Illinois Tool Works Inc. (NYSE:ITW)

The analysis of the financial metrics over the five-year period reveals several notable trends in the company’s operational efficiency, liquidity, leverage, profitability, and returns.

Total Asset Turnover

The reported total asset turnover ratio showed moderate fluctuation, initially increasing from 0.85 in 2017 to a peak of 0.99 in 2018, followed by a decline in 2020 to 0.81 before partially recovering to 0.90 in 2021. The adjusted total asset turnover mirrored this trend with slightly higher values, peaking at 1.01 in 2018 and experiencing a dip in 2020. This indicates the company’s efficiency in using assets to generate sales improved notably in 2018 but faced challenges during 2020, likely linked to external factors.

Current Ratio

Liquidity as measured by the current ratio displayed volatility. The reported current ratio notably decreased from 2.38 in 2017 to 1.63 in 2018, then surged to 2.90 in 2019, followed by a decline to 1.84 in 2021. Adjusted current ratios were consistently higher, peaking at 3.31 in 2019. This variability suggests fluctuating short-term financial stability, with liquidity strengthening significantly in 2019 before receding in the final year.

Debt to Equity and Debt to Capital

The reported debt to equity ratio rose steadily from 1.82 in 2017 to a high of 2.56 in 2019, maintaining elevated levels over the subsequent years but easing to 2.12 in 2021. The adjusted ratio follows a similar but somewhat lower pattern, indicating a reduction in leverage when adjustments are considered. Similarly, debt to capital ratios remained relatively stable, with a slight increase from roughly 0.64 to 0.72 between 2017 and 2020, then a decline to approximately 0.68 in 2021. Overall, the company experienced increased leverage until 2019-2020, followed by modest deleveraging in 2021.

Financial Leverage

Financial leverage as reported showed a pronounced increase from 3.66 in 2017 to 4.98 in 2019 followed by a slight decline to 4.44 in 2021. Adjusted financial leverage also rose but remained consistently below the reported figures, which may reflect the impact of adjustments mitigating certain leverage components. This trend aligns with the pattern seen in debt ratios, indicating a peak in financial leverage around 2019 and some reduction thereafter.

Net Profit Margin

Reported net profit margin improved steadily from 11.79% in 2017 to 18.64% in 2021, demonstrating enhanced profitability. Although there was a minor dip in 2020, the margin showed a strong recovery in 2021. Adjusted figures corroborate this upward trend, moving from 16.03% to 19.79% over the period, which points to sustained profit efficiency after adjustments.

Return on Equity (ROE)

ROE exhibited significant growth, with the reported values rising sharply from 36.79% in 2017 to a peak of 83.31% in 2019 before decreasing to 74.32% in 2021. The adjusted ROE figures were lower and more stable, yet similarly displayed an upward trajectory followed by a decline. This pattern suggests strong profitability driven partly by increased leverage, with some normalization in recent years.

Return on Assets (ROA)

Reported ROA increased from 10.05% in 2017 to 16.76% in 2021, despite a dip in 2020. The adjusted ROA showed gradual improvement as well, rising from 13.77% to 18.47%. The positive trend in ROA indicates enhanced asset utilization and profitability independent of leverage effects across the period analyzed.

In summary, the company demonstrated improved operational efficiency and profitability, with peak leverage and financial risk occurring around 2019-2020 followed by a moderate reduction. Liquidity ratios fluctuated, indicating some variability in short-term financial health. The overall pattern suggests effective management of assets and profitability amidst changes in capital structure and market conditions.

Operating Revenue

The operating revenue demonstrated moderate fluctuations over the five-year period. It increased from 14,314 million USD in 2017 to a peak of 14,768 million USD in 2018, followed by a decline to 14,109 million USD in 2019. A more significant decrease occurred in 2020, with revenue dropping to 12,574 million USD, likely influenced by external economic factors. However, there was a recovery in 2021, with revenue rising again to 14,455 million USD, approaching earlier levels.

Total Assets

Total assets exhibited a downward trend initially, decreasing from 16,780 million USD in 2017 to 14,870 million USD in 2018. Subsequently, assets stabilized and slightly increased over the following years, reaching 16,077 million USD by 2021. This indicates a phase of asset reduction followed by a period of asset accumulation or revaluation.

Reported Total Asset Turnover

The reported total asset turnover ratio improved substantially from 0.85 in 2017 to 0.99 in 2018, indicating enhanced efficiency in utilizing assets to generate revenue. Thereafter, the ratio declined to 0.94 in 2019 and further to 0.81 in 2020, reflecting reduced asset productivity, possibly due to the revenue decrease in 2020. In 2021, the ratio improved to 0.90, suggesting a partial recovery in asset usage efficiency.

Adjusted Operating Revenue

Adjusted operating revenue closely mirrored the pattern of reported operating revenue, starting at 14,339 million USD in 2017 and peaking at 14,778 million USD in 2018. There was a subsequent dip to 14,082 million USD in 2019, followed by a more pronounced decline to 12,608 million USD in 2020. A rebound occurred in 2021, with adjusted revenue increasing to 14,627 million USD, demonstrating resilience and alignment with the operational performance trends.

Adjusted Total Assets

Adjusted total assets decreased from 16,691 million USD in 2017 to 14,637 million USD in 2018 and remained relatively stable around 14,600 million USD through 2019. From 2020 onward, a gradual increase was observed, reaching 15,671 million USD in 2021. This trend suggests a controlled asset base adjustment with recovery efforts post-2019.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio followed a pattern similar to the reported ratio. It rose from 0.86 in 2017 to a peak of 1.01 in 2018, indicating high efficiency in asset utilization. A slight decline ensued, with the ratio falling to 0.96 in 2019 and more noticeably to 0.83 in 2020, consistent with lower revenue generation. The ratio then improved to 0.93 in 2021, reflecting a positive trend in asset use following the recovery in operating revenues.

Current Assets and Liabilities

Current assets exhibited a decline from 7,278 million USD in 2017 to 5,778 million USD in 2018, followed by a moderate recovery reaching 6,523 million USD in 2020, before slightly decreasing to 6,374 million USD in 2021. Current liabilities rose from 3,053 million USD in 2017 to 3,542 million USD in 2018, then notably decreased to 2,154 million USD in 2019. However, they increased again to 3,470 million USD by 2021.

Reported Current Ratio

The reported current ratio displayed significant fluctuations over the period. It decreased sharply from 2.38 in 2017 to 1.63 in 2018, then improved substantially to 2.90 in 2019. A slight dip to 2.52 was observed in 2020, followed by a decline to 1.84 in 2021. This pattern suggests variability in liquidity, with the company’s ability to cover short-term obligations weakening notably by the end of the period compared to the peak in 2019.

Adjusted Current Assets and Liabilities

Adjusted current assets mirrored the trend of the unadjusted figures, starting at 7,410 million USD in 2017, dropping to 5,896 million USD in 2018, rising again to 6,634 million USD in 2020, and then slightly decreasing to 6,520 million USD in 2021. Adjusted current liabilities decreased from 2,803 million USD in 2017 to 1,921 million USD in 2019, before climbing to 3,030 million USD in 2021. This adjustment indicates that the liabilities reduction in 2019 was more pronounced than in the reported figures.

Adjusted Current Ratio

The adjusted current ratio showed a pattern generally consistent with the reported ratio but remained higher throughout the period, indicating that the adjustments reflect a stronger liquidity position. It decreased from 2.64 in 2017 to 1.80 in 2018, peaked at 3.31 in 2019, declined to 2.86 in 2020, and then dropped to 2.15 in 2021. Despite the declines in 2018 and 2021, the ratio remains above 2.0 at the end of the period, suggesting a relatively stable adjusted liquidity compared to the reported measure.

Summary of Trends and Insights

Overall, the company’s liquidity as measured by both reported and adjusted current ratios experienced volatility, with improvement peaking in 2019 followed by a gradual decline. The decrease in current liabilities in 2019 contributed significantly to enhanced liquidity ratios. However, the subsequent increase in liabilities and corresponding reduction in assets caused the ratio to decline post-2019. The adjusted ratios indicate a stronger liquidity position throughout, possibly reflecting the exclusion or adjustment of certain volatile or non-operational items. These trends suggest a need for monitoring short-term financial management to maintain liquidity at desirable levels.

Total Debt

The total debt experienced fluctuations over the analyzed periods. Starting at 8,328 million USD in 2017, it decreased to 7,380 million USD in 2018, followed by a moderate increase in subsequent years, reaching 8,122 million USD in 2020, before declining again to 7,687 million USD in 2021. Overall, total debt remained within a narrow range without a clear upward or downward trend.

Stockholders’ Equity Attributable to ITW

Stockholders’ equity showed a declining trend from 2017 to 2019, dropping from 4,585 million USD to 3,026 million USD. After 2019, equity values stabilized and began to recover, rising to 3,625 million USD by 2021. Despite the recovery, the equity level in 2021 remained below that observed in 2017.

Reported Debt to Equity Ratio

The reported debt to equity ratio increased significantly from 1.82 in 2017 to a peak of 2.56 in 2019, indicating greater leverage and higher relative debt levels compared to equity. The ratio remained elevated at approximately 2.55 in 2020 before decreasing to 2.12 in 2021, reflecting a partial deleveraging.

Adjusted Total Debt

The adjusted total debt mirrored the pattern of total debt, starting at 8,612 million USD in 2017, decreasing in 2018, increasing through 2020, and then declining by 2021. The adjustments result in values somewhat higher than unadjusted totals, but the overall trend remains consistent.

Adjusted Total Stockholders’ Equity

Adjusted equity values exhibited a downward trend from 4,630 million USD in 2017 to 3,524 million USD in 2019, followed by a recovery phase reaching 4,314 million USD by 2021. The recovery in adjusted equity was more pronounced compared to unadjusted equity, surpassing the 2017 level by the end of the period.

Adjusted Debt to Equity Ratio

The adjusted debt to equity ratio increased from 1.86 in 2017 to 2.30 in 2020, indicating heightened leverage. However, a notable decrease to 1.83 occurred in 2021, suggesting an improvement in the company's capital structure, with debt levels becoming relatively lower compared to equity.

Summary of Insights

The company experienced moderate fluctuations in debt levels over the period, with a tendency toward slight increases until 2020 followed by reductions in 2021. Shareholders' equity declined during the initial years, then rebounded, particularly in adjusted figures, showing some strength in restoring capital. Correspondingly, leverage ratios increased up to 2020, reflecting increased reliance on debt, but showed signs of improvement in 2021, indicating a potentially more balanced financial structure entering the latest reporting year.

Total Debt

The total debt showed a fluctuating trend over the five-year period. It decreased from $8,328 million in 2017 to $7,380 million in 2018, then increased to $7,758 million in 2019 and further to $8,122 million in 2020. By 2021, it declined again to $7,687 million. Overall, the debt level experienced moderate volatility without a clear upward or downward long-term trend.

Total Capital

Total capital declined markedly from $12,913 million in 2017 to $10,634 million in 2018. Following this, it remained relatively stable with slight increases through 2021, ending at $11,312 million. This reflects a significant contraction initially, with subsequent stabilization but not a full recovery to 2017 levels.

Reported Debt to Capital Ratio

This ratio rose from 0.64 in 2017 to peak at 0.72 in 2019 and 2020, indicating an increasing reliance on debt financing relative to total capital during those years. In 2021, the ratio decreased to 0.68, suggesting a modest improvement in the capital structure balance.

Adjusted Total Debt

Adjusted total debt mirrors the trend in reported total debt, starting at $8,612 million in 2017, dipping to $7,583 million in 2018, then climbing to $7,937 million in 2019 and $8,310 million in 2020, before falling back to $7,881 million in 2021. These adjustments consistently track the general debt fluctuations observed.

Adjusted Total Capital

Adjusted total capital shows a significant drop from $13,242 million in 2017 to $11,372 million in 2018, followed by a gradual increase to $12,195 million by 2021. The adjusted data reinforce the pattern of initial contraction followed by recovery, albeit not reaching the starting level within the timeframe.

Adjusted Debt to Capital Ratio

The adjusted debt to capital ratio increased steadily from 0.65 in 2017 to 0.70 in 2020, reflecting a gradual increase in debt relative to capital. In 2021, the ratio declined to 0.65, indicating a return to the debt-to-capital starting point, suggesting an improvement in financial leverage and possibly a strategic reduction of debt or increase in capital base.

Summary

Over the five years, the company experienced fluctuating debt levels with an initial decrease followed by increases and a final decline. Capital, both reported and adjusted, contracted sharply in 2018 but showed slow recovery thereafter. The debt to capital ratios, both reported and adjusted, increased to peak in 2019-2020, indicating higher leverage, before decreasing in 2021 towards initial levels, suggesting efforts to improve financial structure. Overall, the data indicate a period of financial adjustment, characterized by cautious leverage management and capital stabilization.

Total assets

Total assets decreased from 2017 to 2018, falling from 16,780 million USD to 14,870 million USD, indicating a contraction during that period. From 2018 onwards, total assets showed a gradual recovery trend, increasing to 15,068 million USD in 2019, 15,612 million USD in 2020, and reaching 16,077 million USD by the end of 2021. Overall, the asset base declined initially but rebounded steadily towards 2021.

Stockholders’ equity attributable to ITW

Stockholders’ equity experienced a significant decline between 2017 and 2019, dropping from 4,585 million USD to 3,026 million USD. This downward trend moderated in 2020, with equity rising slightly to 3,181 million USD, followed by a more notable increase in 2021, reaching 3,625 million USD. This suggests a partial recovery in equity value after a substantial initial decrease.

Reported financial leverage

The reported financial leverage ratio increased sharply from 3.66 in 2017 to 4.98 in 2019, highlighting a growing reliance on debt or other liabilities relative to stockholders’ equity during these years. The ratio then declined somewhat to 4.91 in 2020 and further dropped to 4.44 in 2021. Despite this decline, the leverage level remained elevated compared to 2017, indicating a generally higher leverage position over the examined period.

Adjusted total assets

Adjusted total assets followed a similar pattern to the unadjusted total assets, showing an initial decrease from 16,691 million USD in 2017 to 14,637 million USD in 2018, then plateauing around 14,661 million USD in 2019 before gradually increasing to 15,190 million USD in 2020 and 15,671 million USD in 2021. The adjustments appear to have a modest impact on asset valuation but retain the overall trend.

Adjusted total stockholders’ equity

Adjusted equity decreased from 4,630 million USD in 2017 to 3,524 million USD in 2019, consistent with the pattern seen in reported equity. After 2019, adjusted equity showed a modest rise to 3,615 million USD in 2020 and a more substantial increase to 4,314 million USD in 2021, suggesting improved equity strength when adjustments are taken into account.

Adjusted financial leverage

The adjusted financial leverage ratio rose steadily from 3.61 in 2017 to 4.20 in 2020, reflecting increased leverage over this period. Notably, in 2021, the ratio fell sharply to 3.63, indicating a significant reduction in leverage when adjustments are considered. This suggests improved capital structure stability and reduced financial risk in the latest reported year.

Net Income Trend

Net income exhibited an overall upward trend from 2017 to 2021, increasing from $1,687 million to $2,694 million. It peaked in 2018 at $2,563 million, experienced a slight decline in 2019 and 2020, reaching a low of $2,109 million, before recovering strongly in 2021.

Operating Revenue Trend

Operating revenue showed moderate fluctuations over the five-year period. Starting at $14,314 million in 2017, it increased slightly in 2018, followed by a decline in 2019 and a more pronounced drop in 2020 to $12,574 million. By 2021, operating revenue rebounded to $14,455 million, approaching previous peak levels.

Reported Net Profit Margin Analysis

The reported net profit margin improved consistently throughout the period except for a slight decline in 2020. It rose from 11.79% in 2017 to a high of 18.64% in 2021, with 2020 marking a marginal dip to 16.77%. This reflects increasing profitability relative to operating revenue despite revenue fluctuations.

Adjusted Net Income Observations

Adjusted net income displayed some volatility, starting at $2,299 million in 2017, dipping slightly in 2018, then increasing in 2019 before falling again in 2020. The figure significantly improved in 2021 to $2,894 million, surpassing all previous years, indicating positive adjustments and operational improvements.

Adjusted Operating Revenue Pattern

The adjusted operating revenue closely mirrored the reported operating revenue trend but with slightly different values. It started at $14,339 million in 2017 and remained fairly stable through 2018, then declined through 2019 and 2020, reaching its lowest point in 2020 at $12,608 million. In 2021, adjusted operating revenue recovered to $14,627 million, suggesting restoration of core business performance.

Adjusted Net Profit Margin Insights

Adjusted net profit margin showed notable improvement over the period. It began at 16.03% in 2017, declined in 2018 to 15.21%, and then steadily increased to 19.79% in 2021. The upward trend post-2018 implies enhanced operational efficiency or cost management, leading to higher profitability margins on an adjusted basis.

Net Income

The net income showed an initial rise from 1687 million USD in 2017 to a peak of 2563 million USD in 2018. It slightly declined to 2521 million USD in 2019, followed by a more noticeable decrease to 2109 million USD in 2020. However, it rebounded significantly in 2021, reaching the highest value of 2694 million USD within the period under review.

Stockholders’ Equity Attributable to ITW

The equity attributable to stockholders declined sharply from 4585 million USD in 2017 to 3254 million USD in 2018, continuing a downward trend to 3026 million USD in 2019. The equity then showed a slight recovery in 2020, reaching 3181 million USD, followed by further growth to 3625 million USD in 2021.

Reported Return on Equity (ROE)

The reported ROE showed a dramatic increase from 36.79% in 2017 to 78.76% in 2018 and a further increase to 83.31% in 2019. It then decreased to 66.30% in 2020 but rose again to 74.32% in 2021. This pattern suggests significant volatility in profitability relative to shareholders’ equity.

Adjusted Net Income

Adjusted net income was higher than reported net income in 2017 and 2018, beginning at 2299 million USD in 2017 and slightly decreasing to 2248 million USD in 2018. It experienced an upward trend thereafter, rising to 2489 million USD in 2019, followed by a decrease to 2178 million USD in 2020, and then increasing sharply to 2894 million USD in 2021, reaching the highest level during the period.

Adjusted Total Stockholders’ Equity

This metric declined from 4630 million USD in 2017 to 3789 million USD in 2018 and further to 3524 million USD in 2019. From 2020 onward, it displayed an improving trend, increasing to 3615 million USD and then to 4314 million USD in 2021, indicating a recovery in adjusted equity values.

Adjusted Return on Equity (ROE)

The adjusted ROE was consistently high but showed variability, starting at 49.65% in 2017 and rising to 59.33% in 2018. It further increased to 70.63% in 2019, dropped to 60.25% in 2020, and rebounded to 67.08% in 2021. This pattern reflects fluctuations in profitability when adjustments to income and equity are considered.

Overall Analysis

The data reveals considerable fluctuations in profitability and equity levels over the five-year span. Both net income and adjusted net income experienced declines in 2020, likely reflective of challenging conditions during that year, followed by a robust recovery in 2021. Equity levels likewise decreased markedly in the early years before beginning a recovery trend in later periods. The reported and adjusted ROE metrics exhibit volatility but generally remain at elevated levels, indicating strong returns relative to equity despite the underlying fluctuations in earnings and equity bases.

The analysis of the financial data over the five-year period reveals several noteworthy trends and fluctuations in profitability and asset management.

Net Income

Net income showed overall growth from 2017 to 2021, rising from 1,687 million US dollars to 2,694 million US dollars. There was a peak in 2018 reaching 2,563 million dollars, followed by a slight decline in 2019 and 2020, but the value recovered strongly in 2021 to the highest level in the series.

Total Assets

Total assets experienced a decrease from 16,780 million dollars in 2017 to 14,870 million dollars in 2018, before stabilizing and showing a gradual incremental increase each year through 2021, reaching 16,077 million dollars. The overall asset base thus ended slightly below the initial 2017 level after a dip in the middle years.

Reported Return on Assets (ROA)

The reported ROA followed a fluctuating but generally strong trend. It increased sharply from 10.05% in 2017 to 17.24% in 2018, remained high in 2019 at 16.73%, then declined to 13.51% in 2020, before rising again to 16.76% in 2021. These movements indicate variable efficiency in utilizing total assets to generate net income, with a notable drop during 2020.

Adjusted Net Income

The adjusted net income, which may exclude certain one-time items or provide a normalized measure, started at 2,299 million dollars in 2017 and experienced a slight decline to 2,248 million dollars in 2018. It rebounded to 2,489 million in 2019, decreased in 2020 to 2,178 million, and then recorded the highest value in 2021 at 2,894 million dollars. The adjusted measure shows a somewhat smoother pattern than the reported net income but with a similar dip in 2020 and recovery in 2021.

Adjusted Total Assets

Adjusted total assets decreased from 16,691 million dollars in 2017 to 14,637 million dollars in 2018, remaining relatively flat in 2019 at 14,661 million. It increased steadily through 2020 and 2021, ending at 15,671 million dollars. The adjusted assets trajectory closely mirrors the reported total assets with a mid-period dip and later recovery.

Adjusted Return on Assets (Adjusted ROA)

Adjusted ROA trends show an initial increase from 13.77% in 2017 to 15.36% in 2018, continuing upward to 16.98% in 2019. There was a decline in 2020 to 14.34%, followed by a significant increase to 18.47% in 2021. This pattern aligns with the changes in adjusted net income and assets, signifying improved underlying profitability and asset utilization after the 2020 downturn.

In summary, the data depicts a company with generally improving earnings and profitability ratios over the period, despite a notable dip in 2020 likely due to external or extraordinary factors impacting that year. Both reported and adjusted profitability measures demonstrate resilience and a recovery trend by 2021. The asset base contracted in the early part of the period but gradually expanded later, supporting improved returns on assets toward the end of the timeline. The adjusted figures present a more smoothed perspective on performance, confirming the overall pattern of growth interrupted by a temporary setback.