Illinois Tool Works Inc. (NYSE:ITW)

Return on Assets (ROA)

The Return on Assets exhibited a positive trend between 2017 and 2018, increasing from 10.05% to 17.24%. It then slightly decreased to 16.73% in 2019, followed by a further reduction to 13.51% in 2020. In 2021, the ROA rebounded to 16.76%. Overall, the ROA demonstrates relatively strong profitability with some fluctuation, but maintaining levels significantly above 10% through the observed period.

Financial Leverage

Financial leverage showed an increasing trend from 3.66 in 2017 to a peak of 4.98 in 2019. After 2019, it slightly declined to 4.91 in 2020 and further decreased to 4.44 in 2021. This indicates a progressive increase in leverage over the first three years, followed by a moderate reduction in the later years, suggesting some deleveraging or changes in capital structure after 2019.

Return on Equity (ROE)

The ROE experienced significant growth from 36.79% in 2017 to a striking 78.76% in 2018 and peaked at 83.31% in 2019. Afterward, it declined to 66.3% in 2020 before increasing again to 74.32% in 2021. These high ROE levels indicate strong profitability and effective use of equity. The volatility observed might be influenced by changes in financial leverage and asset performance within the same period.

Net Profit Margin

The net profit margin demonstrated an overall positive trend over the analyzed periods. Starting at 11.79% in 2017, it increased significantly in 2018 to 17.36%, then experienced a slight rise to 17.87% in 2019. A minor dip occurred in 2020, with the margin decreasing to 16.77%, followed by a recovery to 18.64% in 2021, marking the highest level within the given timeframe.

Asset Turnover

The asset turnover ratio showed variability with an initial increase from 0.85 in 2017 to 0.99 in 2018, indicating improved efficiency in utilizing assets to generate revenue. It slightly decreased to 0.94 in 2019, followed by a more pronounced decline to 0.81 in 2020, reflecting a reduction in asset utilization efficiency during that year. However, a partial recovery occurred in 2021, with the ratio rising to 0.9.

Financial Leverage

Financial leverage increased steadily from 3.66 in 2017 to a peak of 4.98 in 2019, suggesting greater use of debt or other liabilities to finance assets. After 2019, leverage maintained a similarly high level with a slight decrease to 4.91 in 2020 and further reduction to 4.44 in 2021, indicating cautious deleveraging or improved equity base in recent years.

Return on Equity (ROE)

Return on equity exhibited substantial growth from 36.79% in 2017 to 78.76% in 2018 and further to 83.31% in 2019, highlighting a pronounced increase in profitability relative to shareholders' equity. A decline was observed in 2020, with ROE decreasing to 66.3%, yet the ratio rebounded to 74.32% in 2021, remaining well above the initial value in 2017, reflecting strong and sustained returns despite some volatility.

Summary of Trends

Overall, profitability metrics such as net profit margin and return on equity showed significant improvements, with minor fluctuations during 2020, which could be attributed to external economic factors. Asset turnover experienced some variability, primarily decreasing during 2020 and recovering slightly thereafter, indicating changes in asset utilization efficiency over time. Financial leverage increased until 2019, followed by gradual reduction, suggesting a strategic adjustment in capital structure amid evolving business conditions. The combination of these trends indicates enhanced profitability supported by efficient asset use and a managed leverage position across the observed period.

Tax Burden

The tax burden ratio displayed a consistent upward trend over the analyzed period, increasing from 0.52 in 2017 to 0.81 in 2021. This indicates a gradual rise in the proportion of earnings retained after tax, reflecting improved tax efficiency or favorable tax conditions.

Interest Burden

The interest burden ratio remained relatively stable throughout the years, fluctuating slightly between 0.93 and 0.94. This consistency suggests a steady level of interest expense relative to earnings before interest and taxes, indicating stable financing costs.

EBIT Margin

EBIT margin percentages showed minor fluctuations, beginning at 24.66% in 2017 and reaching 24.41% in 2021, with a notable dip to 23.14% in 2020. Despite this, the margin remained fairly stable, suggesting consistent operational efficiency with a temporary reduction around 2020.

Asset Turnover

Asset turnover initially increased from 0.85 in 2017 to 0.99 in 2018, indicating improved efficiency in generating revenue from assets. However, it declined in subsequent years, reaching a low of 0.81 in 2020 before recovering to 0.90 in 2021. This pattern points to variability in asset utilization over the period.

Financial Leverage

Financial leverage rose significantly from 3.66 in 2017 to a peak of 4.98 in 2019, implying increased reliance on debt or other liabilities to finance assets. It then decreased to 4.44 by 2021, suggesting a reduction in leverage and possibly a more conservative capital structure toward the end of the period.

Return on Equity (ROE)

Return on equity exhibited considerable volatility, surging from 36.79% in 2017 to a high of 83.31% in 2019, followed by a decline to 66.3% in 2020 and partial recovery to 74.32% in 2021. These changes reflect fluctuations in profitability and financial efficiency, possibly influenced by variations in tax burden, leverage, and operational performance.

The financial performance indicators for the analyzed periods reveal distinct trends in profitability, asset utilization, and overall efficiency.

Net Profit Margin (%)

The net profit margin displayed an overall increasing trend from 11.79% in 2017 to 18.64% in 2021. There was a significant rise between 2017 and 2018, followed by a moderate increase in 2019. A slight dip occurred in 2020, after which the margin increased again in 2021 to the highest recorded level within the period. This suggests improvements in cost control or pricing strategies, leading to higher profitability relative to sales.

Asset Turnover (ratio)

Asset turnover showed fluctuations over the observed years. It increased from 0.85 in 2017 to 0.99 in 2018, indicating more effective use of assets to generate revenue. However, this was followed by a decline to 0.94 in 2019 and a more pronounced decrease to 0.81 in 2020. The ratio recovered somewhat in 2021, reaching 0.90 but did not return to the peak level observed in 2018. This pattern suggests varying efficiency in asset utilization, with a notable impact during 2020, possibly related to external factors affecting operations.

Return on Assets (ROA) (%)

The ROA ratio closely followed the combined influences of profit margins and asset turnover. It rose sharply from 10.05% in 2017 to 17.24% in 2018, slightly declined to 16.73% in 2019, and decreased further to 13.51% in 2020. The recovery to 16.76% in 2021 indicates an improvement in generating returns from assets. The trend suggests that despite fluctuations in asset turnover, the company maintained relatively strong profitability contributing to solid returns.

In summary, the company demonstrated an overall positive trajectory in profitability, with particularly strong profit margins and ROA improvements, despite some challenges in asset turnover especially in 2020. The dip in asset turnover and ROA in 2020 could reflect operational disruptions or external market conditions but was partially reversed by 2021, indicating resilience and effective management adjustments.

The financial data over the five-year period reveals several notable trends in profitability and efficiency ratios.

Tax Burden

The tax burden ratio increased consistently from 0.52 in 2017 to 0.81 in 2021. This upward trend indicates a growing proportion of earnings retained after tax, suggesting improved tax efficiency or changes in tax policy affecting the effective tax rate.

Interest Burden

The interest burden ratio remained relatively stable throughout the period, fluctuating minimally between 0.93 and 0.94. This stability reflects consistent management of interest expenses in relation to earnings before interest and taxes.

EBIT Margin

The EBIT margin displayed minor variations around the mid-20s percentage, declining slightly in 2020 to 23.14% from previous years which hovered near 24.7%. It rebounded somewhat in 2021 to 24.41%. This pattern may indicate resilience in operational profitability even amid challenging conditions such as the 2020 economic environment.

Asset Turnover

Asset turnover showed growth from 0.85 in 2017 to a peak of 0.99 in 2018, followed by a decline to 0.81 in 2020, then partially recovering to 0.90 in 2021. This trend signals fluctuating efficiency in utilizing assets to generate revenue, with a noticeable dip in 2020 likely linked to external disruptions.

Return on Assets (ROA)

ROA increased significantly from 10.05% in 2017 to a high of 17.24% in 2018, then showed slight decline in subsequent years, bottoming at 13.51% in 2020 before rising again to 16.76% in 2021. The movement of ROA corresponds broadly with patterns in asset turnover and EBIT margin, reflecting the company’s varying ability to generate profit from its asset base over the period.

Overall, the data shows a company maintaining relatively strong operational profitability and asset efficiency, with some impacts likely related to external economic factors around 2020. The increasing tax burden and stable interest burden ratios further highlight effective financial management practices.

The analysis of the annual financial ratios reveals distinct trends in profitability and burden factors over the five-year period.

Tax Burden

The tax burden ratio showed a consistent upward trend from 0.52 in 2017 to 0.81 in 2021. This increase suggests that the effective tax rate relative to pre-tax income has risen substantially, indicating higher tax expenses impacting net earnings over time.

Interest Burden

The interest burden ratio remained relatively stable throughout the period, fluctuating narrowly between 0.93 and 0.94. This stability indicates consistent interest expense management relative to earnings before interest and taxes (EBIT), with no significant increases in debt-related costs.

EBIT Margin

The EBIT margin maintained a stable performance around the 24-25% range from 2017 through 2019, with a slight dip to 23.14% in 2020, followed by a recovery to 24.41% in 2021. This pattern suggests resilience in operating profitability, notwithstanding a minor setback likely related to external pressures experienced during 2020.

Net Profit Margin

The net profit margin depicted a significant improvement from 11.79% in 2017 to 18.64% in 2021. The ratio increased steadily each year except for a minor decline in 2020, paralleling the trend in EBIT margin but showing a stronger positive trajectory overall. This indicates enhanced efficiency or favorable changes beyond operating profit, possibly from improved tax strategies or lower non-operating costs after 2017.

In summary, the data indicate that while tax burdens increased considerably, the company maintained stable interest costs and robust operating earnings. Net profitability improved substantially over the period, reflecting overall effective financial management and operational resilience despite heightened tax impacts and a temporary downturn coinciding with 2020.