Illinois Tool Works Inc. (NYSE:ITW)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes showed an overall upward trend during the period. It increased significantly from $1,924 million in 2017 to $2,774 million in 2018, then slightly decreased in 2019 to $2,672 million. There was a further decline in 2020 to $2,268 million, likely influenced by external factors affecting the business environment. However, the figure rebounded strongly in 2021, reaching its highest value in the period at $2,907 million.

Cost of Capital

The cost of capital remained relatively stable throughout the period with a slight upward trend. It started at 13.95% in 2017 and gradually increased each year, reaching 14.34% in 2021. This moderate increase suggests a rising expense related to the company’s financing or risk profile over time.

Invested Capital

Invested capital experienced minor fluctuations during the years observed. It decreased from $14,406 million in 2017 to $12,895 million in 2018, indicating a reduction in capital investment or asset base. After that, it increased incrementally each year to $13,033 million in 2019, $13,434 million in 2020, and $13,555 million in 2021. Overall, invested capital showed a moderate growth trend after the initial reduction.

Economic Profit

Economic profit exhibited notable variability over the period analyzed. It started with a negative value of -$85 million in 2017, indicating that the company was not generating returns above its cost of capital at that time. Economic profit then improved substantially to $966 million in 2018 and remained strong at $829 million in 2019. However, it decreased significantly in 2020 to $374 million, reflecting a challenging year for economic value creation. The metric recovered in 2021 to $963 million, nearing the peak levels seen earlier in the period.

Summary

The analysis reveals that profitability, as measured by NOPAT, experienced growth with some volatility, including a dip during 2020 followed by a recovery. The cost of capital showed a slight upward trend, indicating increased financing costs or perceived risk levels. Invested capital reduced sharply in 2018 but gradually increased thereafter, suggesting adjustments in asset investment strategy. Economic profit, an indicator of value creation beyond capital costs, mirrored the profit trend with improvement after an initial loss, a downturn in 2020, and a strong rebound in 2021. These patterns point to resilience and recovery capacity after an adverse period, possibly related to broader economic conditions during 2020.

Net Income

The net income exhibited an overall upward trend from 2017 to 2021, starting at 1,687 million US dollars in 2017 and rising to 2,694 million US dollars by 2021. There was a significant increase between 2017 and 2018, followed by a slight decline in 2019. A more noticeable decrease occurred in 2020, likely reflecting challenging conditions during that year. Nevertheless, the net income rebounded strongly in 2021, reaching its highest value in the period analyzed.

Net Operating Profit After Taxes (NOPAT)

Similar to net income, the NOPAT also demonstrated positive growth over the five-year span. It increased from 1,924 million US dollars in 2017 to 2,907 million US dollars in 2021. The data shows a peak in 2018, followed by a gradual decline in 2019 and 2020, before recovering substantially in 2021. The pattern aligns closely with the net income trend, indicating consistent operational performance and profitability improvements toward the end of the period.

Summary of Trends

Both net income and NOPAT reveal a pattern of growth with intermittent setbacks. The declines observed in 2019 and 2020 suggest external or internal challenges impacting profitability during those years. The recovery in 2021 indicates resilience and potential operational improvements or favorable market conditions. Overall, the financial results over the period reflect strong profitability with transient fluctuations rather than a continuous trend of increase or decrease.

The financial data reveals trends in the provision for income taxes and cash operating taxes over a five-year period ending in 2021.

Provision for Income Taxes

The provision for income taxes shows a clear downward trend from 2017 through 2020, starting at $1,583 million in 2017 and declining significantly to $595 million in 2020. This represents a decrease of approximately 62.4% over three years. In 2021, the provision for income taxes experienced a slight increase to $632 million, indicating a minor reversal of the prior years’ declining trend but still remaining well below the initial 2017 level.

Cash Operating Taxes

Cash operating taxes followed a similar pattern to the provision for income taxes but with less pronounced variability. Beginning at $1,597 million in 2017, cash operating taxes decreased to $666 million in 2020. This decline of roughly 58.3% over four years suggests effective cash tax management or changes in taxable income. Unlike the provision for income taxes, cash operating taxes increased notably in 2021 to $821 million, representing a larger rebound compared to the provision figure but still below 2017 values.

Overall, both tax-related expenses exhibit a significant downward trend during the initial four years, which may reflect changes in earnings, tax planning strategies, or tax rate adjustments. The partial recovery in both measures in 2021 suggests a stabilization or potential increase in taxable earnings or adjustments in tax liabilities. The gap between provision and cash operating taxes is relatively narrow throughout the period, indicating consistency between accrued and actual cash tax payments.

Total reported debt & leases

The total reported debt and leases exhibit some variability over the analyzed period. Starting at $8,612 million in 2017, the figure declines to a low of $7,583 million in 2018, before experiencing a gradual increase, reaching $8,310 million in 2020, and then decreasing again to $7,881 million in 2021. Overall, the debt level fluctuates within a relatively narrow range, indicating some active management of debt levels without significant long-term increases or decreases.

Stockholders’ equity attributable to ITW

Stockholders' equity shows a declining trend from 2017 through 2019, dropping from $4,585 million to $3,026 million. In 2020, there is a slight recovery to $3,181 million, followed by a more substantial increase to $3,625 million in 2021. This pattern suggests that the company faced equity reductions initially, with a partial rebound in the later years of the period under review.

Invested capital

Invested capital declines from $14,406 million in 2017 to $12,895 million in 2018, then experiences a steady increase each year to $13,033 million in 2019, $13,434 million in 2020, and $13,555 million in 2021. This trend indicates growing investment in the company's operations or assets after an initial drop, reflecting possibly increased capital expenditures or acquisition activity post-2018.

Economic Profit

The economic profit experienced significant fluctuations over the analyzed period. In 2017, it was negative at -85 million US dollars, indicating a loss in economic value. There was a substantial improvement in 2018, where economic profit surged to 966 million US dollars, showing strong value creation. This positive trend continued in 2019 with a slight decrease to 829 million but remained robust. However, in 2020, economic profit dropped considerably to 374 million US dollars, reflecting a reduced value generation possibly due to adverse conditions that year. By 2021, economic profit recovered strongly to 963 million US dollars, nearing the peak observed in 2018.

Invested Capital

Invested capital showed a relatively stable trend with moderate changes during the period. It started at 14,406 million US dollars in 2017 and decreased to 12,895 million in 2018, suggesting a reduction in the capital base. The figure saw a gradual increase in the following years, reaching 13,033 million in 2019, 13,434 million in 2020, and 13,555 million in 2021. Overall, the invested capital declined initially but then stabilized and marginally increased towards the end of the period.

Economic Spread Ratio

The economic spread ratio demonstrated considerable variability. In 2017, the ratio was negative at -0.59%, indicating that the returns did not cover the cost of capital. The ratio sharply improved to 7.49% in 2018, reflecting a period of strong profitability relative to capital costs. A modest decline followed in 2019, where the ratio fell to 6.36%, but it remained positive and fairly strong. In 2020, the ratio dropped significantly to 2.78%, indicating a notable decrease in profitability relative to invested capital. Nevertheless, the ratio rebounded in 2021 to 7.11%, close to the high levels observed earlier in 2018.

Summary

Overall, the financial data reveals a pattern of recovery and volatility in economic performance. The company overcame an economic loss in 2017 by generating strong value in the subsequent years, especially in 2018 and 2019. Despite a setback in 2020, possibly attributable to external challenges, both economic profit and economic spread ratio rebounded robustly in 2021. Invested capital showed a reduction initially but later stabilized and increased slightly. The fluctuations in the economic spread ratio and profit suggest sensitivity to changing conditions, but the company’s capacity to regain performance indicates resilience in maintaining value creation over the medium term.

Economic Profit

The economic profit exhibited significant fluctuations over the five-year period. Initially, it was negative at -85 million US dollars in 2017, indicating a loss in economic value. However, this quickly reversed in subsequent years, with economic profit increasing sharply to 966 million in 2018. Although it slightly declined to 829 million in 2019, it remained substantially positive. In 2020, economic profit dropped further to 374 million, reflecting a considerable contraction, potentially indicative of operational or market challenges during that year. By 2021, economic profit rebounded strongly to 963 million, nearly reaching the peak experienced in 2018.

Adjusted Operating Revenue

The adjusted operating revenue demonstrates a generally steady pattern with some volatility. From 2017 to 2018, revenue increased modestly from approximately 14.3 billion to 14.8 billion US dollars. It then declined to 14.1 billion in 2019 and further down to 12.6 billion in 2020, marking the lowest point in the period analyzed. This suggests a contraction in operations or sales in 2020. However, in 2021, revenue recovered markedly to 14.6 billion, surpassing the levels seen before the decline.

Economic Profit Margin

The economic profit margin follows a trend consistent with economic profit and revenue figures, starting negative at -0.6% in 2017 to a strong positive margin of 6.54% in 2018. Subsequently, the margin marginally decreased to 5.89% in 2019 and sharply declined to 2.96% in 2020, aligning with the dip in economic profit and revenue during that year. In 2021, the economic profit margin rebounded robustly to 6.59%, the highest in the period, indicating improved profitability relative to revenue.

Overall Trends and Insights

The data reveals a recovery pattern following notable downturns in both economic profit and revenue in 2020. The sharp declines in 2020 likely reflect external pressures affecting the company's performance in that year. Nonetheless, the strong rebound in 2021 across economic profit, operating revenue, and profit margin suggests effective management responses and operational resilience. The positive margins and near-peak economic profits in 2021 highlight an improvement in value creation beyond mere revenue growth. The volatility over the five years signifies exposure to fluctuating market or operational conditions but also points to the company's capacity for recovery and profitability enhancement.