Marathon Oil Corp. (NYSE:MRO)

The analyzed financial indicators reveal fluctuating operational performance during the five-year period ending in 2021. Net operating profit after taxes (NOPAT) exhibited pronounced volatility, showing a significant loss in 2017 and 2020, contrasted by positive earnings in 2018, 2019, and 2021. Specifically, the losses were -659 million USD and -1242 million USD for 2017 and 2020, respectively, while profits reached a peak of 1350 million USD in 2018. This pattern indicates periods of operational difficulty interspersed with recovery phases.

The cost of capital percentage increased overall, rising from 25.23% in 2017 to 28.36% in 2021, with a minor dip in 2019. This upward trend suggests potential increases in the required returns by investors or greater risk perception over time, which could impact investment decisions and the company’s capital budgeting strategies.

Invested capital remained relatively stable but demonstrated a declining trend starting from 2019. It peaked at 17954 million USD in 2019 and then decreased steadily to 14862 million USD by the end of 2021. This contraction in invested capital may signify strategic divestments, asset sales, or capital efficiency improvements aimed at optimizing the asset base.

Economic profit, a measure considering the cost of capital against net operating profit, remained negative throughout the entire period, indicating that the company struggled to generate value above its cost of capital. The losses in economic profit were most severe in 2017 and 2020, consistent with the patterns observed in NOPAT, though improvements were noted in other years. Despite the improving trend towards 2021, economic profit remained negative at -3099 million USD, reflecting continued challenges in value creation.

Summary of Trends

1. NOPAT exhibits significant volatility, with intermittent profitability interrupted by sizable losses.

2. The cost of capital shows a general upward trend, implying rising financing costs or risk premiums.

3. Invested capital declines after 2019, potentially indicating a shift towards leaner asset utilization.

4. Persistent negative economic profit highlights difficulty in covering capital costs, although the magnitude of losses has somewhat lessened recently.

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.

Economic Profit Trends

The economic profit remained negative across all reported years, indicating consistent economic losses. There was a notable improvement from 2017 to 2019, as the loss decreased from -$5,131 million to -$3,225 million. However, this trend reversed in 2020 when the loss increased again to -$4,876 million, before improving slightly in 2021 to -$3,099 million.

Invested Capital Trends

The invested capital showed a gradual decline over the period. Starting at $17,726 million in 2017, it remained relatively stable through 2018 and 2019, but decreased more significantly in 2020 and further in 2021 to $14,862 million. This contraction suggests a reduction in the company's capital base or asset investments over these years.

Economic Spread Ratio Trends

The economic spread ratio, which remained negative throughout, exhibited some fluctuation. The ratio improved from -28.95% in 2017 to around -18% in 2019, signalling a reduction in capital cost losses. However, in 2020, the spread worsened sharply to -30.07%, reflecting potentially higher capital costs or lower returns during that year. A partial recovery occurred in 2021, with the ratio moving back to approximately -20.85%.

Overall Insights

Overall, the data indicates persistent economic losses with some years showing temporary improvement. The invested capital has been reducing steadily, possibly indicating divestitures, asset sales, or capital restructuring efforts. The economic spread ratio aligns with the economic profit trend, showing improvements interrupted by a significant setback in 2020, likely related to extraordinary market or operational conditions. The gradual recovery in 2021 suggests a return towards improving profitability metrics, but the negative figures highlight ongoing challenges in generating returns exceeding capital costs.

The financial analysis over the five-year period reflects significant volatility and persistent challenges in generating economic profit despite fluctuations in revenues.

Economic Profit

The company recorded negative economic profit throughout the entire period, indicating losses relative to its cost of capital. Although the negative economic profit narrowed from -5131 million US$ in 2017 to -3225 million US$ in 2019, a marked deterioration occurred in 2020 to -4876 million US$, followed by a recovery to -3099 million US$ in 2021. This pattern suggests uneven operational efficiency or cost management over time, coupled with external factors affecting profitability.

Revenues

Revenues exhibited fluctuation but an overall upward trend with notable volatility. From 4373 million US$ in 2017, revenues increased to 5902 million US$ in 2018 and then declined to 5063 million US$ in 2019. A sharp drop to 3097 million US$ was observed in 2020, likely reflecting adverse market or economic conditions during that year. Revenues rebounded strongly in 2021 to 5601 million US$, nearing peak levels seen in the earlier years. These variations suggest sensitivity to market dynamics impacting sales volume or pricing.

Economic Profit Margin

The economic profit margin was consistently negative, reinforcing that returns did not cover the capital cost. The margin improved from -117.33% in 2017 to -55.46% in 2018, indicating better relative profitability. However, it worsened to -63.7% in 2019 and sharply deteriorated to -157.43% in 2020, reflecting substantial loss relative to revenues during that year. The margin improved to -55.32% in 2021, showing recovery but still indicating a lack of economic profitability.

In summary, the company faced ongoing economic losses despite fluctuating revenue levels. The volatility in revenues and economic profit margin points to a challenging operating environment, with the most severe setbacks occurring in 2020. While recoveries were noted in 2021, economic profit remained negative, highlighting the need for strategic measures to enhance cost efficiency or revenue quality to achieve sustainable profitability.