Common-Size Income Statement
Northrop Grumman Corp., common-size consolidated income statement
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
The financial data reveals several key trends regarding the composition of sales, cost structure, profitability, and expenses over the five-year period.
- Revenue Composition
- The proportion of sales derived from products increased steadily from 68.01% in 2018 to a peak of 78.13% in 2021, before slightly declining to 77.92% in 2022. Concurrently, the contribution from services diminished from 31.99% in 2018 to 21.87% in 2021, with a marginal uptick to 22.08% in 2022. This indicates a strategic shift focusing more on product sales relative to services.
- Cost of Sales
- The cost of sales as a percentage of total sales remained consistently high, fluctuating narrowly between -77.43% and -79.68%, signaling a relatively stable cost intensity in production and service delivery overall. Product costs rose from -52.45% to approximately -62% of sales by 2021 and 2022, reflecting increased spending or pricing pressures on product-related costs. Service costs concurrently decreased from -24.98% to around -17%, which is consistent with the reduced service sales proportion.
- Profit Margins
- Gross profit margins decreased gradually from 22.57% in 2018 to roughly 20.3-20.4% in the latter years, indicating some contraction in profitability at the gross level. Operating income exhibited more variability, declining from 12.56% in 2018 to a low of 9.84% in 2022 but rising notably in 2021 to 15.84%, partly due to a one-time gain on sale of business recorded at 5.55% in 2021.
- Expenses and Other Income
- General and administrative expenses as a proportion of sales remained fairly consistent, fluctuating around -9.27% to -10.58%. Interest expense steadily declined from -1.87% to -1.38%, which may indicate improved debt management or lower interest rates. Pension-related benefits and expenses showed significant fluctuations, with mark-to-market pension and other post-retirement benefits shifting from negative impacts to positive contributions in 2021 and 2022. Other income (expense) was notably volatile, with significant gains in 2021 (9.22%) and 2022 (6.11%), contributing positively to earnings in those years.
- Profitability After Tax
- Earnings before income taxes experienced considerable variation, reaching a high of 25.06% in 2021, driven primarily by operational gains and other income factors, then falling to 15.94% in 2022. Correspondingly, net earnings exhibited a similar pattern, rising sharply in 2021 to 19.64% before contracting to 13.38% in 2022. The effective tax expense also increased markedly in 2021 to -5.42% from prior years below -1.7%, subsequently reducing to -2.57% in 2022, affecting net profitability accordingly.
Overall, the patterns suggest that while the company focused increasingly on product sales with rising associated costs, the gross profit margin experienced slight compression. The year 2021 stands out due to extraordinary gains and pension-related benefits that substantially lifted operating income and net earnings, a gain not sustained in 2022. Stable administrative expenses and improved interest expense management complemented these dynamics, though tax expense volatility impacted net results. The data points to a need to monitor cost control in product segments and maintain focus on sustainable operating income improvements.