Ecolab Inc. (NYSE:ECL)

Finished Goods

The value of finished goods exhibited fluctuations during the analyzed period. Beginning at $974.3 million in 2017, it increased to a peak of $1.017 billion in 2018, then declined to $936.5 million in 2019 and further dropped significantly to $789.6 million in 2020. A recovery occurred in 2021, with finished goods rising back to $1.0106 billion.

Raw Materials and Parts

Raw materials and parts showed a generally upward trend. Starting at $438.7 million in 2017, the amount increased each year except for a slight decline in 2020 to $511.2 million from the 2019 level of $559.8 million. By 2021, raw materials and parts rose again to $596.1 million, representing the highest figure in the period.

Inventories at FIFO Cost

This category followed a pattern similar to overall inventory trends. Inventories at FIFO cost grew from $1.413 billion in 2017 to $1.5425 billion in 2018, then slightly decreased to $1.4963 billion in 2019, followed by a more notable drop to $1.3008 billion in 2020. In 2021, inventories increased to $1.607 billion, the highest inventory value in the period examined.

FIFO Cost to LIFO Cost Difference

The difference between FIFO and LIFO costs started positively at $32.9 million in 2017, then sharply decreased to $3.9 million in 2018. A partial recovery to $9.3 million occurred in 2019. However, the difference turned negative in 2020, reaching -$15.6 million, and further declined significantly to -$114.9 million in 2021. This shift indicates a notable change in cost accounting valuation, potentially reflecting changes in inventory cost layers or inflationary impacts.

Total Inventories

Total inventories showed an overall fluctuating pattern similar to the FIFO cost measure. Inventories grew from $1.4459 billion in 2017 to $1.5464 billion in 2018, then decreased marginally to $1.5056 billion in 2019. A more pronounced decline to $1.2852 billion occurred in 2020, before inventories rebounded to $1.4918 billion in 2021. The data suggest variability influenced by inventory management strategies or changing demand conditions over time.

The analysis of the annual financial data reveals several notable trends across the reported and inventory LIFO reserve adjusted figures over the five-year period.

Inventories

Reported inventories fluctuated over the years, rising from approximately $1.45 billion in 2017 to peak near $1.55 billion in 2018, followed by a decline in 2019 and 2020, reaching a low near $1.29 billion before increasing again in 2021 to about $1.49 billion. Adjusted inventories, accounting for LIFO reserve effects, show a similar pattern but end at a higher value in 2021, around $1.61 billion, indicating that the adjustment typically increases inventory valuation relative to reported amounts in the later years.

Current Assets

Both reported and adjusted current assets exhibit a gradual upward trend from 2017 through 2020. Reported current assets increase from approximately $4.6 billion to above $5.1 billion in 2020, but then decrease in 2021 to about $4.7 billion. Adjusted current assets follow a comparable trajectory but end at a slightly higher level than reported assets in 2021, roughly $4.8 billion, showing the impact of inventory adjustments on current asset totals.

Total Assets

Total assets remain relatively stable between 2017 and 2019, hovering around $20 billion to $20.9 billion. A significant decline occurs in 2020, dropping to approximately $18.1 billion reported and slightly above $18.1 billion adjusted. However, in 2021, total assets rebound above prior levels, with reported assets reaching about $21.2 billion and adjusted assets slightly higher at around $21.3 billion. The adjustment impact is consistently present but modest.

Shareholders’ Equity

Reported equity shows steady growth from $7.6 billion in 2017 to a peak near $8.7 billion in 2019. There is a sharp decrease in 2020, falling to about $6.2 billion, followed by partial recovery in 2021 to roughly $7.2 billion. Adjusted equity follows a very similar pattern, consistently slightly below or above reported figures, ending slightly higher than reported equity in 2021, at nearly $7.3 billion.

Net Income (Loss) Attributable to Ecolab

Net income exhibits volatility over the period. It starts at approximately $1.5 billion in 2017, slightly decreases to about $1.4 billion in 2018, and increases again in 2019 to roughly $1.56 billion. A notable loss appears in 2020, with net income plunging to approximately -$1.2 billion. In 2021, income recovers to around $1.13 billion reported and somewhat higher at nearly $1.23 billion adjusted, indicating a positive turnaround but not yet reaching the earlier highs. The adjusted net income consistently exceeds reported net income slightly, reflecting inventory related adjustments.

In summary, the inventory LIFO reserve adjustments generally increase both inventory and related current asset totals compared to reported values, particularly evident in the later years. Asset and equity values saw a significant dip in 2020 with a recovery in 2021, while net income suffered a substantial loss in 2020 followed by a modest recovery. The adjusted figures consistently show slightly improved asset and income values compared to reported data, highlighting the impact of inventory accounting methods on financial metrics.

Current Ratio

The current ratio exhibited a slight fluctuation over the observed periods, beginning at 1.34 in 2017 and declining marginally to 1.27 in 2018. It then showed a slight recovery to 1.33 in 2019, followed by a significant increase to 1.75 in 2020, before decreasing again to near the initial level at 1.32 in 2021. The adjusted current ratio values closely mirror the reported figures, indicating minimal impact from inventory LIFO reserve adjustments on liquidity management.

Net Profit Margin

The net profit margin showed variability with a positive trend from 10.9% in 2017 down to 9.74% in 2018, then a slight increase to 10.46% in 2019. However, there was a severe downturn in 2020, entering negative territory at -10.22%, indicative of a loss-making year. In 2021, the margin recovered to a positive 8.87%. Adjusted margins are consistently slightly higher than reported figures, suggesting the LIFO reserve adjustment positively impacts profitability measurement.

Total Asset Turnover

Total asset turnover demonstrated a modest fluctuation within a narrow range. Starting at 0.69 in 2017, it increased to 0.73 in 2018, then slightly decreased to 0.71 in 2019. A decline continued to 0.65 in 2020 and 0.60 in 2021, indicating a gradual reduction in efficiency in using assets to generate sales. The adjusted turnover matches the reported ratios exactly, showing no adjustment effect.

Financial Leverage

Financial leverage exhibited a downward trend from 2.62 in 2017 to 2.4 in 2019, implying a reduction in reliance on debt. However, it increased notably to 2.94 in 2020 and remained elevated at a similar level in 2021. The adjusted values are slightly different but follow the same pattern, indicating stable leverage characteristics with minimal adjustment effects.

Return on Equity (ROE)

ROE followed a trend similar to net profit margin, with an initial decrease from 19.8% in 2017 to 17.86% in 2018. It stabilized at around 18% in 2019, then sharply fell to -19.54% in 2020, indicating significant losses and poor equity return. The ROE partially recovered to 15.64% in 2021. Adjusted ROE values are consistently higher than reported, emphasizing a beneficial effect of inventory reserve adjustments on equity profitability.

Return on Assets (ROA)

ROA also declined over the period, starting at 7.56% in 2017 and showing a slight downward movement in 2018 and 2019. It dropped into negative at -6.65% in 2020 before recovering to 5.33% in 2021. Adjusted ROA consistently remains marginally higher than reported figures, signifying improved asset profitability when considering LIFO adjustments.

Current Assets Trend

The reported current assets exhibit a generally increasing trend from 4,596,400 thousand US dollars in 2017 to a peak of 5,117,400 thousand US dollars in 2020, before declining to 4,687,100 thousand US dollars in 2021. The adjusted current assets, accounting for inventory LIFO reserve adjustments, follow a similar pattern, rising from 4,563,500 thousand US dollars in 2017 to a high of 5,133,000 thousand US dollars in 2020, then decreasing to 4,802,000 thousand US dollars in 2021.

Current Ratio Analysis

The reported current ratio remains relatively stable between 2017 and 2019 at approximately 1.27 to 1.34, with a pronounced increase to 1.75 in 2020, indicating improved short-term liquidity. This ratio declines again in 2021 to 1.32. The adjusted current ratio shows a nearly identical pattern: steady figures around 1.27 to 1.33 for the first three years, a significant jump to 1.75 in 2020, followed by a slight improvement in 2021 to 1.35. The close alignment between reported and adjusted ratios suggests minimal impact of the inventory LIFO reserve adjustment on liquidity ratios.

Insights and Observations

Both reported and adjusted current assets demonstrate resilience with growth over the early years, peaking in 2020, which corresponds with an enhanced liquidity position as reflected in the current ratio. The sharp increase in current ratio in 2020 could be attributed to either an increase in current assets or a decrease in current liabilities during that period. The subsequent decline in 2021 signals a normalization or a potential tightening in liquidity. The adjusted data closely tracks the reported figures, indicating that adjusting for the inventory LIFO reserve does not materially alter the overall liquidity profile across the observed periods.

The financial data over the five-year period reflect notable fluctuations in profitability, both on a reported and adjusted basis. The net income figures show a generally positive performance from 2017 through 2019, followed by a sharp decline in 2020 and a recovery in 2021.

Net Income Trends

The reported net income increased from approximately 1.5 billion USD in 2017 to nearly 1.56 billion USD in 2019, indicating a positive growth trajectory before experiencing a significant contraction in 2020, with a loss of roughly 1.21 billion USD. This negative performance reversed in 2021, resulting in a net income of about 1.13 billion USD. The adjusted net income reflects a similar pattern with slightly higher values in each year, suggesting that adjustments made for LIFO reserve and other factors marginally improve the reported net income metrics.

Net Profit Margin Analysis

The net profit margin followed the income trend closely, peaking around 10.9% reported in 2017, declining slightly to around 9.74% in 2018, and recovering to approximately 10.46% in 2019. In 2020, the margin fell drastically to approximately -10.22%, indicating losses relative to revenues. By 2021, the margin improved again to 8.87%. Adjusted margins mirror this trend with slightly higher values, highlighting the influence of adjustments in reducing the apparent loss severity and improving profitability ratios during downturns.

Overall Observations

The period is characterized by steady profitability in the initial three years, a pronounced downturn in 2020 possibly due to extraordinary events impacting operations or markets, and a partial rebound in 2021. Adjusted figures generally present a slightly more favorable financial position than reported figures, underscoring the effects of inventory accounting and other adjustments on financial performance metrics.

Total Assets

The reported total assets of the company show an overall increasing trend from 19.96 billion US dollars in 2017 to 21.21 billion US dollars in 2021, despite a notable decline in 2020 to 18.13 billion US dollars. The adjusted total assets follow a similar pattern, beginning at 19.93 billion US dollars in 2017 and rising to 21.32 billion US dollars in 2021, with a dip recorded in 2020 to approximately 18.14 billion US dollars. The adjustment for the inventory LIFO reserve appears to have a marginal effect on the total assets, as the differences between reported and adjusted values are minimal.

Total Asset Turnover

The reported total asset turnover ratio declines gradually over the period observed. Starting at 0.69 in 2017, it increases slightly to 0.73 in 2018, then decreases to 0.71 in 2019, drops more significantly to 0.65 in 2020, and reaches its lowest point at 0.6 in 2021. The adjusted total asset turnover mirrors the reported ratio identically across all years, indicating that the inventory LIFO reserve adjustment does not materially affect this ratio.

Insights

The concurrent decline in asset turnover ratio alongside the growth in total assets from 2019 to 2021 suggests decreasing efficiency in utilizing assets to generate sales or revenue. The dip in total assets in 2020 may reflect an extraordinary event or strategic divestment before rebounding in 2021. The minimal difference between reported and adjusted figures indicates that the inventory LIFO reserve adjustment has a negligible impact on the overall asset base and operational efficiency measures as reflected in these selected metrics.

The data reveals several notable trends over the five-year period concerning total assets, shareholders' equity, and financial leverage, both reported and inventory LIFO reserve adjusted.

Total Assets

Reported total assets exhibit a slight increase from approximately 19.96 billion in 2017 to 20.07 billion in 2018, followed by a continued rise to 20.87 billion in 2019. A significant decline occurred in 2020, dropping to around 18.13 billion, before rebounding to approximately 21.21 billion in 2021. The adjusted total assets reveal a nearly identical pattern, with values closely mirroring the reported figures, indicating minimal impact of inventory LIFO reserve adjustments on total asset valuation.

Shareholders’ Equity

Reported shareholders' equity rises steadily from about 7.62 billion in 2017 to 8.69 billion in 2019, followed by a sharp decrease to 6.17 billion in 2020. This is succeeded by a partial recovery to roughly 7.22 billion in 2021. The adjusted shareholders' equity figures closely track the reported values, with slightly lower values in most years, suggesting that the LIFO reserve adjustment marginally reduces the equity base. The dip in 2020 and partial recovery in 2021 highlight a period of equity contraction and subsequent restoration.

Financial Leverage

Reported financial leverage declines from 2.62 in 2017 to 2.40 in 2019, indicating a reduction in financial risk or debt relative to equity during this period. However, a reversal occurs in 2020, with leverage increasing to 2.94 and remaining at this elevated level in 2021. Adjusted financial leverage follows a similar trajectory, declining from 2.63 in 2017 to 2.40 in 2019, then rising to 2.93 in 2020 and slightly decreasing to 2.91 in 2021. These trends suggest increased reliance on debt financing or reduction in equity during the pandemic-impacted year, with leverage ratios stabilizing at higher levels thereafter.

Overall, the period from 2017 to 2019 shows growth and strengthening financial positions, while 2020 represents a significant disruption with decreases in assets and equity and increased leverage. By 2021, recovery is evident, but leverage remains elevated compared to pre-2020 levels. The proximity of reported and adjusted figures throughout implies that LIFO reserve adjustments have a limited effect on the overall financial position and risk profile as measured by these metrics.

The financial data exhibits notable fluctuations and trends over the five-year period ending December 31, 2021. The reported net income attributable to the entity initially shows a strong positive performance, reaching a peak in 2019. However, there is a significant and sharp reversal in 2020, where net income turns negative, indicating a substantial loss. By 2021, the results improve, returning to positive territory but not fully recovering to the prior peak levels. The adjusted net income mirrors this trend closely, albeit with slight differences in magnitude, suggesting adjustments have a moderate impact on the reported figures.

Shareholders’ equity demonstrates a generally increasing trend from 2017 through 2019, suggesting growth and accumulation of equity. However, in 2020 there is a pronounced decline, coinciding with the negative net income during that year, before partially rebounding in 2021. The adjusted total shareholders’ equity follows a similar pattern, with minimal differences from the reported values, indicating that adjustments have a limited effect on the equity base.

Return on equity (ROE), both reported and adjusted, reflects the profitability trends seen in net income and equity. ROE remains robust and positive from 2017 through 2019, signifying efficient use of shareholder capital to generate earnings. In 2020, ROE turns sharply negative, underscoring the substantial operational or market challenges that impacted profitability. The recovery in ROE during 2021 aligns with the return to positive net income, though the levels remain below those of the initial years, indicating ongoing challenges or a more cautious capital allocation approach.

Net Income Trends

Strong profitability from 2017 to 2019, a severe decline in 2020 with losses, followed by partial recovery in 2021.

Shareholders' Equity Trends

Growth until 2019, sharp decline in 2020, partial rebound in 2021. Adjusted figures closely track reported values.

Return on Equity (ROE) Trends

Consistently positive and healthy from 2017-2019, turning deeply negative in 2020, with recovery in 2021 yet remaining below prior peak levels.

Impact of Adjustments

Adjusted data largely parallels reported figures with minor variations, indicating adjustments do not significantly alter the overall financial trends.

Net Income Trends

The reported net income attributable to the company exhibited growth from 2017 through 2019, increasing from $1,508,400 thousand to $1,558,900 thousand. A significant decline occurred in 2020, with a reported loss of $1,205,100 thousand, followed by a recovery in 2021 to a positive net income of $1,129,900 thousand. The adjusted net income, which accounts for inventory LIFO reserve adjustments, closely follows this pattern with minor differences, indicating a similar overall trend with slightly higher values in most years, culminating in a more pronounced recovery in 2021.

Total Assets Development

The total assets reported rose steadily from 2017 to 2019, increasing from approximately $19.96 billion to $20.87 billion. However, in 2020, there was a notable decline to $18.13 billion, followed by a rebound to $21.21 billion in 2021, surpassing prior levels. The adjusted total assets data, which incorporates inventory adjustments, mirror this trajectory very closely, with marginally different absolute values but consistent directional changes, confirming the impact of asset valuation adjustments is relatively stable over the periods analyzed.

Return on Assets (ROA) Analysis

The reported return on assets reflects a commendable performance during 2017-2019, ranging between 7.12% and 7.56%, followed by a sharp decline into negative territory in 2020 at -6.65%, signalling operational challenges that year. In 2021, there is a recovery trend with ROA improving to 5.33%. The adjusted ROA figures, which take inventory LIFO reserve into account, similarly indicate strong returns in the initial years with slightly higher percentages, a comparable negative impact in 2020 (-6.69%), and a better recovery in 2021 reaching 5.77%. This suggests that inventory adjustments slightly enhance the perceived asset efficiency.

Overall Observations

Across the analyzed periods, the company demonstrated robust financial performance with growing net income and asset bases until 2019. The year 2020 represents an outlier with significant net losses and asset decreases, likely reflecting external or operational disruptions. The subsequent recovery in 2021 is evident across all metrics, though adjusted figures systematically indicate marginally improved profitability and asset efficiency compared to reported numbers. The inventory LIFO reserve adjustments seem to have a modest but consistent positive effect on reported profitability and ROA, indicating that inventory valuation methods materially influence financial metrics and should be considered for more accurate performance assessment.