Emerson Electric Co. (NYSE:EMR)

The analysis of the financial data over the six-year period reveals several key trends and insights related to operating performance, capital cost, invested capital, and economic profit.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures demonstrate a fluctuating trend with a notable peak in 2015 at 2,871 million US dollars, representing the highest performance within the span. Following this peak, there was a significant decline in 2016 to 1,731 million, suggesting operational challenges or reduced profitability that year. From 2017 onwards, a recovery trend is observable, with NOPAT rising steadily to reach 2,461 million US dollars by 2019, though it did not surpass the 2015 peak.

Cost of Capital

The cost of capital presents a generally stable but slightly increasing trend from 2014 through 2018, rising from 15.78% to a peak of 16.29% in 2018. In 2019, there is a small decrease to 15.98%, indicating a marginal reduction in the capital cost burden. The fluctuations are relatively minor, signifying consistent financing conditions with moderate volatility over the period.

Invested Capital

Invested capital shows a declining trend from 2014 through 2017, decreasing from 17,628 million US dollars to 15,181 million US dollars. This decline could reflect asset divestitures, efficiencies in capital usage, or shifts in strategic investment. Post-2017, there is a gradual increase in invested capital, reaching 16,266 million US dollars by 2019, suggesting renewed capital investment or asset accumulation.

Economic Profit

Economic profit fluctuates between negative and slightly positive values across the years. The only positive economic profit within the period is recorded in 2015 at 297 million US dollars, aligning with the peak in NOPAT and indicating value creation that year. The other years consistently show negative economic profit, suggesting that after accounting for the cost of capital, the company did not generate sufficient return to cover its capital costs. However, the negative economic profit values decrease in magnitude from -770 million in 2016 to -138 million in 2019, indicating an improving trend towards economic profitability.

Overall, the data indicates a recovery phase after a dip in operational profitability and invested capital, accompanied by stable capital costs. Despite improvements, economic profit remains negative for most years, highlighting the ongoing challenge of generating returns above the cost of capital. The trend towards reduced invested capital and later reinvestment may reflect strategic adjustments in asset management. The partial recovery in NOPAT and lessening economic losses by 2019 suggest positive momentum towards enhanced financial performance.

The analysis of the financial data for the period from September 30, 2014, to September 30, 2019, reveals notable fluctuations in key profitability metrics.

Net Earnings Common Stockholders

The net earnings attributable to common stockholders demonstrate variability over the periods considered. Initially, there was an increase from 2,147 million USD in 2014 to a peak of 2,710 million USD in 2015. This was followed by a significant decrease to 1,635 million USD in 2016 and a slight further reduction to 1,518 million USD in 2017. Subsequently, the earnings recovered, rising to 2,203 million USD in 2018 and marginally improving to 2,306 million USD by 2019. This pattern suggests volatility in profitability, with a notable dip in the middle years before recovery in the latter two years.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a similar trend to net earnings, with an increase from 2,212 million USD in 2014 to 2,871 million USD in 2015, followed by a substantial decrease to 1,731 million USD in 2016. Unlike net earnings, NOPAT stabilizes somewhat in 2017 with a slight increase to 1,776 million USD. In the subsequent years, NOPAT rises consistently, reaching 2,124 million USD in 2018 and 2,461 million USD in 2019. This trend indicates a recovery in operating profitability after a period of decline, with steady improvements in the final two years.

Overall, both net earnings and NOPAT experienced a peak in 2015, followed by a decline over the next one to two years, and then a recovery phase from 2017 onward. The recovery in NOPAT appears somewhat stronger and more consistent than that in net earnings. These trends highlight periods of operational challenges and subsequent improvement in financial performance.

Income Tax Expense

The income tax expense demonstrated a fluctuating downward trend over the six-year period. Starting at $1,164 million in 2014, it increased to a peak of $1,428 million in 2015. However, from 2015 onwards, the figure declined significantly to $697 million in 2016 and further decreased to $660 million in 2017. The downward trend continued, reaching a low of $443 million in 2018, before showing a modest increase to $531 million in 2019. This pattern suggests variability in taxable income or changes in tax rates, with a notable reduction after 2015 and slight recovery toward 2019.

Cash Operating Taxes

Cash operating taxes followed a similar overall declining trajectory with some variation. Beginning at $1,394 million in 2014, the amount rose to $1,525 million in 2015, indicating higher cash tax payments that year. Subsequently, there was a sharp decline to $782 million in 2016 and a marginal decrease to $766 million in 2017. The downward movement persisted, with taxes dropping to $737 million in 2018 and then declining further to $619 million in 2019. This trend mirrors the reduction observed in income tax expense, possibly reflecting lower taxable income or effective tax management strategies resulting in decreased cash tax obligations over time.

Total Reported Debt & Leases

The total reported debt and leases exhibited a non-linear trend over the analyzed periods. It increased from 6,834 million USD in 2014 to peak at 7,624 million USD in 2015, followed by a reduction to 5,137 million USD in 2017. Subsequently, the amount rose again, reaching 6,191 million USD by 2019. This pattern suggests fluctuations in debt management, with a notable decrease in the middle period before a moderate rebound.

Common Stockholders’ Equity

Common stockholders’ equity showed a general decline from 10,119 million USD in 2014 to 7,568 million USD in 2016. Thereafter, it increased to 8,947 million USD in 2018, before descending again to 8,233 million USD in 2019. This series of movements indicates some volatility but overall a downward pressure on equity levels during the period.

Invested Capital

Invested capital steadily decreased from 17,628 million USD in 2014 to a low of 15,181 million USD in 2017. After 2017, it gradually increased to 16,266 million USD by 2019. The downward trend in the initial years followed by a recovery suggests adjustments in the company's capital investment strategy or asset base.

Overall Observations

The data reflects a period of financial adjustment, with both liabilities and equity experiencing declines and recoveries at different times. The decrease in invested capital up until 2017, coupled with reduced debt levels in the same period, could indicate an active effort to deleverage or optimize capital structure. Subsequently, the increases in debt and invested capital alongside fluctuating equity values imply dynamic financial management responsive to changing conditions or strategic priorities.

The data reveals fluctuating performance in economic profit over the six-year period ending in 2019. Economic profit was negative in most years except for 2015 when it turned positive at 297 million US dollars. In other years, it ranged from -770 million to -138 million US dollars, showing a pattern of loss reduction especially noticeable in the final year.

Invested capital exhibited a general downward trend from 2014 through 2017, declining from 17,628 million to 15,181 million US dollars. This indicates a contraction or divestment strategy during that period. However, there was a reversal starting in 2018 with invested capital increasing to 15,617 million and further to 16,266 million US dollars in 2019, suggesting renewed investment or growth initiatives.

The economic spread ratio, which measures profitability relative to the cost of capital, remained negative for most of the reported periods, indicating that returns did not consistently exceed the cost of capital. After a modest positive spike of 1.71% in 2015, the ratio again turned negative with values widening as low as -4.66% in 2016 before improving progressively to -0.85% in 2019. This improvement hints at an enhanced efficiency or profitability over time, although the economic spread ratio had not yet reached positive territory by the end of the period.

Economic profit

Highly variable with primarily negative values indicating ongoing challenges in generating value over cost of capital, but improvement is evident by the decline in losses in 2019.

Invested capital

Initial reduction from 2014 to 2017 followed by gradual capital increase in subsequent years, possibly reflecting strategic repositioning or capital allocation changes.

Economic spread ratio

Mostly negative, reflecting underperformance relative to capital costs, yet with noticeable recovery approaching zero by 2019, suggesting gradual improvement in returns.

Economic Profit

The economic profit shows considerable volatility over the six-year period. It began with a significant loss of 570 million USD in 2014, followed by a positive peak of 297 million USD in 2015. Subsequently, it declined sharply to negative values again, reaching -770 million USD in 2016 and remaining negative through 2019, albeit with a gradual improvement from -667 million USD in 2017 to -138 million USD in 2019.

Net Sales

Net sales display a declining trend from 2014 to 2016, decreasing from 24,537 million USD to 14,522 million USD. After this trough, sales start to recover gradually, increasing each year from 15,264 million USD in 2017 to 18,372 million USD in 2019. Despite this recovery, net sales in 2019 remain below the initial 2014 level.

Economic Profit Margin

The economic profit margin follows a pattern similar to the economic profit, showing fluctuations throughout the years. It starts negative at -2.32% in 2014, turns positive to 1.33% in 2015, then drops markedly to -5.31% in 2016. From there, it improves gradually but remains negative by 2019 at -0.75%, indicating continued challenges in generating economic profit relative to sales.