Parker-Hannifin Corp. (NYSE:PH)

The financial data over the six-year period reveals several notable trends and fluctuations across key performance indicators.

Net Operating Profit After Taxes (NOPAT)

The NOPAT demonstrates a variable pattern with an initial increase from 2017 to 2019, peaking at approximately $1.72 billion in 2019. This is followed by a decline in 2020, a rebound to the highest level of around $1.90 billion in 2021, and then a sharp decrease in 2022 to roughly $1.17 billion. Overall, NOPAT shows volatility with periods of growth interrupted by significant contractions.

Cost of Capital

The cost of capital exhibits moderate fluctuations, ranging between 15.8% and 17.73% over the period. It peaked in 2021 at 17.73%, suggesting increased capital costs, before slightly reducing to 16.46% in 2022. The movement in the cost of capital indicates varying market conditions or changes in the company’s risk profile and financing structure.

Invested Capital

Invested capital reveals a general upward trend from $13.5 billion in 2017 to nearly $22.0 billion in 2022. Notable expansions occurred between 2018 to 2020 and again in 2022. This sustained increase reflects growing asset base or capital investment, possibly tied to business expansion or acquisitions.

Economic Profit

Economic profit remains negative throughout all years, indicating that the returns generated were consistently below the cost of capital. While the losses narrowed somewhat in 2019 to approximately -$694 million, they intensified in 2020 and escalated substantially in 2022 to over -$2.45 billion. This worsening trend signals that the company’s invested capital has not been producing adequate returns, with deteriorating value creation in recent years despite increased invested capital.

In summary, while the company has increased its invested capital significantly over the period under review and experienced some growth in operating profits, it has not been able to generate economic profits. The rising cost of capital combined with volatile operating profits has contributed to persistent and deepening economic losses, highlighting challenges in achieving returns that exceed the capital costs.

Net Income Attributable to Common Shareholders

The net income attributable to common shareholders demonstrates a generally positive trend from June 30, 2017, to June 30, 2021, increasing from approximately 983 million US dollars to over 1.74 billion US dollars. This represents a significant growth over this four-year period, highlighting strong profitability. However, there is a notable decline in the year ending June 30, 2022, where net income falls to roughly 1.32 billion US dollars, which suggests some challenges or increased expenses affecting profitability in the most recent period.

Net Operating Profit After Taxes (NOPAT)

NOPAT follows a similar upward trajectory from June 30, 2017, through June 30, 2021, rising from about 1.13 billion US dollars to approximately 1.90 billion US dollars. This consistent increase reflects improving operating efficiency and effective tax management during this period. However, there is a significant reduction in NOPAT in the year ending June 30, 2022, falling to nearly 1.17 billion US dollars, indicating a considerable drop in operating profitability or increased tax expenses most recently.

Summary of Trends

Both net income and NOPAT demonstrate strong growth over the initial five-year period, suggesting favorable operational performance and profitability enhancements. The peak values recorded in the year ending June 30, 2021, indicate the company's highest profitability during the timeframe examined. The sharp declines in both metrics for the year ending June 30, 2022, signal a reversal of this trend and may imply emerging financial challenges or external factors impacting profitability. The divergence in the magnitude of decrease between net income and NOPAT in 2022 could also point to changes in non-operating items or tax effects during that period.

Income Taxes

The income taxes show a fluctuating trend over the six-year period. Beginning at 344,797 thousand US dollars in 2017, the figure notably increased to 640,962 thousand US dollars in 2018. After this peak, there was a decline in 2019, with the value dropping to 420,494 thousand US dollars. The downward trajectory continued into 2020, reaching a low of 305,924 thousand US dollars. However, a substantial recovery occurred in 2021, rising again to 500,096 thousand US dollars. In 2022, income taxes decreased to 298,040 thousand US dollars, marking one of the lower points across the given years.

Cash Operating Taxes

Cash operating taxes exhibit more volatility and a generally increasing trend throughout the same period. Starting at 367,985 thousand US dollars in 2017, values soared to a high of 745,009 thousand US dollars in 2018, the largest increase observed. In 2019, these taxes declined to 429,023 thousand US dollars but remained higher than the 2017 baseline. The downward movement persisted into 2020, registering 357,562 thousand US dollars. However, in contrast to income taxes, cash operating taxes surged significantly in 2021, reaching 604,610 thousand US dollars, and escalated further to 703,301 thousand US dollars in 2022.

General Observations

There is a noticeable divergence in the trends of income taxes and cash operating taxes, particularly evident in the later years. While income taxes fell sharply in 2022 relative to the prior year, cash operating taxes continued to experience substantial growth. This discrepancy may indicate differences in accounting treatment, timing of tax payments, or underlying operational cash flow changes. The initial spike for both tax measures in 2018 suggests extraordinary activities or tax events occurred in that year, followed by varying recoveries and declines in subsequent periods. Overall, the analysis reveals a dynamic tax expense environment with significant annual fluctuations.

Total reported debt & leases

The total reported debt and leases fluctuated significantly over the period analyzed. It initially decreased from approximately 6.08 billion USD in mid-2017 to about 5.16 billion USD in mid-2018. Subsequently, it experienced a sharp increase to roughly 7.23 billion USD in mid-2019, continuing to rise to around 8.60 billion USD in mid-2020. A notable decline occurred in mid-2021, dropping to approximately 6.72 billion USD, followed by a substantial increase to nearly 11.62 billion USD by mid-2022. This trend indicates considerable volatility and an overall increasing debt load in recent years, particularly the marked increase between mid-2021 and mid-2022.

Shareholders’ equity

Shareholders' equity showed a consistent upward trend throughout the analyzed period. Starting at around 5.26 billion USD in mid-2017, it steadily increased each year, reaching approximately 5.86 billion USD in mid-2018, 5.96 billion USD in mid-2019, and 6.11 billion USD in mid-2020. A significant rise occurred between mid-2020 and mid-2021, where equity increased sharply to about 8.40 billion USD. The growth continued at a slower pace, reaching approximately 8.85 billion USD by mid-2022. This steady increase suggests strengthening equity capital and potentially retained earnings accumulated over the years.

Invested capital

Invested capital, representing the aggregate of debt and equity financing, exhibited considerable growth. Beginning at approximately 13.51 billion USD in mid-2017, it slightly declined to roughly 13.02 billion USD in mid-2018. Thereafter, a consistent upward trajectory is evident: rising to about 15.27 billion USD in mid-2019, followed by 17.53 billion USD in mid-2020. A marginal decrease to approximately 16.93 billion USD was noted in mid-2021, but invested capital surged substantially to nearly 22.0 billion USD by mid-2022. The data indicate increased resource deployment backed by both debt and equity, with particularly robust growth in the most recent year.

Economic Profit

The economic profit has consistently been negative throughout the observed periods, indicating that the company has not generated returns above its cost of capital. Starting from a negative 1,083,145 thousand USD in mid-2017, it shows a slight improvement in 2019 to -693,700 thousand USD but worsens significantly in 2020 and thereafter, reaching the lowest point at -2,453,382 thousand USD in mid-2022. This trend suggests increasing economic losses over time.

Invested Capital

The invested capital demonstrates a general upward trend, growing from approximately 13,507,821 thousand USD in mid-2017 to about 21,994,132 thousand USD in mid-2022. The growth is steady, with the largest increase occurring between 2021 and 2022. This expansion signals an increasing allocation of resources in the business over the six-year span.

Economic Spread Ratio

The economic spread ratio remains negative throughout all measured periods, ranging from -4.54% to -11.15%. There is a temporary improvement in 2019 to -4.54%, but the ratio deteriorates again afterward, hitting the lowest point at -11.15% in 2022. The negative values indicate that the returns on invested capital continually fall short of the cost of capital, with the shortfall worsening notably in recent years.

Summary

Overall, the data reveal that despite the increasing invested capital, the company has consistently experienced negative economic profit and economic spread ratios, indicating persistent value destruction rather than value creation. The deterioration in economic profit and spread ratio, especially pronounced in the latest years reported, suggests escalating challenges in achieving a return above capital costs even as more capital is committed. This pattern underscores the need for measures aimed at improving capital efficiency and profitability.

The financial data reveals several noteworthy trends over the six-year period ending June 30, 2022.

Net Sales

Net sales generally showed a positive growth trajectory, increasing from approximately $12 billion in 2017 to over $15.8 billion in 2022. There was a consistent rise from 2017 through 2019, a slight decline in 2020, likely influenced by external market conditions, and a recovery with steady growth in 2021 and 2022.

Economic Profit

Economic profit figures remained negative throughout the period, indicating persistent challenges in generating value above the cost of capital. The negative values worsened in 2020 and further deteriorated significantly in 2022, reaching nearly -$2.45 billion, which is the lowest point recorded in the timeframe examined.

Economic Profit Margin

The economic profit margin has been negative all along, reflecting losses relative to sales. The margin improved slightly from -9% in 2017 to -4.84% in 2019 but showed a marked decline during 2020, coinciding with a sharp dip in sales and economic profit. Despite some recovery in 2021, the margin sharply fell again to -15.47% in 2022, underscoring a significant deterioration in profitability relative to sales.

Overall, while the company demonstrated growth in net sales over the years, this has not translated into positive economic profit or margins. The persistent and increasing negativity in economic profit and its margin suggest rising costs or capital inefficiencies that overshadow revenue growth, particularly pronounced in 2020 and 2022.