Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
Profitability Ratios (Summary)
Air Products & Chemicals Inc., profitability ratios
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).
Profitability metrics for the period ending September 30, 2020, exhibit a general trajectory of improvement in operational efficiency, characterized by expanding margins despite significant volatility in net results and returns during the mid-period.
- Margin Analysis
- Gross profit margin demonstrated a consistent upward trend, increasing from 29.82% in 2015 to 33.85% by 2020. This suggests a strengthened ability to manage direct production costs. This improvement is mirrored in the operating profit margin, which rose from 17.17% in 2015 to 25.27% in 2020, indicating enhanced operational leverage and more efficient management of operating expenses.
- Net Profitability and Volatility
- Net profit margin displayed substantial instability, specifically a sharp spike to 36.65% in 2017, followed by a correction to 16.77% in 2018. However, a sustained recovery period is observed from 2018 through 2020, with the margin expanding to 21.30% by the end of the analyzed period.
- Asset and Equity Returns
- Return on equity (ROE) and return on assets (ROA) both peaked in 2017 at 29.75% and 16.25%, respectively. Following this peak, ROE stabilized within a range of 13.80% to 15.92% from 2018 to 2020. Similarly, ROA fluctuated between 7.50% and 9.29% in the latter three years. The simultaneous peaking of these ratios in 2017 suggests that the increase was driven by the same non-recurring factors that impacted the net profit margin in that year.
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Return on Sales
Return on Investment
Gross Profit Margin
Air Products & Chemicals Inc., gross 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) | |||||||
| Gross profit | 2,998,200) | 2,914,400) | 2,740,700) | 2,434,200) | 3,121,700) | 2,950,800) | |
| Sales | 8,856,300) | 8,918,900) | 8,930,200) | 8,187,600) | 9,524,400) | 9,894,900) | |
| Profitability Ratio | |||||||
| Gross profit margin1 | 33.85% | 32.68% | 30.69% | 29.73% | 32.78% | 29.82% | |
| Benchmarks | |||||||
| Gross Profit Margin, Competitors2 | |||||||
| 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 2020 Calculation
Gross profit margin = 100 × Gross profit ÷ Sales
= 100 × 2,998,200 ÷ 8,856,300 = 33.85%
2 Click competitor name to see calculations.
The gross profit margin exhibits a general upward trajectory over the six-year period ending September 30, 2020, increasing from 29.82% to 33.85%. While the period was characterized by fluctuations in total sales, the efficiency of converting revenue into gross profit improved significantly toward the end of the analyzed timeframe.
- Revenue and Gross Profit Correlation
- A divergence is observed between sales volume and profitability. Total sales peaked in 2015 at US$ 9.89 billion and trended generally lower, ending at US$ 8.86 billion in 2020. Despite this contraction in top-line revenue, gross profit recovered from a low of US$ 2.43 billion in 2017 to US$ 3.00 billion in 2020, indicating a decoupling of revenue growth from profit generation.
- Margin Volatility and Recovery
- The gross profit margin experienced a notable decline in 2017, dropping to 29.73% in conjunction with a sharp decrease in sales. However, a consistent recovery phase followed, with the margin expanding to 30.69% in 2018, 32.68% in 2019, and reaching a period high of 33.85% in 2020. This suggests a stabilization and optimization of cost structures following the 2017 downturn.
- Profitability Efficiency
- The expansion of the gross profit margin during the final two years of the period is particularly significant. Because this increase occurred while sales remained relatively stagnant, the growth in gross profit was likely driven by internal cost efficiencies or a strategic shift toward higher-margin product and service offerings rather than an increase in sales volume.
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Operating Profit Margin
Air Products & Chemicals Inc., operating 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) | |||||||
| Operating income | 2,237,600) | 2,144,400) | 1,965,600) | 1,427,600) | 2,106,000) | 1,699,100) | |
| Sales | 8,856,300) | 8,918,900) | 8,930,200) | 8,187,600) | 9,524,400) | 9,894,900) | |
| Profitability Ratio | |||||||
| Operating profit margin1 | 25.27% | 24.04% | 22.01% | 17.44% | 22.11% | 17.17% | |
| Benchmarks | |||||||
| Operating Profit Margin, Competitors2 | |||||||
| 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 2020 Calculation
Operating profit margin = 100 × Operating income ÷ Sales
= 100 × 2,237,600 ÷ 8,856,300 = 25.27%
2 Click competitor name to see calculations.
The operational performance over the six-year period from 2015 to 2020 is characterized by a general expansion of profitability margins despite fluctuations in total sales. While the operating profit margin experienced volatility in the early part of the period, a consistent upward trajectory was established following 2017, culminating in a peak of 25.27% by September 30, 2020.
- Operating Profit Margin Trends
- The margin began at 17.17% in 2015 and rose sharply to 22.11% in 2016 before contracting to 17.44% in 2017. Following this decline, a period of sustained growth occurred, with the margin increasing to 22.01% in 2018, 24.04% in 2019, and reaching 25.27% in 2020. This represents an overall increase of 810 basis points over the analyzed timeframe.
- Revenue and Income Correlation
- A divergence is observed between sales volume and operating income. Sales peaked in 2015 at US$ 9,894,900 thousand and trended generally downward or remained stagnant, ending at US$ 8,856,300 thousand in 2020. Conversely, operating income grew from US$ 1,699,100 thousand in 2015 to US$ 2,237,600 thousand in 2020. The increase in operating income despite lower total sales indicates a significant improvement in cost management and operational efficiency.
- Analysis of the 2017 Contraction
- The year 2017 marked a significant dip in performance, with sales dropping to their lowest point in the period (US$ 8,187,600 thousand) and operating income falling to US$ 1,427,600 thousand. This simultaneous decline in both top-line and bottom-line figures resulted in the margin compressing back to 17.44%, nearly returning to 2015 levels.
- Operational Efficiency Gains
- From 2018 to 2020, the ability to scale operating income while maintaining relatively flat sales suggests a shift toward higher-margin business activities or a reduction in operating expenses. By 2020, the company achieved its highest operating income (US$ 2,237,600 thousand) and its highest margin (25.27%), despite sales being approximately 10% lower than the 2015 peak.
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Net Profit Margin
Air Products & Chemicals Inc., net 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) | |||||||
| 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% | |
| Benchmarks | |||||||
| Net Profit Margin, Competitors2 | |||||||
| 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 2020 Calculation
Net profit margin = 100 × Net income attributable to Air Products ÷ Sales
= 100 × 1,886,700 ÷ 8,856,300 = 21.30%
2 Click competitor name to see calculations.
The financial performance from 2015 to 2020 is characterized by significant fluctuations in net income and profit margins, contrasting with relatively stable sales figures. While revenues remained within a consistent range, the net profit margin exhibited extreme volatility before entering a phase of steady growth.
- Net Profit Margin Volatility
- A substantial contraction occurred between 2015 and 2016, with the net profit margin falling from 12.91% to 6.63%. This was followed by an anomalous peak in 2017, where the margin surged to 36.65%, the highest point in the analyzed period. This spike occurred despite sales reaching a period low of 8,187.6 million US dollars, suggesting the impact of non-recurring gains or significant one-time financial events rather than organic operational growth.
- Profitability Stabilization and Growth
- Following the 2017 peak, the net profit margin normalized to 16.77% in 2018. From 2018 through 2020, a consistent upward trajectory is observed, with the margin increasing to 19.73% in 2019 and reaching 21.30% by September 30, 2020. This trend indicates a period of improving operational efficiency and sustained bottom-line growth.
- Revenue and Income Correlation
- Sales experienced a general decline from 9,894.9 million US dollars in 2015 to 8,856.3 million US dollars in 2020. However, net income did not follow this downward trend. After a low of 631.1 million US dollars in 2016, net income attributable to the company trended upward, ending the period at 1,886.7 million US dollars in 2020. The divergence between declining sales and increasing net income underscores a significant improvement in the company's ability to convert revenue into profit over the five-year span.
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Return on Equity (ROE)
Air Products & Chemicals Inc., ROE 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) | |||||||
| 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% | |
| Benchmarks | |||||||
| ROE, Competitors2 | |||||||
| 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 2020 Calculation
ROE = 100 × Net income attributable to Air Products ÷ Total Air Products shareholders’ equity
= 100 × 1,886,700 ÷ 12,079,800 = 15.62%
2 Click competitor name to see calculations.
The Return on Equity (ROE) for the period between 2015 and 2020 is characterized by significant volatility in the early years followed by a period of relative stabilization. While extreme fluctuations in net income created sharp peaks and troughs in profitability ratios, the steady expansion of the shareholders' equity base has contributed to a more tempered return profile in the latter part of the period.
- Net Income Volatility
- Net income experienced substantial swings, starting at $1.28 billion in 2015 and dropping to a low of $631.1 million in 2016. A sharp reversal occurred in 2017, with net income peaking at $3 billion, before normalizing to a range between $1.5 billion and $1.89 billion from 2018 through 2020.
- Shareholders' Equity Expansion
- A consistent upward trend in total shareholders' equity is observed, growing from $7.25 billion in 2015 to $12.08 billion by September 30, 2020. This steady increase in the capital base indicates a trend of capital accumulation over the six-year duration.
- ROE Performance and Stabilization
- The ROE reflected the volatility of net income, dropping to 8.91% in 2016 and spiking to 29.75% in 2017. However, from 2018 onward, the ROE stabilized, maintaining a narrow range between 13.80% and 15.92%. This stabilization suggests that net income growth began to align more closely with the growth of the equity base, resulting in a more consistent rate of return for shareholders.
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Return on Assets (ROA)
Air Products & Chemicals Inc., ROA calculation, comparison to benchmarks
| Sep 30, 2020 | Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | |||||||
| 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% | |
| Benchmarks | |||||||
| ROA, Competitors2 | |||||||
| 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 2020 Calculation
ROA = 100 × Net income attributable to Air Products ÷ Total assets
= 100 × 1,886,700 ÷ 25,168,500 = 7.50%
2 Click competitor name to see calculations.
The return on assets (ROA) for Air Products & Chemicals Inc. exhibited significant volatility between 2015 and 2020, characterized by a sharp peak in 2017 followed by a period of fluctuating performance and a subsequent decline in 2020.
- Net Income Volatility
- Net income demonstrated extreme variance throughout the period. A significant contraction occurred in 2016, where income fell to US$ 631.1 million, followed by a substantial surge to a peak of US$ 3,000.4 million in 2017. From 2018 to 2020, net income stabilized and showed a gradual recovery, ending the period at US$ 1,886.7 million.
- Asset Base Expansion
- Total assets maintained a steady upward trajectory from 2015 through 2018, rising from US$ 17.4 billion to US$ 19.2 billion. Following a slight dip in 2019, a significant increase in the asset base was observed in 2020, with total assets expanding to US$ 25.2 billion, marking the highest valuation in the analyzed period.
- ROA Correlation and Efficiency
- The ROA reached a maximum of 16.25% in 2017, directly correlating with the spike in net income. While the ROA recovered to 9.29% by 2019, it declined to 7.50% in 2020. This 2020 decrease occurred despite a year-over-year increase in net income, indicating that the rapid expansion of total assets outpaced the growth in earnings, thereby diluting the overall efficiency of asset utilization.
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