Colgate-Palmolive Co. (NYSE:CL)

Net operating profit after taxes (NOPAT)

The net operating profit after taxes exhibits a fluctuating downward trend over the five-year period. Starting at $2,711 million in 2018, it decreased to $2,572 million in 2019 before rising slightly to $2,814 million in 2020. However, from 2020 onwards, it declined more noticeably to $2,361 million in 2021 and further to $2,048 million in 2022. This suggests challenges in maintaining consistent profitability post-2020.

Cost of capital

The cost of capital remains relatively stable across the years, fluctuating narrowly between 8.97% and 9.13%. It stood at 9.13% in 2018, slightly declined to 8.99% by 2019, and hovered around 9% through to 2022. This stability indicates consistent financing costs during this period.

Invested capital

Invested capital shows an overall increasing trend, growing from $11,791 million in 2018 to $14,460 million in 2022. The increase was steady, with a slight dip in 2021 to $13,505 million from $13,943 million in 2020, followed by a rebound in 2022. This indicates ongoing capital commitments despite fluctuations in profitability.

Economic profit

Economic profit demonstrates a declining trajectory over the five years. Starting at $1,634 million in 2018, it decreased to $1,327 million in 2019, rebounded somewhat to $1,563 million in 2020, but then dropped more sharply to $1,141 million in 2021 and $749 million in 2022. The decline in economic profit reflects diminishing returns over and above the cost of capital, despite increases in invested capital.

The analysis of financial data over the five-year period reveals several noteworthy trends concerning profitability metrics.

Net Income Attributable to Colgate-Palmolive Company

This metric experienced a slight decline from 2018 to 2019, decreasing from 2400 million USD to 2367 million USD. In 2020, there was a significant increase to 2695 million USD, indicating a strong performance during that year. However, the subsequent years showed a downward trend, with net income falling to 2166 million USD in 2021 and further to 1785 million USD in 2022. This decline over the last two years suggests challenges affecting profitability.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures followed a somewhat similar pattern. Initially, NOPAT decreased from 2711 million USD in 2018 to 2572 million USD in 2019. It then rose to 2814 million USD in 2020, reaching its peak in the observed period. Afterward, there was a decline to 2361 million USD in 2021, followed by a further decrease to 2048 million USD in 2022. While the drop in NOPAT is less steep compared to net income, the downward trajectory indicates a reduction in operating profitability post-2020.

Overall, the data suggests that both net income and net operating profit after taxes peaked in 2020 but have since faced a decline, with 2022 figures lower than those in 2018. The trends could imply external or internal factors negatively impacting earnings and operating efficiency in the latter years.

The financial data indicates a declining trend in the provision for income taxes over the five-year period. Starting at 906 million US dollars in 2018, there is a consistent decrease each year, reaching 693 million US dollars by the end of 2022. This suggests an overall reduction in the income tax obligations recorded, which could be indicative of changes in profitability, tax planning strategies, or tax rates applicable to the company.

Conversely, cash operating taxes show a more fluctuating pattern. From 887 million US dollars in 2018, the figure increases to a peak of 970 million US dollars in 2020, followed by a decline to 812 million US dollars in 2021. In 2022, cash operating taxes rise again to 892 million US dollars. The variation in cash operating tax payments as compared to the steady decline in provision for income taxes suggests differences in timing, tax payments, or adjustments in deferred tax accounts.

Provision for Income Taxes:

Decreased steadily from 906 million in 2018 to 693 million in 2022, indicating a potential decline in taxable income or changes in tax strategy.

Cash Operating Taxes:

Show volatility with a peak in 2020 (970 million), followed by a decline and a subsequent increase in 2022 (892 million), reflecting variability in actual cash tax payments.

Comparison and Implications:

The contrasting trends between provision and cash operating taxes may suggest the presence of timing differences, deferred tax assets or liabilities adjustments, or shifts in tax planning measures affecting reported versus paid taxes.

An analysis of the financial data over the five-year period reveals several notable trends in the company's debt, equity, and invested capital.

Total Reported Debt & Leases

This metric exhibited an overall increasing trend from 2018 to 2022. The reported debt rose from $6,986 million in 2018 to $9,271 million in 2022. Although there was a slight dip in 2020 and 2021, the general direction is upward, suggesting a growing reliance on debt financing over the period.

Total Shareholders’ Equity

This item showed significant volatility with a generally low base and fluctuating values. Starting at a negative value of -$102 million in 2018, equity improved considerably to reach $743 million in 2020, followed by a decline in the subsequent years, falling to $401 million by the end of 2022. This indicates volatility in the company's net assets and potentially some financial or operational challenges affecting retained earnings or other equity components.

Invested Capital

The invested capital demonstrated a steady increase from $11,791 million in 2018 to $14,460 million in 2022. Although minor fluctuations occurred between 2020 and 2021, the trend reflects continued growth in the capital invested in the company's operations, which could be related to expansions, acquisitions, or reinvestment into company assets.

Overall, the company appears to have increased its financial leverage, as evidenced by rising debt levels coupled with relatively stagnant or decreasing equity values. The growth in invested capital suggests ongoing investment in operations despite the fluctuating equity position.

Economic Profit

The economic profit demonstrates a generally declining trend over the five-year period. Starting at 1,634 million USD in 2018, it decreased to 1,327 million USD in 2019. It then showed a modest recovery to 1,563 million USD in 2020, before subsequently declining in the next two years to 1,141 million USD in 2021 and further to 749 million USD in 2022. This indicates a weakening in the company's ability to generate profit above its cost of capital.

Invested Capital

The invested capital exhibits a growth trend with some fluctuations. It increased from 11,791 million USD in 2018 to 13,859 million USD in 2019, followed by a smaller increase to 13,943 million USD in 2020. However, it slightly decreased to 13,505 million USD in 2021 before rising again to 14,460 million USD in 2022. This pattern suggests ongoing capital investment with minor adjustments, likely reflecting reinvestment and strategic capital allocation decisions.

Economic Spread Ratio

The economic spread ratio, which measures the return over the invested capital cost, declined notably over the period. It started at 13.85% in 2018 and fell sharply to 9.57% in 2019. It experienced a slight recovery to 11.21% in 2020 but then decreased significantly to 8.45% in 2021 and dropped further to 5.18% in 2022. This decline implies a reduced return efficiency on the invested capital over time, signaling potential pressure on profitability margins relative to capital costs.

Overall Analysis

The data reveals a trend of diminishing economic profitability combined with growing invested capital, leading to a compression in the economic spread ratio. Despite increased capital investment, returns relative to capital cost are eroding, which could indicate challenges in generating value above the cost of capital. These patterns may warrant strategic review of capital deployment and profit generation to improve economic performance.

Economic Profit

The economic profit exhibited fluctuations over the five-year period. It started at 1,634 million US dollars in 2018 and declined to 1,327 million in 2019. A recovery occurred in 2020, with economic profit increasing to 1,563 million. However, a downward trend resumed thereafter, with economic profit decreasing to 1,141 million in 2021 and further declining to 749 million in 2022. Overall, the economic profit showed a decreasing trajectory from 2018 to 2022, with notable volatility especially in the later years.

Net Sales

Net sales demonstrated a consistent upward trend throughout the period. Beginning at 15,544 million US dollars in 2018, net sales increased each year, reaching 15,693 million in 2019, 16,471 million in 2020, 17,421 million in 2021, and 17,967 million in 2022. This steady growth highlights a continual expansion in revenue generation over the five years without any periods of decline.

Economic Profit Margin

The economic profit margin declined over the period under review. It started at 10.51% in 2018, then decreased to 8.45% in 2019, followed by a slight recovery to 9.49% in 2020. However, from 2020 onwards, the margin fell more sharply to 6.55% in 2021 and further down to 4.17% in 2022. This downward trend suggests decreasing efficiency or profitability relative to net sales, despite the increase in net sales figures.

Overall Insights

While net sales experienced steady growth, both economic profit and economic profit margin showed declining trends, particularly after 2020. This divergence indicates that although revenue increased, the company's ability to convert sales into economic profit diminished over time. The decreasing economic profit margin points to potentially rising costs, declining operational efficiency, or other factors affecting profitability despite higher sales volumes. The volatility in economic profit coupled with consistent sales growth suggests challenges in sustaining profit levels relative to expanding sales.