Parker-Hannifin Corp. (NYSE:PH)

The analysis of the financial data reveals several notable trends across the six-year period. The net operating profit after taxes (NOPAT) exhibited fluctuations, initially increasing from approximately 1.13 billion USD in 2017 to a peak of around 1.72 billion USD in 2019. This was followed by a decline in 2020, then another rise in 2021, reaching approximately 1.89 billion USD, before dropping significantly to about 1.17 billion USD in 2022.

The cost of capital showed variability, remaining within a range of approximately 15.4% to 17.3%. It was relatively stable around 16% to 16.8% in the first three years, increased to the highest level of 17.32% in 2021, and then moderated somewhat to 16.08% in 2022.

Invested capital generally trended upward over the period. Starting at roughly 13.5 billion USD in 2017, it exhibited a minor decline in 2018, followed by sustained growth through 2020, reaching over 17.5 billion USD. Although there was a slight decrease in 2021, the invested capital surged to nearly 22 billion USD by 2022, indicating increased asset deployment or capital investment activities in the later years.

Economic profit remained negative throughout the period, with values ranging approximately from -639 million USD to -2.37 billion USD. The least negative economic profit was recorded in 2019, aligning with the peak in NOPAT, suggesting more effective capital utilization during that year. However, subsequent years, particularly 2020 and 2022, saw deeper negative values, indicating that the returns on invested capital were insufficient to cover the cost of capital, with 2022 showing the most significant deterioration.

Net Operating Profit After Taxes (NOPAT)

Fluctuated with an overall rise to 2019 and 2021 peaks, followed by a substantial drop in 2022.

Cost of Capital

Varied moderately, peaking in 2021, which coincided with the highest invested capital.

Invested Capital

Displayed a general upward trend, with a notable increase between 2021 and 2022.

Economic Profit

Remained negative throughout, with the least negative in 2019 and the most significant negative in 2022, indicating challenges in surpassing the cost of capital.

Overall, the data suggest that despite growth in invested capital and intermittent increases in operational profitability, the company struggled to generate returns exceeding its cost of capital, especially notable in 2020 and 2022. The increasing invested capital in 2022, coupled with a sharp decline in NOPAT and heightened negative economic profit, points to efficiency or profitability challenges that merit further investigation.

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 demonstrates a consistent pattern of negative values throughout the analyzed period, indicating losses rather than gains. There is a noticeable fluctuation, with the value improving slightly between 2017 and 2019, moving from -1,032,558 thousand US dollars to -639,636 thousand US dollars. However, this trend reverses after 2019, with a substantial decline observed in 2020 and continuing through 2022. By 2022, economic profit reaches its lowest point at -2,371,152 thousand US dollars, showing a significant deterioration compared to previous years.

Invested Capital

Invested capital shows an overall upward trend during the period, reflecting increased capital deployment. Starting at 13,507,821 thousand US dollars in 2017, it dips slightly in 2018 but then progressively rises each year thereafter. By 2022, the invested capital peaks at 21,994,132 thousand US dollars, marking substantial growth relative to the 2017 base. This indicates a growing scale of investment in the company's operations over time.

Economic Spread Ratio

The economic spread ratio remains consistently negative across the entire timeline, denoting that the return on invested capital is lower than the cost of capital. The percentage declines from -7.64% in 2017 to its least negative point at -4.19% in 2019, suggesting a short-term improvement in economic efficiency. However, this ratio deteriorates thereafter, reaching a low of -10.78% in 2022. This trend highlights increasing inefficiencies or worsening economic returns relative to invested capital costs in recent years.

Summary

Overall, the data reveals a scenario where investments have increased substantially, yet economic profit remains negative and has worsened in recent periods, especially by 2022. The economic spread ratio corroborates this by showing consistently negative economic returns that have become more unfavorable over time. This suggests that despite growing capital investments, the company has struggled to achieve returns exceeding its cost of capital, resulting in amplified economic losses.

Net Sales

Net sales demonstrate a generally increasing trend over the observed periods, rising from approximately 12.03 billion US dollars in 2017 to about 15.86 billion US dollars in 2022. There is a notable dip in 2020 to roughly 13.70 billion, which is followed by a recovery and further growth in subsequent years.

Economic Profit

Economic profit remains negative across all years, indicating ongoing economic losses. The losses fluctuate with an initial slight improvement from -1.03 billion in 2017 to -639.6 million in 2019. However, there is a deterioration in 2020 and 2021, peaking at a loss of approximately -2.37 billion in 2022, the largest negative economic profit recorded in the period.

Economic Profit Margin

The economic profit margin aligns with the economic profit trend, remaining negative throughout. It improves from -8.58% in 2017 to -4.47% in 2019, indicating a reduction in the magnitude of losses relative to net sales. However, from 2020 onward, the margin worsens significantly, reaching -14.95% in 2022, suggesting diminishing economic efficiency despite increasing net sales.

Overall Analysis

While net sales grow over the period, especially post-2020, economic profitability does not follow this positive trajectory, highlighting a disconnect between revenue growth and value creation. The worsening economic profit and margin after 2019 suggest increasing costs, inefficiencies, or other financial pressures impacting profitability despite sales expansion. The most pronounced negative economic profit and margin in 2022 underscore heightened challenges facing the company in translating sales growth into economic profit.