Linde plc (NASDAQ:LIN)

The financial performance, as measured by economic profit, demonstrates a consistent negative trend over the five-year period. While net operating profit after taxes (NOPAT) increased significantly, it has not been sufficient to overcome the cost of capital applied to the invested capital base.

NOPAT Trend

Net operating profit after taxes exhibited an initial period of modest growth, increasing from US$3,800 million in 2021 to US$3,833 million in 2022. A substantial increase is then observed, with NOPAT reaching US$6,386 million in 2023, followed by further gains to US$6,814 million in 2024 and US$7,182 million in 2025. This indicates improving operational profitability.

Cost of Capital Trend

The cost of capital experienced a slight increase from 13.90% in 2021 to 14.00% in 2022 and peaked at 14.17% in 2023. It then decreased slightly to 14.04% in 2024 and further to 13.87% in 2025. These fluctuations suggest sensitivity to broader economic conditions and potential changes in financing strategies.

Invested Capital Trend

Invested capital generally increased throughout the period, moving from US$72,560 million in 2021 to US$72,341 million in 2022, then rising to US$73,409 million in 2023, US$74,884 million in 2024, and reaching US$80,195 million in 2025. This growth suggests ongoing investment in the business, potentially through capital expenditures or acquisitions.

Economic Profit Trend

Economic profit remained negative throughout the analyzed period. It started at -US$6,289 million in 2021 and decreased to -US$6,296 million in 2022. While the negative economic profit lessened to -US$4,013 million in 2023 and -US$3,702 million in 2024, it increased slightly to -US$3,939 million in 2025. This indicates that, despite the growth in NOPAT, the return generated is still below the required rate of return on invested capital.

The increasing NOPAT is a positive sign, but the persistent negative economic profit suggests that the company is not currently generating sufficient returns to cover its cost of capital. The continued growth in invested capital, coupled with a cost of capital that remains relatively stable, contributes to this outcome. Further investigation into the drivers of invested capital and the potential for improving returns is warranted.

Net income and net operating profit after taxes (NOPAT) exhibited positive trends over the five-year period. Both metrics demonstrate consistent growth, with a notable acceleration in later years. The difference between net income and NOPAT remains relatively small throughout the period, suggesting limited impact from financing or non-operating activities.

NOPAT Trend

NOPAT increased from US$3,800 million in 2021 to US$7,182 million in 2025. The growth was moderate between 2021 and 2022, with an increase of approximately 0.87%. A significant jump occurred between 2022 and 2023, with NOPAT rising to US$6,386 million, representing a growth of approximately 66.7%. This upward trajectory continued from 2023 to 2025, with increases of approximately 6.8% and 12.5% respectively.

Relationship between Net Income and NOPAT

The values for net income and NOPAT are closely aligned across all reported years. In 2021, NOPAT was US$3,800 million, compared to net income of US$3,826 million. This difference of US$26 million remained relatively consistent in 2022 (US$3,833 million NOPAT vs. US$4,147 million net income, a difference of US$314 million). The gap widened slightly in 2023 (US$6,386 million NOPAT vs. US$6,199 million net income) and continued to widen in 2024 (US$6,814 million NOPAT vs. US$6,565 million net income) and 2025 (US$7,182 million NOPAT vs. US$6,898 million net income). These differences suggest increasing non-operating items or financing costs as a percentage of overall profitability.

The consistent growth in NOPAT indicates improving core operational profitability. The increasing divergence between NOPAT and net income warrants further investigation to understand the drivers of these differences, potentially related to interest expense, taxes, or other non-operating items. Overall, the trend in NOPAT is positive and suggests strong underlying business performance.

The provision for income taxes and cash operating taxes both demonstrate an increasing trend over the five-year period. However, the magnitude of increase differs between the two items, and both exhibit some fluctuation in growth rate.

Provision for Income Taxes

The provision for income taxes increased from US$1,262 million in 2021 to US$1,814 million in 2023, representing a substantial rise. Growth slowed in 2024 to US$2,002 million, and then decreased slightly to US$1,989 million in 2025. This suggests a potential stabilization or minor reduction in tax obligations after a period of significant growth.

Cash Operating Taxes

Cash operating taxes exhibited a consistent increase throughout the period, rising from US$1,537 million in 2021 to US$2,516 million in 2025. The increase from 2021 to 2022 was US$298 million, while the increase from 2024 to 2025 was US$311 million, indicating a relatively consistent absolute increase in cash tax payments. The growth rate, however, decelerated slightly over time.

Relationship between Provision and Cash Taxes

Cash operating taxes consistently exceeded the provision for income taxes in each year. The difference between the two items varied between approximately US$275 million and US$527 million. This difference suggests the presence of timing differences between accounting income and taxable income, or potentially deferred tax assets/liabilities. The gap narrowed slightly between 2021 and 2023, then widened again in 2024 and 2025, indicating a changing dynamic in these timing differences.

Overall, the company experienced increasing tax obligations, both from an accounting perspective (provision for income taxes) and a cash flow perspective (cash operating taxes). The consistent difference between the two items warrants further investigation to understand the underlying causes and potential implications for future cash flows and financial reporting.

Analysis of the presented financial information reveals trends in the company’s capital structure and invested capital over a five-year period. Total reported debt and leases demonstrate a consistent upward trajectory, while total shareholders’ equity exhibits more fluctuation. Invested capital generally increases throughout the period, though its growth appears to be influenced by both debt and equity movements.

Debt & Leases

Total reported debt and leases increased steadily from US$15,216 million in 2021 to US$28,069 million in 2025. The rate of increase accelerated in later years, with a substantial rise between 2024 and 2025. This suggests an increasing reliance on debt financing.

Shareholders’ Equity

Total Linde plc shareholders’ equity decreased from US$44,035 million in 2021 to US$38,092 million in 2024, before experiencing a slight increase to US$38,245 million in 2025. This initial decline could be attributed to share repurchases, dividend payments, or unrealized losses. The stabilization in 2025 suggests a potential bottoming out of equity reduction.

Invested Capital

Invested capital remained relatively stable between 2021 and 2023, fluctuating around US$72-73 billion. A noticeable increase occurred in 2024, reaching US$74,884 million, and continued into 2025, reaching US$80,195 million. This growth in invested capital correlates with the increasing debt levels, indicating that debt financing is contributing to capital expansion. The slight dip in invested capital between 2021 and 2022 is likely due to the decrease in shareholders’ equity offsetting the increase in debt.

The combined effect of rising debt and fluctuating equity results in a generally increasing trend in invested capital. The company appears to be actively employing debt to fund its operations and growth initiatives, particularly in the later years of the observed period. Further investigation into the specific uses of the increased debt would be beneficial to assess the efficiency and effectiveness of these capital allocation decisions.

The economic spread ratio exhibited a notable improvement over the observed period, though economic profit remained negative. Invested capital generally increased throughout the timeframe. A detailed examination of these trends follows.

Economic Spread Ratio

The economic spread ratio demonstrated a consistent, albeit gradual, upward trend. Beginning at -8.67% in 2021, it improved to -4.91% by 2025. This indicates a decreasing gap between the company’s return on invested capital and its weighted average cost of capital. The largest single-year improvement occurred between 2022 and 2023, moving from -8.70% to -5.47%. Subsequent improvements were more modest.

Economic Profit

Despite the improvement in the economic spread ratio, economic profit remained negative throughout the period. While the magnitude of the loss decreased from US$6,289 million in 2021 to US$3,939 million in 2025, the company did not generate positive economic profit. The smallest loss was recorded in 2024 at US$3,702 million.

Invested Capital

Invested capital experienced a general increase over the five-year period. Starting at US$72,560 million in 2021, it rose to US$80,195 million in 2025. There was a slight decrease between 2021 and 2022, but subsequent years showed consistent growth. The largest increase in invested capital occurred between 2024 and 2025, with an addition of US$5,311 million.

In summary, while the economic spread ratio suggests improving efficiency in capital allocation, the company continued to destroy economic value as evidenced by the persistent negative economic profit. The increasing invested capital base did not translate into positive economic profit generation during this period.

The economic profit margin exhibited a consistent, though moderating, negative trend over the five-year period. While economic profit remained negative throughout, its magnitude decreased from 2021 to 2023, before stabilizing and showing a slight increase in the most recent year presented.

Economic Profit Margin

The economic profit margin began at -20.42% in 2021 and improved to -12.21% by 2023. This indicates a lessening of the disparity between economic profit and sales revenue. However, the margin experienced a slight deterioration in the subsequent two years, reaching -11.59% in 2025. This suggests that while improvements were made, sustaining positive economic profit remains a challenge.

Sales demonstrated an overall upward trajectory, increasing from US$30,793 million in 2021 to US$33,986 million in 2025. However, the growth rate in sales was not consistent, with a more substantial increase between 2021 and 2022, followed by a slight decrease in 2023, and then a resumption of growth in 2024 and 2025.

Relationship between Sales and Economic Profit

Despite the increase in sales, economic profit remained negative across the entire period. The improvement in the economic profit margin from 2021 to 2023 suggests that the company was becoming more efficient at converting sales into economic profit, but the absolute value of the economic loss remained substantial. The stabilization and slight worsening of the margin in 2024 and 2025, coupled with continued sales growth, indicates that the cost of capital, or other factors impacting economic profit, may be offsetting the benefits of increased revenue.

The trend in economic profit suggests that while the company is growing its top line, it is not yet generating returns exceeding its cost of capital. The recent stabilization of the economic profit margin, despite continued sales growth, warrants further investigation into the underlying drivers of economic profit and potential strategies for improvement.