ONEOK Inc. (NYSE:OKE)

The period between 2018 and 2022 demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuated, it was consistently insufficient to cover the cost of capital employed. Invested capital increased over the five-year period, contributing to the sustained negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$1,887,822 thousand in 2018 to US$2,040,364 thousand in 2019, representing a growth of approximately 8.1%. A significant decline was then observed in 2020, with NOPAT falling to US$1,365,278 thousand. However, NOPAT recovered substantially in 2021, reaching US$2,553,175 thousand, and continued to rise in 2022 to US$2,721,886 thousand. Despite these increases, NOPAT remained below levels required to generate positive economic profit.

Cost of Capital

The cost of capital exhibited variability throughout the period. It began at 20.40% in 2018, decreased to 19.16% in 2019, and reached a low of 16.27% in 2020. The cost of capital then increased to 18.34% in 2021 and further to 19.52% in 2022. The fluctuations in the cost of capital influenced the magnitude of the economic profit deficit.

Invested Capital

Invested capital showed a consistent upward trend over the five-year period. It increased from US$16,415,008 thousand in 2018 to US$19,885,058 thousand in 2019, and continued to grow, reaching US$22,064,152 thousand in 2022. This increasing capital base, coupled with the cost of capital, contributed to the widening economic profit deficit in the earlier years and sustained negative economic profit overall.

Economic Profit

Economic profit remained negative throughout the observed period. The deficit was most substantial in 2020, at US$-2,152,963 thousand. While the deficit decreased in 2021 to US$-1,372,398 thousand, it increased again in 2022 to US$-1,585,034 thousand. The consistent negative economic profit indicates that the company’s returns on invested capital were consistently below its cost of capital.

In summary, the analysis reveals a pattern of increasing invested capital alongside fluctuating NOPAT and cost of capital, resulting in consistently negative economic profit. The company did not generate returns sufficient to cover its cost of capital during this period.

The financial data reveals notable trends in the profitability metrics over the five-year period.

Net income attributable to ONEOK

The net income demonstrates fluctuations within the observed timeframe. It increased from 1,151,703 thousand USD in 2018 to 1,278,577 thousand USD in 2019, representing moderate growth. In 2020, there was a significant decline to 612,809 thousand USD, indicating a considerable reduction in profitability. However, the trend reversed in the subsequent years, with net income rising sharply to 1,499,706 thousand USD in 2021 and further increasing to 1,722,221 thousand USD in 2022. This rebound suggests a recovery and improvement in operational performance post-2020.

Net operating profit after taxes (NOPAT)

NOPAT followed a pattern similar to net income but with higher absolute values, reflecting operating efficiency post-tax adjustments. Starting at 1,887,822 thousand USD in 2018, it rose to 2,040,364 thousand USD in 2019. A decline was again observed in 2020, dropping to 1,365,278 thousand USD, which parallels the dip in net income during the same year. Subsequently, NOPAT experienced a strong recovery, reaching 2,553,175 thousand USD in 2021 and rising further to 2,721,886 thousand USD in 2022. This trajectory indicates improvements in operating profitability and effective tax management after 2020.

Overall, both net income and NOPAT reveal a downturn in 2020, likely attributable to adverse economic or operational conditions during that period, followed by considerable recovery and growth in the following years. The magnitude of increase post-2020 surpasses the pre-2020 levels, implying strengthened financial performance and resilience.

The financial data reveals a notable pattern in the provision for income taxes and cash operating taxes from 2018 to 2022.

Provision for Income Taxes

The provision for income taxes experienced a decline from 2018 (US$ 362,903 thousand) to 2020 (US$ 189,507 thousand). This drop was followed by a sharp increase in 2021 (US$ 484,498 thousand) and continued to rise in 2022, reaching US$ 527,424 thousand. This trend indicates a significant fluctuation, with the provision nearly tripling between 2020 and 2022.

Cash Operating Taxes

Cash operating taxes showed a steady upward trend over the entire period. Beginning at US$ 100,721 thousand in 2018, the amount increased each year, reaching US$ 206,551 thousand in 2022. The growth rate appears consistent, indicating increasing cash outflows related to operating taxes year over year.

Overall, the provision for income taxes showed volatility with a sharp recovery and growth after 2020, while cash operating taxes steadily increased throughout the observed periods. This may suggest changes in tax liabilities or profitability affecting the provisions, coupled with a consistent increase in actual cash taxes paid.

Total reported debt & leases

The total reported debt and leases have shown an overall increasing trend from 2018 to 2020, rising sharply from approximately 9.4 billion US dollars to around 14.36 billion US dollars. Thereafter, it experienced a slight decrease in 2021, followed by stabilization in 2022 at approximately 13.7 billion US dollars.

Total ONEOK shareholders’ equity

Shareholders’ equity declined steadily from about 6.58 billion US dollars in 2018 to around 6 billion US dollars in 2021, indicating a gradual reduction in net assets relative to common shareholders. However, in 2022, equity saw a moderate increase to roughly 6.49 billion US dollars, reversing the prior downward trend.

Invested capital

Invested capital expanded significantly over the observed period. Starting from approximately 16.4 billion US dollars in 2018, it increased nearly continuously to about 22.06 billion US dollars by 2022. A peak occurred in 2020 at around 21.63 billion US dollars, followed by a marginal dip in 2021 before rising again in 2022.

The analysis reveals a consistent pattern of negative economic profit over the five-year period, alongside increasing invested capital. The economic spread ratio, calculated from these figures, demonstrates fluctuations but remains negative throughout the observed timeframe, indicating that the company’s returns are not exceeding its cost of capital.

Economic Profit

Economic profit exhibits a generally downward trend from 2018 to 2020, moving from negative US$1,461,083 thousand to negative US$2,152,963 thousand. A notable improvement is seen in 2021, with economic profit decreasing to negative US$1,372,398 thousand. However, this improvement is not sustained, as economic profit declines again in 2022 to negative US$1,585,034 thousand.

Invested Capital

Invested capital demonstrates a consistent upward trend throughout the period. Beginning at US$16,415,008 thousand in 2018, it increases to US$22,064,152 thousand by 2022. This growth in invested capital occurs concurrently with negative economic profit, suggesting that increases in capital deployment are not translating into equivalent value creation.

Economic Spread Ratio

The economic spread ratio remains negative across all years, indicating that the company is not generating returns sufficient to cover its cost of capital. The ratio fluctuates, starting at -8.90% in both 2018 and 2019. It then worsens to -9.96% in 2020, before improving to -6.41% in 2021. The ratio concludes the period at -7.18% in 2022, representing a moderate deterioration from the 2021 level. The negative values consistently suggest underperformance relative to the cost of capital.

The combination of increasing invested capital and a persistently negative economic spread ratio warrants further investigation into the factors driving these results. The temporary improvement in 2021 suggests potential operational or market conditions that positively impacted returns, but the subsequent decline in 2022 indicates these effects were not sustained.

The economic profit margin exhibited significant fluctuation between 2018 and 2022. Initially negative, the margin deteriorated substantially before showing signs of improvement in the later years of the observed period.

Economic Profit Margin Trend

In 2018, the economic profit margin stood at -11.60%. This figure worsened considerably in subsequent years, reaching -17.41% in 2019 and further declining to -25.20% in 2020. A notable shift occurred in 2021, with the margin improving to -8.30%. This positive trend continued into 2022, where the economic profit margin reached -7.08%.

The economic profit itself consistently remained negative throughout the five-year period, indicating that the company’s returns were not exceeding its cost of capital. However, the magnitude of the negative economic profit decreased from 2020 to 2022, aligning with the improvement observed in the economic profit margin.

Relationship between Revenues and Economic Profit Margin

Revenues experienced a decline from 2018 to 2020, concurrent with the most substantial deterioration in the economic profit margin. Revenues then increased significantly in both 2021 and 2022. The improvement in the economic profit margin in these latter years appears to correlate with the substantial revenue growth, suggesting a potential link between revenue generation and profitability relative to the cost of capital.

The observed trend suggests that while the company consistently failed to generate economic profit, its performance relative to its cost of capital improved as revenues increased. The peak negative margin in 2020 coincided with the lowest revenue figure, highlighting the sensitivity of the economic profit margin to revenue fluctuations.