Marathon Oil Corp. (NYSE:MRO)

The period under review demonstrates significant fluctuations in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibited considerable volatility, moving from a loss of US$659 million in 2017 to a profit of US$1,350 million in 2018, before declining to a loss of US$1,242 million in 2020 and recovering to a profit of US$1,116 million in 2021. Invested capital generally decreased over the five-year period, starting at US$17,726 million and ending at US$14,862 million. The cost of capital also fluctuated, peaking at 28.68% in 2021.

Economic Profit Trend

Economic profit consistently remained negative throughout the analyzed period, ranging from a low of US$-5,181 million in 2017 to a high of US$-3,146 million in 2021. While the magnitude of the negative economic profit lessened in 2021 compared to prior years, the company did not generate returns exceeding its cost of capital during any of the observed years. The most substantial decline in economic profit occurred between 2018 and 2020, coinciding with a significant decrease in NOPAT.

Relationship between NOPAT and Economic Profit

A strong correlation exists between NOPAT and economic profit. Years with positive NOPAT (2018 and 2021) saw a reduction in the magnitude of the negative economic profit, although not to a positive value. Conversely, years with negative NOPAT (2017, 2019, and 2020) resulted in larger negative economic profits. This indicates that the primary driver of economic profit is the company’s ability to generate operating profit after taxes.

Cost of Capital Impact

The cost of capital varied throughout the period. The highest cost of capital in 2021 (28.68%) coincided with one of the least negative economic profit figures, suggesting that even with a higher cost of capital, improved NOPAT can partially offset the impact on economic profit. However, the cost of capital’s influence is always present, as it consistently exceeds the NOPAT generated, resulting in negative economic profit.

Invested Capital Trend

The decreasing trend in invested capital may reflect strategic decisions to optimize capital allocation or divest assets. However, this reduction in invested capital did not translate into positive economic profit, indicating that the issue lies primarily with generating sufficient returns on the capital employed, rather than the level of investment itself.

Net income (loss)

The net income demonstrated significant volatility over the five-year period. In 2017, the company experienced a substantial loss of $5,723 million. This negative outcome was followed by a strong recovery in 2018, with net income rising to a positive $1,096 million. However, the subsequent years showed fluctuating performance, with a decline to $480 million in 2019, then a return to a loss of $1,451 million in 2020. The year 2021 saw another recovery, bringing net income back to a positive $946 million. The trend indicates cyclical financial performance with significant swings between profit and loss.

Net operating profit after taxes (NOPAT)

The NOPAT followed a broadly similar pattern to net income, reflecting operational profitability after tax considerations. In 2017, NOPAT was negative at $659 million, switching to a positive $1,350 million in 2018, which aligns with the recovery in net income that year. The profit reduced to $654 million in 2019 and fell again to a loss of $1,242 million in 2020, paralleling the downturn in net income. In 2021, NOPAT increased to $1,116 million, indicating improved operational efficiency or market conditions. This pattern suggests that operational profitability was a significant factor in the company's overall net income variability.

Income Tax Provisions (Benefits)

The income tax provisions experienced a notable fluctuation over the analyzed period. Starting at a relatively high positive figure in 2017 with 376 million US dollars, the value decreased to 331 million in 2018. In 2019 and 2020, the provisions turned negative, reflecting benefits rather than expenses, with -88 million and -14 million US dollars respectively. This shift indicates a period of tax benefits or credits. In 2021, the figure returned to a positive value of 58 million US dollars, though this amount remains significantly lower than the earlier years, suggesting a partial return to tax liabilities but not to previous levels.

Cash Operating Taxes

Cash operating taxes displayed a steep decline from 2017 to 2019, falling from 559 million US dollars down to a minimal 1 million. This sharp reduction suggests substantial changes in taxable operating activities or enhanced tax strategies during these years. A gradual increase followed in 2020 and 2021, reaching 66 million and 139 million US dollars, respectively. Despite this recovery, the 2021 value remains well below the levels observed in 2017 and 2018, indicating that the company's cash tax payments have not reverted to prior higher levels.

Total Reported Debt & Leases

The total reported debt and leases demonstrated a relatively stable trend from 2017 to 2020 with slight fluctuations, starting at $5,600 million in 2017 and peaking modestly at $5,709 million in 2019. However, there was a significant reduction in 2021, where the figure dropped sharply to $4,107 million, indicating a considerable deleveraging effort or repayment of debt and leases during that year.

Stockholders’ Equity

Stockholders’ equity showed moderate growth between 2017 and 2019, increasing from $11,708 million in 2017 to $12,153 million in 2019. This was followed by a decline in 2020 down to $10,561 million, likely reflecting the impact of market or operational challenges during that period. In 2021, equity stabilized somewhat with a slight increase to $10,686 million, suggesting a period of recovery or improved financial performance.

Invested Capital

Invested capital exhibited an overall downward trend over the five-year period. Beginning at $17,726 million in 2017, it remained relatively steady through 2018 and 2019 but declined sharply in 2020 to $16,214 million and further decreased in 2021 to $14,862 million. This decrease may indicate asset disposals, decreased capital expenditures, or a strategic shift in the company’s investment approach.

Summary Insights

Over the five-year span, the company appeared to strategically reduce its financial leverage, as evidenced by the significant decline in total reported debt and leases in 2021. This deleveraging was concurrent with a reduction in invested capital, possibly reflecting a realignment of capital allocation or divestitures. Stockholders’ equity experienced volatility, with a peak around 2019 followed by a contraction and slight rebound, which may be connected to broader market conditions or company-specific operational factors. Overall, the financial data indicates a trend toward lower debt levels and reduced invested capital, alongside a cautious stabilization of equity in the latest period.

The period under review demonstrates consistent negative economic profit for the entity, alongside a generally decreasing trend in invested capital. The economic spread ratio, calculated from these figures, reflects the firm’s ability to generate returns exceeding its cost of capital, and consistently registers negative values throughout the analyzed timeframe.

Economic Profit

Economic profit exhibits volatility, fluctuating between -5,181 million and -3,146 million. While a reduction in the loss is observed between 2017 and 2018, and again between 2019 and 2021, the entity consistently fails to generate positive economic profit. The largest loss occurred in 2017, with a subsequent increase in 2020 before a partial recovery in the final year of the period.

Invested Capital

Invested capital generally decreased over the five-year period, moving from 17,726 million in 2017 to 14,862 million in 2021. The most significant reduction occurred between 2020 and 2021. This decrease could be attributed to asset sales, reduced capital expenditure, or other strategic decisions impacting the capital base.

Economic Spread Ratio

The economic spread ratio consistently indicates returns below the cost of capital. The ratio ranges from -18.20% to -30.31%. A notable increase in the negative spread is observed between 2018 and 2020, before a slight improvement in 2021. The ratio’s movement generally mirrors that of economic profit, as it is directly derived from it and invested capital. The consistently negative values suggest the entity is destroying value for its investors.

In summary, the entity experienced negative economic profit throughout the period, coupled with a declining invested capital base. The economic spread ratio consistently reflected returns insufficient to cover the cost of capital, indicating a consistent erosion of shareholder value. While some fluctuations occurred, the overall trend suggests a challenging financial performance from an economic value perspective.

The period under review demonstrates consistent negative economic profit for the entity, alongside fluctuating revenues. The economic profit margin reflects this, remaining negative throughout the observed timeframe and exhibiting significant volatility.

Economic Profit

Economic profit consistently registers as a negative value across all reported years. While the magnitude of the loss fluctuates, it remains a persistent drain on value creation. The largest loss occurred in 2020, at US$4,915 million, while the least negative result was observed in 2021, at US$3,146 million. A slight improvement is noted between 2017 and 2018, followed by relative stability until the substantial decline in 2020, and a partial recovery in 2021.

Revenues

Revenues increased from US$4,373 million in 2017 to US$5,902 million in 2018, representing a substantial gain. However, revenues then decreased to US$5,063 million in 2019 before experiencing a significant drop to US$3,097 million in 2020. Revenues partially recovered in 2021, reaching US$5,601 million. This pattern suggests sensitivity to external factors impacting sales.

Economic Profit Margin

The economic profit margin is consistently negative, indicating that the entity’s returns are not exceeding its cost of capital. The margin experienced a decrease from -118.47% in 2017 to -56.34% in 2018, coinciding with the revenue increase. The margin then worsened to -64.53% in 2019. A dramatic decline to -158.71% occurred in 2020, mirroring the substantial revenue decrease. The margin improved to -56.17% in 2021, aligning with the partial revenue recovery. The substantial fluctuations in the margin highlight the sensitivity of profitability to both revenue levels and the cost of capital.

The observed correlation between revenue and economic profit margin suggests a strong link between sales performance and value creation. The consistently negative economic profit indicates an ongoing challenge in generating returns that exceed the cost of capital, despite periods of revenue growth.