Marathon Oil Corp. (NYSE:MRO)

The analysis of the financial metrics over the five-year period reveals notable fluctuations and trends in the company’s operational efficiency and capital management.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited significant volatility, starting with a substantial loss of $659 million at the end of 2017. It then improved dramatically to a positive $1,350 million in 2018, followed by a decrease to $654 million in 2019. The figure fell sharply into negative territory again in 2020 with a loss of $1,242 million before recovering to a positive $1,116 million in 2021. This trend indicates the company’s profitability has been unstable, with alternating years of profit and loss.

Cost of Capital

The cost of capital has generally increased over the timeframe, rising from 24.98% in 2017 to a peak of 28.08% in 2021, despite a slight decrease in 2019 and 2020. This upward trend suggests growing capital acquisition costs or increased perceived risk by investors, which could exert pressure on profitability and investment decisions.

Invested Capital

Invested capital steadily declined from $17,726 million in 2017 to $14,862 million in 2021. The reduction was consistent year-over-year, indicating a contraction in the assets or capital employed in the business. This decline could reflect divestitures, asset sales, or a strategic shift in capital structure.

Economic Profit

Economic profit has been negative throughout the period, reflecting returns below the cost of capital. The losses ranged from -$5,087 million in 2017 to -$3,058 million in 2021, with the largest negative economic profit recorded in 2017 and the smallest in 2021. Although still negative, the steady improvement in economic profit suggests a gradual movement towards more efficient use of invested capital and potentially enhanced value creation.

Overall, the company has faced challenges in maintaining consistent profitability as reflected by NOPAT fluctuations and persistent negative economic profit. The rising cost of capital and declining invested capital further compound the difficulty of achieving positive economic returns. However, the more recent trend towards reduced economic losses may indicate initial signs of operational or strategic improvement.

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

The economic profit shows fluctuations throughout the analyzed periods, with all values being negative. It started at -5087 million US dollars in 2017, improved to -3229 million in 2018, and slightly worsened to -3189 million in 2019. A significant decline occurred in 2020 with economic profit dropping to -4842 million, followed by an improvement in 2021 to -3058 million. Overall, the company continued to report economic losses, although there was some recovery after the 2020 downturn.

Invested Capital

Invested capital exhibited a generally decreasing trend over the years. Beginning at 17,726 million US dollars in 2017, it remained relatively stable in 2018 and 2019 at around 17,500 million, then reduced more noticeably to 16,214 million in 2020 and further decreased to 14,862 million in 2021. This decline suggests a reduction in the company's capital base or asset investments during the latter years.

Economic Spread Ratio

The economic spread ratio consistently remained negative, indicating that the company's returns were below its cost of capital throughout the period. The ratio improved from -28.7% in 2017 to -18.38% in 2018 and showed minimal change to -17.76% in 2019. However, a significant deterioration occurred in 2020 with the ratio dropping to -29.86%, followed by a partial recovery in 2021 to -20.57%. This movement parallels the trends observed in economic profit, reflecting fluctuating but persistently negative spread.

Economic Profit

The economic profit exhibited a negative trend throughout the analyzed periods, indicating consistent losses. It improved from -5087 million USD in 2017 to -3229 million USD in 2018 and slightly decreased to -3189 million USD in 2019. However, there was a significant deterioration in 2020 reaching -4842 million USD, before improving again to -3058 million USD in 2021. Despite fluctuations, the economic profit remained substantially negative, reflecting ongoing challenges in generating value above the cost of capital.

Revenues

Revenues showed variability over the years. Starting at 4373 million USD in 2017, they increased to 5902 million USD in 2018, followed by a decrease to 5063 million USD in 2019. A pronounced decline occurred in 2020, with revenues dropping to 3097 million USD, likely reflecting adverse market conditions. Revenues recovered noticeably in 2021, rising to 5601 million USD, approaching levels seen in 2018.

Economic Profit Margin

The economic profit margin was consistently negative across all periods, corresponding with the negative economic profit values. The margin improved from -116.34% in 2017 to -54.71% in 2018 but worsened to -62.99% in 2019. A sharp decline was observed in 2020, reaching a low of -156.33%, indicating increased losses relative to revenue. By 2021, the margin improved markedly to -54.59%, suggesting partial recovery in profitability relative to sales.

Overall Insights

The financial data indicates ongoing challenges in achieving economic profitability during the period under review. Revenues experienced substantial fluctuations, with a significant dip in 2020 likely driven by external factors impacting the industry. Economic profit and its margin were consistently negative, though some improvement was evident in 2021 after a severe downturn in 2020. The patterns suggest the company faced persistent difficulties generating returns exceeding its cost of capital, particularly in the context of the volatile revenue performance.