profit after taxes (NOPAT)¹	2,189,491)	2,040,608)	1,476,037)	1,274,219)	1,657,195)	1,418,609)
Cost of capital²	14.13%	15.06%	14.53%	14.43%	13.45%	13.36%
Invested capital³	20,884,500)	16,921,739)	16,696,916)	15,661,095)	15,185,876)	14,344,261)

Economic profit⁴	(761,340)	(507,678)	(950,825)	(986,195)	(384,868)	(498,173)

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).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

⁴ 2020 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,189,491 – 14.13% × 20,884,500 = -761,340

Between September 30, 2015, and September 30, 2020, a consistent pattern of negative economic profit is observed, indicating that the company did not generate returns sufficient to cover its cost of capital throughout the six-year period. While operational profitability showed a general upward trajectory, the simultaneous expansion of the invested capital base ensured that the company continued to destroy economic value.

Net Operating Profit After Taxes (NOPAT): NOPAT demonstrated overall growth, increasing from $1,418,609 thousand in 2015 to $2,189,491 thousand in 2020. A temporary contraction is noted in 2017, where profit fell to $1,274,219 thousand, before resuming a strong upward trend that peaked in the final year of the analysis.
Invested Capital and Cost of Capital: There was a steady increase in invested capital, rising from $14,344,261 thousand in 2015 to $20,884,500 thousand in 2020, with a significant surge occurring between 2019 and 2020. The cost of capital remained relatively stable but trended higher, moving from 13.36% in 2015 to a peak of 15.06% in 2019, before settling at 14.13% in 2020. This rising capital hurdle compounded the difficulty of achieving positive economic profit.
Economic Profit Analysis: Economic profit remained negative across all reported years, signifying that the return on invested capital was consistently lower than the cost of capital. Value destruction peaked in 2017 at -$986,195 thousand. Despite the substantial increase in NOPAT by 2020, the economic profit remained negative at -$761,340 thousand, as the gains in operational efficiency were offset by the expanded capital base and the high cost of funding.

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Air Products & Chemicals Inc., NOPAT calculation

US$ in thousands

12 months ended:	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Net income attributable to Air Products	1,886,700)	1,760,000)	1,497,800)	3,000,400)	631,100)	1,277,900)
Deferred income tax expense (benefit)¹	165,000)	57,600)	(55,400)	(38,000)	62,900)	2,900)
Increase (decrease) in allowance for doubtful accounts²	(900)	24,800)	(21,800)	24,000)	(3,500)	9,900)
Increase (decrease) in LIFO reserve³	—)	—)	(23,300)	11,600)	(21,800)	(4,600)
Increase (decrease) in accrual for cost reduction actions⁴	(13,100)	17,800)	(31,600)	25,800)	(25,400)	21,100)
Increase (decrease) in equity equivalents⁵	151,000)	100,200)	(132,100)	23,400)	12,200)	29,300)
Interest expense	109,300)	137,000)	130,500)	120,600)	115,500)	103,500)
Interest expense, operating lease liability⁶	8,537)	28,833)	25,046)	26,507)	37,262)	6,821)
Adjusted interest expense	117,837)	165,833)	155,546)	147,107)	152,762)	110,321)
Tax benefit of interest expense⁷	(24,746)	(34,825)	(38,109)	(51,487)	(53,467)	(38,612)
Adjusted interest expense, after taxes⁸	93,091)	131,008)	117,437)	95,619)	99,295)	71,709)
(Income) loss from discontinued operations, net of tax⁹	14,300)	—)	(42,200)	(1,866,000)	884,200)	—)
Net income (loss) attributable to noncontrolling interest	44,400)	49,400)	35,100)	20,800)	30,400)	39,700)
Net operating profit after taxes (NOPAT)	2,189,491)	2,040,608)	1,476,037)	1,274,219)	1,657,195)	1,418,609)

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).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in allowance for doubtful accounts.

³ Addition of increase (decrease) in LIFO reserve. See details »

⁴ Addition of increase (decrease) in accrual for cost reduction actions.

⁵ Addition of increase (decrease) in equity equivalents to net income attributable to Air Products.

⁶ 2020 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 406,500 × 2.10% = 8,537

⁷ 2020 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 117,837 × 21.00% = 24,746

⁸ Addition of after taxes interest expense to net income attributable to Air Products.

⁹ Elimination of discontinued operations.

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.

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Air Products & Chemicals Inc., cash operating taxes calculation

US$ in thousands

12 months ended:	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Income tax provision	478,400)	480,100)	524,300)	260,900)	586,500)	415,900)
Less: Deferred income tax expense (benefit)	165,000)	57,600)	(55,400)	(38,000)	62,900)	2,900)
Add: Tax savings from interest expense	24,746)	34,825)	38,109)	51,487)	53,467)	38,612)
Cash operating taxes	338,146)	457,325)	617,809)	350,387)	577,067)	451,612)

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).

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.

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Air Products & Chemicals Inc., invested capital calculation (financing approach)

US$ in thousands

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Short-term borrowings	7,700)	58,200)	54,300)	144,000)	935,800)	1,494,300)
Current portion of long-term debt	470,000)	40,400)	406,600)	416,400)	371,300)	435,600)
Long-term debt, excluding current portion	7,132,900)	2,907,300)	2,967,400)	3,402,400)	4,918,100)	3,949,100)
Long-term debt, related party	297,200)	320,100)	384,300)	—)	—)	—)
Operating lease liability¹	406,500)	264,039)	211,716)	172,795)	194,476)	334,361)
Total reported debt & leases	8,314,300)	3,590,039)	4,024,316)	4,135,595)	6,419,676)	6,213,361)
Total Air Products shareholders’ equity	12,079,800)	11,053,600)	10,857,500)	10,086,200)	7,079,600)	7,249,000)
Net deferred tax (assets) liabilities²	847,500)	678,600)	653,700)	603,900)	574,400)	720,700)
Allowance for doubtful accounts³	23,900)	48,800)	24,000)	45,800)	22,800)	26,300)
LIFO reserve⁴	—)	—)	—)	23,300)	79,000)	100,800)
Accrual for cost reduction actions⁵	4,700)	17,800)	9,900)	41,500)	16,300)	41,700)
Equity equivalents⁶	876,100)	745,200)	687,600)	714,500)	692,500)	889,500)
Accumulated other comprehensive (income) loss, net of tax⁷	2,140,100)	2,375,600)	1,741,900)	1,847,400)	2,388,300)	2,125,900)
Noncontrolling interests	363,300)	334,700)	318,800)	99,300)	133,800)	132,100)
Adjusted total Air Products shareholders’ equity	15,459,300)	14,509,100)	13,605,800)	12,747,400)	10,294,200)	10,396,500)
Construction in progress⁸	(1,784,200)	(1,011,400)	(748,500)	(817,900)	(1,528,000)	(2,265,600)
Short-term investments⁹	(1,104,900)	(166,000)	(184,700)	(404,000)	—)	—)
Invested capital	20,884,500)	16,921,739)	16,696,916)	15,661,095)	15,185,876)	14,344,261)

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).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of allowance for doubtful accounts receivable.

⁴ Addition of LIFO reserve. See details »

⁵ Addition of accrual for cost reduction actions.

⁶ Addition of equity equivalents to total Air Products shareholders’ equity.

⁷ Removal of accumulated other comprehensive income.

⁸ Subtraction of construction in progress.

⁹ Subtraction of short-term investments.

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.

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Air Products & Chemicals Inc., cost of capital calculations

Sep 30, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	59,756,749)	59,756,749)	÷	68,449,349)	=	0.87	0.87	×	15.96%	=	13.93%
Debt³	8,286,100)	8,286,100)	÷	68,449,349)	=	0.12	0.12	×	1.98% × (1 – 21.00%)	=	0.19%
Operating lease liability⁴	406,500)	406,500)	÷	68,449,349)	=	0.01	0.01	×	2.10% × (1 – 21.00%)	=	0.01%
Total:	68,449,349)					1.00					14.13%

Based on: 10-K (reporting date: 2020-09-30).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Sep 30, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	51,669,712)	51,669,712)	÷	55,342,851)	=	0.93	0.93	×	15.96%	=	14.90%
Debt³	3,409,100)	3,409,100)	÷	55,342,851)	=	0.06	0.06	×	2.48% × (1 – 21.00%)	=	0.12%
Operating lease liability⁴	264,039)	264,039)	÷	55,342,851)	=	0.00	0.00	×	10.92% × (1 – 21.00%)	=	0.04%
Total:	55,342,851)					1.00					15.06%

Based on: 10-K (reporting date: 2019-09-30).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Sep 30, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	34,589,703)	34,589,703)	÷	38,643,920)	=	0.90	0.90	×	15.96%	=	14.28%
Debt³	3,842,500)	3,842,500)	÷	38,643,920)	=	0.10	0.10	×	2.71% × (1 – 24.50%)	=	0.20%
Operating lease liability⁴	211,716)	211,716)	÷	38,643,920)	=	0.01	0.01	×	11.83% × (1 – 24.50%)	=	0.05%
Total:	38,643,920)					1.00					14.53%

Based on: 10-K (reporting date: 2018-09-30).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Sep 30, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	35,236,905)	35,236,905)	÷	39,481,900)	=	0.89	0.89	×	15.96%	=	14.24%
Debt³	4,072,200)	4,072,200)	÷	39,481,900)	=	0.10	0.10	×	2.22% × (1 – 35.00%)	=	0.15%
Operating lease liability⁴	172,795)	172,795)	÷	39,481,900)	=	0.00	0.00	×	15.34% × (1 – 35.00%)	=	0.04%
Total:	39,481,900)					1.00					14.43%

Based on: 10-K (reporting date: 2017-09-30).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Sep 30, 2016

	Capital (fair value)¹	Weights					Cost of capital
Equity²	30,375,996)	30,375,996)	÷	36,973,472)	=	0.82	0.82	×	15.96%	=	13.11%
Debt³	6,403,000)	6,403,000)	÷	36,973,472)	=	0.17	0.17	×	2.42% × (1 – 35.00%)	=	0.27%
Operating lease liability⁴	194,476)	194,476)	÷	36,973,472)	=	0.01	0.01	×	19.16% × (1 – 35.00%)	=	0.07%
Total:	36,973,472)					1.00					13.45%

Based on: 10-K (reporting date: 2016-09-30).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Sep 30, 2015

	Capital (fair value)¹	Weights					Cost of capital
Equity²	30,045,544)	30,045,544)	÷	36,519,904)	=	0.82	0.82	×	15.96%	=	13.13%
Debt³	6,140,000)	6,140,000)	÷	36,519,904)	=	0.17	0.17	×	2.04% × (1 – 35.00%)	=	0.22%
Operating lease liability⁴	334,361)	334,361)	÷	36,519,904)	=	0.01	0.01	×	2.04% × (1 – 35.00%)	=	0.01%
Total:	36,519,904)					1.00					13.36%

Based on: 10-K (reporting date: 2015-09-30).

¹ US$ in thousands

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Air Products & Chemicals Inc., economic spread ratio calculation, comparison to benchmarks

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Selected Financial Data (US$ in thousands)
Economic profit¹	(761,340)	(507,678)	(950,825)	(986,195)	(384,868)	(498,173)
Invested capital²	20,884,500)	16,921,739)	16,696,916)	15,661,095)	15,185,876)	14,344,261)
Performance Ratio
Economic spread ratio³	-3.65%	-3.00%	-5.69%	-6.30%	-2.53%	-3.47%
Benchmarks
Economic Spread Ratio, Competitors⁴
Linde plc	—	—	—	—	—	—
Sherwin-Williams Co.	—	—	—	—	—	—

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).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2020 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -761,340 ÷ 20,884,500 = -3.65%

⁴ Click competitor name to see calculations.

The financial performance from 2015 to 2020 is characterized by a persistent inability to generate positive economic value. Throughout the six-year period, economic profit remained consistently negative, signaling that the returns on invested capital did not exceed the company's cost of capital.

Economic Profit Trends: Economic profit exhibited significant volatility while remaining in negative territory. The most substantial losses occurred in 2017 and 2018, with deficits reaching 986.195 million USD and 950.825 million USD, respectively. Although a partial recovery was observed in 2019, where the loss narrowed to 507.678 million USD, the trend reversed in 2020 with the deficit widening again to 761.340 million USD.
Invested Capital Expansion: There was a consistent upward trajectory in invested capital over the analyzed period. Capital grew steadily from 14.344 billion USD in 2015 to 20.884 billion USD by September 30, 2020. This represents a significant increase in the capital base, which, when contrasted with the negative economic profit, suggests that the expansion of the asset base did not translate into proportional value creation.
Economic Spread Ratio Analysis: The economic spread ratio remained negative across all reporting periods, mirroring the trend in economic profit. The ratio reached its lowest point in 2017 at -6.30%, indicating the widest gap between the return on invested capital and the cost of capital. While the ratio improved to -3.00% in 2019, it declined again to -3.65% in 2020. The persistence of a negative spread indicates a systemic failure to generate a return above the required hurdle rate during this timeframe.

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Air Products & Chemicals Inc., economic profit margin calculation, comparison to benchmarks

	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Selected Financial Data (US$ in thousands)
Economic profit¹	(761,340)	(507,678)	(950,825)	(986,195)	(384,868)	(498,173)
Sales	8,856,300)	8,918,900)	8,930,200)	8,187,600)	9,524,400)	9,894,900)
Performance Ratio
Economic profit margin²	-8.60%	-5.69%	-10.65%	-12.04%	-4.04%	-5.03%
Benchmarks
Economic Profit Margin, Competitors³
Linde plc	—	—	—	—	—	—
Sherwin-Williams Co.	—	—	—	—	—	—

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).

¹ Economic profit. See details »

² 2020 Calculation
Economic profit margin = 100 × Economic profit ÷ Sales
= 100 × -761,340 ÷ 8,856,300 = -8.60%

³ Click competitor name to see calculations.

The analysis of economic profitability from 2015 to 2020 reveals a consistent inability to generate positive economic value added, as economic profit remained negative throughout the entire six-year period.

Economic Profit Trends: Economic profit fluctuated significantly, reaching its lowest point in 2017 at negative 986,195 thousand US dollars. A recovery phase was observed between 2018 and 2019, with the 2019 figure improving to negative 507,678 thousand US dollars, before declining again to negative 761,340 thousand US dollars in 2020.
Revenue Performance: Sales exhibited a general decline from a peak of 9,894,900 thousand US dollars in 2015 to 8,856,300 thousand US dollars in 2020. A notable contraction occurred in 2017, coinciding with the period of deepest economic loss, followed by a partial recovery in 2018.
Economic Profit Margin Analysis: The economic profit margin remained negative throughout the period, indicating that returns on capital did not exceed the cost of capital. The margin deteriorated sharply in 2017 to negative 12.04%, representing the most severe underperformance in the sequence. Although the margin improved to negative 5.69% by 2019, it widened again to negative 8.60% in 2020.

The correlation between the contraction in sales and the widening of the negative economic profit margin in 2017 suggests a heightened sensitivity of economic value creation to revenue volatility. The failure to transition to a positive economic profit margin by 2020 indicates persistent challenges in optimizing the relationship between operating returns and the cost of invested capital.

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Air Products & Chemicals Inc. (NYSE:APD)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin