Illinois Tool Works Inc. (NYSE:ITW)

Inventory Overview

The overall inventory levels demonstrate a fluctuating trend with a notable increase in the most recent year. After a rise in 2018, inventory values decreased in 2019 and 2020 but surged substantially in 2021.

Raw Material

Raw material inventory showed an initial increase from 2017 to 2018, followed by a decline in 2019, remaining stable in 2020, and then a significant increase in 2021. The 2021 value represents the highest level in the five-year period, indicating increased stockpiling or procurement.

Work-in-Process

The work-in-process inventory follows a similar pattern to raw materials but with less pronounced fluctuations. It increased in 2018, decreased in 2019, marginally rose in 2020, and then increased notably in 2021, suggesting a possible buildup in production activity.

Finished Goods

Finished goods inventory experienced moderate changes over the years. It increased slightly in 2018, decreased in 2019, remained relatively stable in 2020, and then rose considerably in 2021. The notable 2021 increase might reflect higher production output or slower sales turnover.

LIFO Reserve

The LIFO reserve, representing the difference between the inventory cost reported using LIFO and FIFO methods, showed a generally decreasing trend from 2017 through 2020, implying reduced inflationary adjustments or changes in inventory valuation. However, in 2021, there is a marked increase in the absolute value of the reserve, which may indicate rising costs or inflation impact on inventory prices.

Summary

Inventory management appears to have experienced fluctuations with a pronounced increase in all inventory categories in 2021, which could be indicative of strategic stockpiling or supply chain adjustments. The increasing LIFO reserve in 2021 highlights potential cost pressures. Overall, the trends suggest an operational environment adapting to changing conditions with increased inventory investment toward the end of the period under review.

The data exhibits several notable trends over the five-year period ending December 31, 2021, with adjustments made for inventory LIFO reserves generally showing an upward adjustment in asset values and equity.

Inventories

Reported inventories show a moderate fluctuation between 2017 and 2020, peaking initially in 2018 at $1,318 million before slightly decreasing to $1,164 million in 2019 and stabilizing near $1,189 million in 2020. There is a significant increase in 2021, with reported inventories rising sharply to $1,694 million. The adjusted inventory figures, which account for the LIFO reserve, consistently exceed reported inventories by an incremental margin each year. Adjusted inventories mirror the same trends but demonstrate slightly higher values, ending at $1,812 million in 2021.

Current Assets

Reported current assets decreased notably from $7,278 million in 2017 to $5,778 million in 2018, followed by a recovery trend through 2020 reaching $6,523 million. However, the 2021 figure shows a slight dip to $6,374 million. Adjusted current assets closely follow the reported figures, generally higher by approximately $90 to $100 million annually due to inventory adjustments, peaking at $6,605 million in 2020 before a slight decrease to $6,492 million in 2021.

Total Assets

Reported total assets decreased from $16,780 million in 2017 to $14,870 million in 2018, then experienced modest growth in the subsequent years reaching $16,077 million in 2021. Adjusted total assets reflect this pattern with slightly higher values, incrementally increasing each year and culminating at $16,195 million in 2021, illustrating the impact of inventory LIFO reserve adjustments on overall asset valuation.

Stockholders’ Equity Attributable to ITW

Reported equity manifests a downward trend early in the period, dropping sharply from $4,585 million in 2017 to $3,254 million in 2018, with further declines to $3,026 million in 2019. A gradual recovery is evident thereafter with equity rising to $3,181 million in 2020 and $3,625 million in 2021. Adjusted equity figures remain consistently above reported amounts, following the same trajectory, reaching $3,743 million in 2021, approximating the impact of inventory adjustments on the shareholder’s residual interest.

Net Income

Reported net income exhibits considerable volatility. After rising substantially from $1,687 million in 2017 to a peak of $2,563 million in 2018, earnings stabilize near $2,500 million in 2019, then decline to $2,109 million in 2020. A notable rebound occurs in 2021 with net income increasing to $2,694 million. Adjusted net income figures stay closely aligned with reported figures, reflecting minor variances likely related to inventory adjustments, ending slightly higher at $2,730 million in 2021.

Overall, the LIFO reserve adjustments consistently increase asset and equity values, offering a more comprehensive view of financial position. The general movement suggests a recovery in most financial metrics following a downturn around 2018 and 2019, with substantial inventory growth and net income improvement by 2021. The data indicates a strengthening financial position toward the end of the period under analysis.

The analysis of the financial ratios over the five-year period reveals several notable trends and variations in the company's performance and financial position.

Liquidity (Current Ratio)

The reported current ratio exhibits fluctuations, starting at 2.38 in 2017, declining sharply to 1.63 in 2018, then rising to a peak of 2.9 in 2019 before gradually decreasing to 1.84 by 2021. The adjusted current ratio, factoring in inventory LIFO reserve adjustments, follows a similar pattern, with values slightly higher but closely aligned with the reported figures. Overall, liquidity peaked in 2019 but showed a downward trend thereafter, indicating a reduction in current asset coverage relative to current liabilities towards the end of the period.

Profitability (Net Profit Margin)

The net profit margin demonstrated a generally positive trend. The reported margin increased from 11.79% in 2017 to 18.64% in 2021, with a noticeable jump between 2017 and 2018 and a slight dip in 2020. The adjusted net profit margin closely tracks the reported margin, with marginally higher values after adjustments. This consistent improvement suggests enhanced profitability and effective cost management over the period, despite a minor setback in 2020 likely linked to external factors.

Efficiency (Total Asset Turnover)

Reported total asset turnover increased from 0.85 in 2017 to 0.99 in 2018, indicating improved efficiency in using assets to generate revenue, followed by a decline to 0.81 in 2020 and a partial recovery to 0.9 in 2021. The adjusted figures mirror this pattern with slightly lower values post-adjustment. The declining trend during 2019 and 2020 suggests a reduction in asset utilization efficiency, potentially reflecting operational challenges or investment in assets not yet fully productive.

Leverage (Financial Leverage)

The reported financial leverage ratio moved upward from 3.66 in 2017 to a peak of 4.98 in 2019, then decreased slightly to 4.44 by 2021. The adjustments related to inventory LIFO reserves yield marginally lower leverage ratios but follow the same trajectory. The upward trend indicates increased reliance on debt or other liabilities to finance assets until 2019, with a modest deleveraging occurring afterward.

Return on Equity (ROE)

The reported ROE shows significant volatility, rising dramatically from 36.79% in 2017 to 83.31% in 2019, before declining to 74.32% in 2021. Adjusted ROE follows a parallel trend but with slightly lower percentages. This pattern suggests substantial gains in profitability relative to shareholders' equity during the first half of the period, followed by a moderate contraction. The high ROE values reflect strong financial performance but also indicate increased financial leverage magnifying returns.

Return on Assets (ROA)

Reported ROA improved from 10.05% in 2017 to a peak of 17.24% in 2018, then declined to 13.51% in 2020 before increasing again to 16.76% in 2021. The adjusted ROA data closely reflects these movements. This trend indicates variability in asset profitability, with optimal asset use occurring in the earlier years, a mid-period slowdown, and recovery in the final year observed.

In summary, the data demonstrates a company that experienced strengthening profitability and increased leverage until 2019, accompanied by fluctuating efficiency and liquidity levels. Adjustments for the inventory LIFO reserve exert minor effects on the ratios but do not materially alter the observed trends. The overall pattern suggests that while profitability and returns strengthened over the period, the company faced challenges in asset utilization and liquidity management, particularly evident in the latter years.

The analysis of the annual financial data reveals discernible trends in both reported and inventory LIFO reserve adjusted current assets and current ratios over the five-year period.

Current Assets

The reported current assets exhibited a decline from US$7,278 million in 2017 to US$5,778 million in 2018, followed by a gradual recovery reaching US$6,523 million in 2020 before a marginal decrease to US$6,374 million in 2021. Similarly, adjusted current assets followed a closely related pattern, starting at US$7,367 million in 2017, decreasing to US$5,875 million in 2018, then increasing to a peak of US$6,605 million in 2020 and settling slightly lower at US$6,492 million in 2021. Throughout the period, adjusted current assets remained consistently slightly higher than reported current assets, reflecting the LIFO reserve adjustments.

Current Ratio

The reported current ratio showed considerable volatility, commencing at 2.38 in 2017 and dropping sharply to 1.63 in 2018. It rebounded significantly to 2.90 in 2019 and then moderately decreased to 2.52 in 2020, followed by a further decline to 1.84 in 2021. The adjusted current ratio mirrored this trend with values marginally above the reported ratios each year, starting at 2.41 in 2017, dipping to 1.66 in 2018, peaking at 2.94 in 2019, slightly reducing to 2.55 in 2020, and ending at 1.87 in 2021. This pattern indicates similar liquidity fluctuations when inventory valuation adjustments are considered.

Overall, the data indicate an initial drop in liquidity and current assets in 2018, followed by recovery and peaks around 2019 and 2020. The subsequent decreases in 2021 suggest potential pressures on working capital or changes in current liabilities that impacted liquidity ratios despite the LIFO reserve adjustments. The consistent difference between reported and adjusted figures highlights the effect of inventory accounting methods on the company's financial position assessment.

The financial data over the five-year period reveals several noteworthy trends in reported and inventory LIFO reserve adjusted measures related to net income and net profit margin.

Net Income Trends

The reported net income experienced a significant increase from 2017 to 2018, rising from 1687 million US dollars to 2563 million US dollars. This elevated level was approximately sustained in 2019 at 2521 million US dollars before declining to 2109 million US dollars in 2020. In 2021, net income rebounded notably to 2694 million US dollars, surpassing previous highs. Adjusted net income figures, which account for inventory LIFO reserve adjustments, closely mirror the reported values with slight variances. The adjusted net income increased similarly in 2018 to 2571 million US dollars, slightly decreased in 2019 and 2020, and reached its peak at 2730 million US dollars in 2021.

Net Profit Margin Trends

Reported net profit margin demonstrates an overall positive trajectory with some fluctuations. It increased markedly from 11.79% in 2017 to 17.36% in 2018, and slightly in 2019 to 17.87%. There was a modest decline in 2020, down to 16.77%, followed by a recovery and increase to 18.64% in 2021. The adjusted net profit margin follows a similar pattern, beginning at 11.81% in 2017, rising to 17.41% in 2018, a slight reduction to 17.81% in 2019, a dip to 16.72% in 2020, and a subsequent increase to 18.89% in 2021.

Comparative Analysis of Reported vs Adjusted Data

The differences between reported and inventory LIFO reserve adjusted figures are minimal across all periods, indicating a consistent relationship between the two measures. Adjusted net income and profit margins are marginally higher than the reported figures in most years, suggesting that the LIFO reserve adjustment slightly improves the profitability metrics without materially altering the overall trends.

Insights

The data signals robust financial performance with improved profitability over the long term. The decline in 2020 corresponds with a challenging period but is followed by a strong recovery in 2021. The minimal discrepancy between reported and adjusted data suggests the impact of LIFO accounting adjustments on net income and margins is relatively small but positive. The consistent increase in net profit margins underscores enhanced operational efficiency or favorable business conditions during these years.

The financial data reveals several noteworthy trends over the five-year period ending December 31, 2021. Total assets, both reported and adjusted for inventory LIFO reserve, exhibit a general increase with some fluctuations. Reported total assets declined from 16,780 million US dollars in 2017 to 14,870 million in 2018, then showed a gradual rise through 2019 to 2021, reaching 16,077 million. Adjusted total assets follow a similar pattern, starting slightly higher than reported assets each year due to adjustments, reaching 16,195 million by 2021.

Total asset turnover ratios demonstrate variability across the years, indicating changes in efficiency with which assets are utilized to generate revenue. The reported total asset turnover ratio increased from 0.85 in 2017 to a peak of 0.99 in 2018, before declining to 0.94 in 2019 and further to 0.81 in 2020. In 2021, there was a modest recovery to 0.90. The adjusted total asset turnover exhibits a parallel trend, slightly lower than the reported ratio from 2019 onward. The turnover ratios indicate a temporary improvement in asset use efficiency in 2018, a notable decline through 2020, and partial recovery in 2021, which may reflect operational or market conditions affecting asset utilization.

Assets Trend

Total assets decreased sharply in 2018 but gradually recovered, approaching 2017 levels by 2021.

Inventory LIFO reserve adjustments slightly increase asset values consistently across all years.

Asset Turnover Trend

Both reported and adjusted turnover ratios peaked in 2018, suggesting increased efficiency in that year.

A decline in turnover ratios in subsequent years through 2020 suggests reduced efficiency or asset base growth outpacing revenues.

The partial recovery in 2021 points to improved asset utilization or revenue growth relative to assets.

Effect of Inventory LIFO Reserve Adjustment

Adjusting for inventory LIFO reserve results in marginally higher asset values and slightly lower asset turnover ratios from 2019 onward.

This implies that LIFO adjustments increase the asset base but slightly depress turnover ratios, reflecting conservative inventory valuation effects.

The analysis of the annual financial data over the five-year period reveals several notable trends in asset management, equity, and financial leverage.

Total Assets

The reported total assets initially declined from 16,780 million US dollars in 2017 to 14,870 million in 2018. Afterwards, there was a moderate recovery, with assets increasing to 16,077 million by 2021. The adjusted total assets follow a similar pattern but consistently report slightly higher values than the reported figures, indicating adjustments perhaps related to inventory LIFO reserves. This adjustment margin remains fairly stable over time.

Stockholders’ Equity Attributable to Illinois Tool Works

Reported equity shows a marked decrease from 4,585 million in 2017 to 3,026 million in 2019, after which a gradual improvement occurs, reaching 3,625 million by 2021. Adjusted equity values reflect the same pattern but are consistently higher than reported figures, suggesting that the LIFO adjustment positively impacts shareholders' equity. The equity trough in 2019 followed by a recovery indicates potential challenges during that period and a subsequent stabilization or growth phase.

Financial Leverage

The reported financial leverage ratio rises sharply from 3.66 in 2017 to 4.98 in 2019, implying increased reliance on debt financing relative to equity. Thereafter, it slightly decreases to 4.44 by 2021, which may indicate some de-leveraging or equity growth relative to debt. Adjusted financial leverage ratios are slightly lower than reported figures but exhibit a similar trend over time, reinforcing the impact of inventory and equity adjustments on leverage measurement.

Overall, the data suggest a period of contraction and increased leverage culminating around 2019, followed by gradual recovery and reduced financial leverage through 2021. The adjustments for inventory LIFO reserves consistently increase asset and equity values, resulting in slightly lower financial leverage ratios, which may provide a more conservative picture of financial risk.

The financial data exhibits notable fluctuations in profitability and equity metrics over the five-year period ending December 31, 2021. Both reported and adjusted net incomes demonstrate variability, initially increasing from 2017 through 2018, followed by a slight decrease in 2019 and 2020, and a recovery in 2021 to the highest recorded level within the timeframe.

Net Income Trends

Reported net income increased substantially from $1,687 million in 2017 to $2,563 million in 2018. It then slightly declined to $2,521 million in 2019 and further decreased to $2,109 million in 2020. The figure rebounded to $2,694 million in 2021, exceeding previous highs. Adjusted net income closely mirrors this pattern, with slight variances that suggest minor effects from inventory LIFO reserve adjustments.

Stockholders’ Equity Patterns

Reported stockholders’ equity attributable to the company exhibits a downward trend from $4,585 million in 2017 to $3,026 million in 2019, before showing modest recovery through 2021 to $3,625 million. Adjusted equity values are consistently higher than reported figures, indicating the inclusion of LIFO reserve adjustments. The adjusted equity follows a similar trajectory but maintains a higher baseline, reaching $3,743 million at the end of 2021.

Return on Equity (ROE) Analysis

Reported ROE results are relatively high, starting at 36.79% in 2017 and peaking at 83.31% in 2019 before declining in 2020 and increasing again in 2021 to 74.32%. Adjusted ROE values are slightly lower but maintain the same general trend, peaking at 80.67% in 2019 and concluding at 72.94% in 2021. The high ROE figures suggest strong profitability relative to equity, though the decline in equity levels over the years contributes to elevated ratios.

Overall, the trends indicate that although net income recovered and achieved new highs in 2021 after a dip in 2019-2020, stockholders' equity decreased significantly through 2019 before a gradual rebound commenced. The high ROE reflects the interplay of these changes, suggesting the company was able to generate substantial returns despite reduced equity bases. LIFO reserve adjustments appear to moderately increase equity and net income values but do not fundamentally alter these observed patterns.

The financial data demonstrates discernible trends in net income, total assets, and return on assets (ROA) over the five-year period.

Net Income

Both reported and adjusted net income exhibit an overall upward trend from 2017 to 2021. Reported net income increased from $1,687 million in 2017 to $2,694 million in 2021, with a notable peak in 2018 at $2,563 million. Adjusted net income follows a similar pattern, rising from $1,690 million in 2017 to $2,730 million in 2021. There is a slight decline observed in 2020 compared to 2019, before recovering strongly in 2021. The close proximity of reported and adjusted figures suggests minimal impact from LIFO reserve adjustments on net income.

Total Assets

Reported total assets display minor fluctuations, starting at $16,780 million in 2017, declining to $14,870 million in 2018, then gradually increasing to $16,077 million by 2021. Adjusted total assets mirror this trend closely but consistently register slightly higher values, indicating that adjusting for LIFO reserves increases asset values marginally. The increase after 2018 indicates an expansion in asset base over the latter years.

Return on Assets (ROA)

Both reported and adjusted ROA percentages show similar trends with a peak in 2018 (17.24% reported, 17.18% adjusted), followed by a decrease in 2020 (13.51% reported, 13.39% adjusted), and a subsequent partial recovery in 2021. The close alignment between reported and adjusted ROA percentages indicates that LIFO inventory adjustments have a negligible effect on ROA calculation. The fluctuations in ROA mirror the net income trends relative to the asset base.

Overall, the data indicates stable financial performance with growth in net income and asset base over the period, albeit with some volatility in 2019 and 2020. The adjustments for LIFO reserve have a consistent but marginal effect, slightly increasing assets and net income without materially altering profitability ratios.