Eaton Corp. plc (NYSE:ETN)

Net Operating Profit After Taxes (NOPAT)

The NOPAT has demonstrated a consistent upward trend over the five-year period, increasing from 1,541 million US dollars in 2020 to 3,854 million US dollars in 2024. This growth suggests improved operating efficiency and profitability after taxes.

Cost of Capital

The cost of capital has gradually increased each year, starting at 13.35% in 2020 and rising to 14.36% in 2024. This upward movement indicates a rising hurdle rate for investments, potentially reflecting increased risk or changes in market conditions.

Invested Capital

Invested capital has steadily grown from 27,450 million US dollars in 2020 to 31,924 million US dollars in 2024. The increase in invested capital points to ongoing investment into the company's assets or operations over this time frame.

Economic Profit

Economic profit remains negative throughout the period but shows a trend of gradual improvement. Starting at -2,125 million US dollars in 2020, it reduces the loss to -731 million US dollars by 2024. Despite still being negative, this indicates a narrowing gap between returns generated on invested capital and the cost of capital.

Overall Analysis

The company exhibits positive operational gains, as evidenced by rising NOPAT and invested capital. Although the cost of capital is increasing, the economic profit shows steady improvement, suggesting the company is moving closer to generating value beyond its capital costs. The continuous investments combined with growing profitability indicate strategic efforts to enhance long-term financial performance, yet the negative economic profit highlights that further progress is required to achieve value creation in absolute terms.

Net Income Attributable to Eaton Ordinary Shareholders

The net income shows a consistent upward trend over the five-year period. Starting at $1,410 million in 2020, it increased to $2,144 million in 2021, representing a significant growth of approximately 52%. This positive momentum continued with a more moderate increase to $2,462 million in 2022. Subsequently, the growth accelerated again, reaching $3,218 million in 2023 and further increasing to $3,794 million by the end of 2024. Overall, the net income more than doubled during the period, reflecting strong profitability improvements.

Net Operating Profit After Taxes (NOPAT)

NOPAT also exhibits a steady rise through the reporting years. Beginning at $1,541 million in 2020, it increased substantially to $2,328 million in 2021, an increase of around 51%. The upward trajectory continued at a slower pace in 2022 with $2,473 million. Growth accelerated significantly thereafter, reaching $3,310 million in 2023 and $3,854 million in 2024. The pattern closely mirrors that of net income, indicating improved operating efficiency and successful management of expenses and taxes.

General Observations

Both net income and NOPAT exhibit strong and consistent growth over the five years, highlighting an overall enhancement in the company's profitability and operational performance. The most substantial percentage increases occur between 2020 and 2021, followed by steady gains each subsequent year. The continuous upward trend suggests successful execution of business strategies leading to improved financial results.

Income Tax Expense

The income tax expense showed significant fluctuations over the five-year period. Starting at $331 million in 2020, it more than doubled in 2021, reaching $750 million. This was followed by a decrease to $445 million in 2022. However, the tax expense increased again in the subsequent years, rising to $604 million in 2023 and further to $768 million in 2024. Overall, despite variability, the trend indicates a general increase over the period, with a notable peak in 2021.

Cash Operating Taxes

Cash operating taxes exhibited a consistent upward trend from 2020 to 2024. Starting at $497 million in 2020, the figure rose substantially to $819 million in 2021. Though there was a slight decline in 2022 to $614 million, the amount increased again to $830 million in 2023 and further to $964 million in 2024. The pattern suggests ongoing growth in cash operating tax payments over the timeframe, with a temporary dip observed in 2022.

Comparative Insights

When comparing income tax expense and cash operating taxes, both show generally increasing trends through the years, despite some fluctuations. The income tax expense appears more volatile, with sharper increases and decreases, while cash operating taxes demonstrate a steadier increase. The largest deviations for both metrics occur in 2021, indicating possible changes in tax policies, financial performance, or accounting treatments during that year. By the end of the period, cash operating taxes surpass income tax expense, potentially reflecting differences in timing, recognition, or tax planning strategies.

Total reported debt & leases

The total reported debt and lease obligations have shown a consistent upward trend over the five-year period. Starting at $8,500 million in 2020, the figure increased to $9,984 million by the end of 2024. The most notable annual increment occurred between 2022 and 2023, where debt increased by approximately $696 million. This trend suggests a gradual rise in the company’s financial leverage over time.

Total Eaton shareholders’ equity

Shareholders’ equity demonstrated growth from $14,930 million in 2020 to a peak of $19,036 million in 2023, before slightly declining to $18,488 million in 2024. The steady increase from 2020 through 2023 indicates an accumulation of residual interest in the company assets, reflecting potentially retained earnings or capital inflows. The slight decrease in the final year may imply dividend payouts, share repurchases, or other equity adjustments.

Invested capital

Invested capital, which represents the total capital provided by shareholders and debt holders, showed a steady increase from $27,450 million in 2020 to $31,924 million in 2024. The incremental rises each year suggest ongoing investments in the company’s operational assets or capital expenditures. The rate of growth in invested capital is moderate and appears to align with the increases observed in both reported debt and equity, indicating balanced financing activities.

Economic Profit

The economic profit shows a consistent negative value over the five-year period, indicating that the company is not generating returns above its cost of capital. However, the magnitude of the negative economic profit has improved steadily, moving from -2125 million US$ in 2020 to -731 million US$ in 2024. This trend suggests that the company has been gradually reducing its losses and improving operational or financial efficiency.

Invested Capital

Invested capital has increased moderately from 27450 million US$ in 2020 to 31924 million US$ in 2024. The steady rise in invested capital indicates ongoing investments or asset growth. The increasing capital base may suggest expansion or reinvestment efforts despite the persistent negative economic profit. The growth in capital is relatively stable year-over-year without abrupt fluctuations.

Economic Spread Ratio

The economic spread ratio denotes the difference between return on invested capital and cost of capital, expressed as a percentage. The ratio has remained negative throughout the period, indicating that returns are below the cost of capital. Nonetheless, there is a clear improvement from -7.74% in 2020 to -2.29% in 2024, demonstrating that profitability relative to capital cost is narrowing the gap. This improvement aligns with the decreasing negative economic profit.

Overall Analysis

The combined trends indicate gradual financial performance improvement despite ongoing challenges in achieving positive economic profit. The company's invested capital has grown steadily, while both economic profit and economic spread ratio have shown consistent reduction in negative magnitude, indicating progress toward operational efficiency and better capital utilization. This pattern suggests strategic efforts to enhance profitability and reduce losses, although the company has yet to reach a positive economic profit threshold. Continued focus on improving returns above the cost of capital would be essential to achieve sustainable value creation.

The financial data reveals a notable improvement in economic profit and its margin over the five-year period. The economic profit, although negative throughout, shows a consistent decrease in losses from -2125 million US dollars in 2020 to -731 million US dollars in 2024. This trend indicates a gradual enhancement in profitability or value generation relative to the company’s capital costs.

Adjusted net sales exhibit a steady upward trajectory, increasing from 17,881 million US dollars in 2020 to 24,870 million US dollars in 2024. This reflects sustained growth in revenue, suggesting effective sales strategies or market demand expansion during this period.

The economic profit margin, which is negative across all years, improves significantly from -11.88% in 2020 to -2.94% in 2024. This positive trend in margin reduction corroborates the improvement seen in absolute economic profit values, indicating enhanced efficiency or cost management relative to sales.

Economic Profit

Consistently negative but improving, moving from -2125 million to -731 million US dollars.

Adjusted Net Sales

Shows steady growth, increasing annually by approximately 4-7%, culminating at 24,870 million US dollars.

Economic Profit Margin

Progressively less negative, moving closer to breakeven while improving from -11.88% to -2.94%.

Overall, the data points to a company that is expanding its sales base while simultaneously reducing losses related to economic profit, indicating operational improvements and more efficient capital utilization over time. Continued focus on cost controls and margin enhancement could potentially lead to positive economic profit in forthcoming periods.