Ecolab Inc. (NYSE:ECL)

Net Operating Profit After Taxes (NOPAT)

The NOPAT showed an overall increase from 2017 to 2018, reaching a peak of approximately 1,771 million USD. However, it experienced a decline in 2019 and a more significant drop in 2020, falling to about 1,207 million USD. In 2021, there was a recovery, with NOPAT increasing to approximately 1,349 million USD, though it did not return to the 2018 peak level.

Cost of Capital

The cost of capital exhibited a gradual increase from 12.49% in 2017 to a high of 13.28% in 2020. In 2021, there was a slight decrease to 12.72%, indicating a modest reduction in the cost environment or the company’s perceived risk towards the end of the period.

Invested Capital

Invested capital grew steadily from about 17.39 billion USD in 2017 to 18.09 billion USD in 2019. It then declined notably in 2020 to nearly 15.60 billion USD before sharply increasing to approximately 18.43 billion USD in 2021. This fluctuation suggests a possible divestment or asset write-down in 2020 followed by reinvestment or acquisition activities in 2021.

Economic Profit

The economic profit remained negative throughout the period, indicating that the company did not generate returns exceeding its cost of capital. The negative economic profit improved somewhat from -802 million USD in 2017 to -562 million USD in 2018 but then deteriorated again, reaching -656 million USD in 2019. It worsened further in 2020 and 2021, declining to -864 million USD and -996 million USD respectively, suggesting that despite some fluctuations in NOPAT and invested capital, the company increasingly failed to cover its cost of capital over these years.

Overall Insights

The data reflects a mixed performance. While NOPAT recovered somewhat in 2021 after a decline, invested capital experienced volatility with a notable dip in 2020. The steady increase in the cost of capital until 2020 added pressure on profitability. Persistent negative economic profits indicate value destruction, with the situation worsening toward the end of the period, pointing to challenges in generating adequate returns relative to invested capital and associated costs.

Net Income (Loss) Attributable to Ecolab

The net income attributable to Ecolab exhibited positive values from 2017 through 2019, with a slight decrease in 2018 followed by a recovery in 2019. However, in 2020, there was a significant decline, reflected by a net loss of approximately 1.2 billion US dollars. This downturn was reversed in 2021, where net income returned to a positive figure, measuring around 1.13 billion US dollars, although still below the 2019 peak.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed an overall increasing trend from 2017 to 2019, starting at about 1.37 billion US dollars and peaking at roughly 1.74 billion US dollars in 2019. In 2020, similar to net income, NOPAT experienced a decline but remained positive at about 1.21 billion US dollars. In 2021, there was a moderate recovery, with NOPAT increasing to approximately 1.35 billion US dollars; however, this figure did not reach the 2019 peak level.

Summary of Trends and Insights

The data indicates that the company experienced a strong performance in the initial years up to 2019, with increasing profitability as evidenced by both net income and NOPAT. The year 2020 represents a notable inflection point with a severe reduction in profitability, culminating in a net loss. This suggests that external or internal factors during 2020 heavily impacted earnings. Both metrics improved in 2021, reflecting a recovery phase, but the full return to the profitability levels of 2019 has not yet been realized by the end of that year. The persistence of positive NOPAT through the downturn indicates ongoing operational profitability despite overall net losses in 2020.

The financial data reveals notable fluctuations in the provision for income taxes and cash operating taxes over the five-year period.

Provision for income taxes

This item experienced an overall increase from 242,400 thousand US dollars in 2017 to a peak of 364,300 thousand US dollars in 2018. Subsequently, it decreased to 322,700 thousand US dollars in 2019 and sharply declined further to 176,600 thousand US dollars in 2020. However, it rebounded to 270,200 thousand US dollars in 2021. This pattern indicates volatility with a significant dip in 2020, possibly linked to changes in taxable income or tax regulations, followed by a partial recovery in the final year.

Cash operating taxes

Cash operating taxes presented a different trend characterized by a marked decrease from 692,614 thousand US dollars in 2017 to 329,842 thousand US dollars in 2018. After this drop, values rose to 405,411 thousand US dollars in 2019, followed by another decline to 280,171 thousand US dollars in 2020. There was a moderate increase to 319,507 thousand US dollars in 2021. Overall, the data exhibits considerable volatility with no sustained growth or decline, indicating fluctuating cash tax outflows over the years.

In summary, both provision for income taxes and cash operating taxes show significant variability throughout the period, with notable decreases in 2020 likely tied to the extraordinary circumstances of that year. The partial rebounds in 2021 suggest a normalization trend, although both metrics remain below their initial high points observed in earlier years.

Total Reported Debt & Leases

The total reported debt and leases exhibit a fluctuating pattern over the observed periods. Starting at approximately $7.88 billion in 2017, there is a gradual decline until 2019, reaching about $6.93 billion. This is followed by a slight increase in 2020 to approximately $7.11 billion, and a notable rise in 2021 to roughly $9.16 billion. The large increase in 2021 indicates a significant change in the company's leverage or financing activities.

Total Shareholders' Equity

Shareholders’ equity shows a general upward trend from 2017 to 2019, rising from around $7.62 billion to approximately $8.69 billion. However, in 2020, there is a sharp decrease to about $6.17 billion, followed by a partial recovery in 2021 to approximately $7.22 billion. The drop in 2020 could reflect significant losses, dividend payments, share repurchases, or other equity-reducing activities during that year.

Invested Capital

Invested capital demonstrates an increase from 2017 to 2019, moving from around $17.39 billion to $18.09 billion. In 2020, there is a decline to approximately $15.60 billion, consistent with the reduction in shareholders' equity and the minor increase in debt. By 2021, invested capital rises again to about $18.43 billion, reaching its highest level in the observed timeframe. This trend suggests active adjustments in the capital structure and investment base through the period.

The financial data reveals several notable trends over the five-year period.

Economic Profit

The economic profit has been consistently negative across all years presented, indicating that the company has not generated returns above its cost of capital. Although there was an improvement from 2017 to 2018, decreasing the loss from approximately -802 million to -562 million US dollars, the economic profit deteriorated in the subsequent years. The lowest economic profit was observed in 2021, reaching nearly -996 million US dollars, signaling an increasingly larger economic loss over time, especially notable from 2019 onwards.

Invested Capital

Invested capital displayed a general upward trend with some fluctuation. Starting at approximately 17.4 billion US dollars in 2017, it increased each year up to nearly 18.1 billion US dollars by 2019. A decline was observed in 2020, falling to about 15.6 billion US dollars, followed by a rise again in 2021 to approximately 18.4 billion US dollars. The dip in 2020 could be indicative of divestments, asset impairments, or other strategic capital adjustments during that year.

Economic Spread Ratio

The economic spread ratio, reflecting the difference between the return on invested capital and the cost of capital, remained negative throughout the period. Starting at -4.61% in 2017, this ratio improved to -3.15% in 2018, indicating a relative recovery in value creation. However, a decline occurred in 2019, followed by a significant worsening in 2020 to -5.54%. The ratio slightly improved but remained substantially negative at -5.4% in 2021. Such consistent negativity confirms that returns did not cover capital costs, corroborating the pattern observed in economic profit.

Overall, the data points to persistent economic losses despite fluctuations in invested capital. The company has struggled to generate returns above its cost of capital, with particularly challenging years beginning in 2019 and extending through 2021. The drop in invested capital in 2020 followed by a rebound in 2021 may reflect strategic responses to operational or market challenges during that time frame. Continuous negative economic spreads suggest the need for ongoing assessment of capital allocation and operational efficiency to improve profitability and value generation.

Economic Profit Trend

The economic profit has been consistently negative throughout the five-year period, indicating that the company has not generated excess returns above its cost of capital. The economic profit value shows a decline from -802,044 thousand US dollars in 2017 to -996,035 thousand US dollars in 2021. This deterioration suggests increasing economic losses over time, with a notable dip observed in 2020 and 2021.

Net Sales Trend

Net sales increased steadily from 13,838,300 thousand US dollars in 2017 to a peak of 14,906,300 thousand US dollars in 2019. However, there was a significant decline in 2020 to 11,790,200 thousand US dollars, which may indicate the impact of external factors affecting sales, such as economic downturns or market disruptions. In 2021, net sales partially recovered to 12,733,100 thousand US dollars but remained below the pre-2020 levels.

Economic Profit Margin Analysis

The economic profit margin remained negative across all periods, reflecting that the company’s operations did not generate returns exceeding its cost of capital. The margin improved slightly from -5.8% in 2017 to -3.83% in 2018, followed by a deterioration to -7.82% by 2021. The worsening margin in the latter years corresponds with declining economic profit and supports the observation of increasing economic loss relative to sales.

Overall Interpretation

Despite periods of revenue growth, the company consistently experienced negative economic profit and economic profit margin, with the situation worsening particularly in 2020 and 2021. The drop in net sales in 2020 had a correlated negative impact on profitability metrics, while the incomplete recovery in 2021 sales has not been sufficient to reverse the trend of diminishing economic profit. This pattern signals challenges in achieving profitable operations relative to the company’s cost of capital over the analyzed timeframe.