Parker-Hannifin Corp. (NYSE:PH)

The financial data reveals distinct trends in the key performance indicators over the six-year period.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values exhibit fluctuations with an overall upward trend until 2021. The profit increased steadily from 1,132,702 thousand USD in 2017, peaking at 1,895,230 thousand USD in 2021. However, in 2022, there was a significant decline to 1,166,223 thousand USD, indicating a notable reduction in profitability during the most recent year.

Invested Capital

Invested capital shows a consistent increase over the period under review. Starting at 13,507,821 thousand USD in 2017, the invested capital grew steadily with minor fluctuations, reaching 21,994,132 thousand USD in 2022. This growth indicates ongoing capital investment and expansion within the business.

Return on Invested Capital (ROIC)

The ROIC metric reflects the efficiency of the capital deployment and presents considerable variability. After modest growth from 8.39% in 2017 to a peak of 11.26% in 2019, the ratio dropped to 8.36% in 2020. It recovered to 11.2% in 2021, closely matching the earlier high, but then experienced a sharp decline to 5.3% in 2022. This decreasing trend in the latest year suggests a reduction in profitability relative to the capital invested, signaling a possible erosion in operational efficiency or higher capital costs.

In summary, the company demonstrated growth in net operating profit and invested capital through 2021, with ROIC levels fluctuating but generally strong until 2021. The notable drop in both NOPAT and ROIC in 2022, despite increased invested capital, may warrant further investigation into operational factors or market conditions negatively impacting profitability and capital efficiency in the most recent period.

Operating profit margin (OPM)

The operating profit margin exhibited a fluctuating trend over the analyzed period. It increased from 12.48% in 2017 to a peak of 17.42% in 2021, indicating an improvement in operational efficiency and profitability. However, this was followed by a significant decline to 11.79% in 2022, suggesting margin pressure in the most recent year.

Turnover of capital (TO)

The turnover of capital generally trended downward after an initial rise in 2018. Starting at 0.89 in 2017, it increased to 1.1 in 2018 but then steadily decreased to 0.72 by 2022. This decline points to a reduction in the efficiency with which the company utilizes its capital to generate revenue.

1 – Effective cash tax rate (CTR)

This metric showed variability across the years, with a notable decrease from 75.48% in 2017 to 61.39% in 2018. It then peaked again above 80% in 2019 and 2020 before gradually declining to 62.38% in 2022. This pattern suggests fluctuations in tax efficiency, which may be influenced by changing tax strategies or regulations.

Return on invested capital (ROIC)

The return on invested capital rose from 8.39% in 2017 to a peak of 11.26% in 2019, reflecting improved effectiveness in generating returns from invested capital. However, it experienced a decline in 2020, followed by a recovery in 2021, and then a sharp drop to 5.3% in 2022. This volatility indicates challenges in maintaining consistent returns on investments.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes exhibited fluctuations over the analyzed periods. Starting at approximately 1.5 billion USD in mid-2017, it increased substantively to about 2.15 billion USD by mid-2019. However, the following year marked a decline to around 1.82 billion USD, followed by a rebound to nearly 2.5 billion USD in mid-2021. The latest figure in mid-2022 shows a reduction again to about 1.87 billion USD. This pattern indicates some volatility in operating profitability with significant rises and falls across the years.

Net Sales

Net sales generally trended upward throughout the period. Beginning at roughly 12 billion USD in mid-2017, there was consistent growth to nearly 14.3 billion USD by mid-2018. Sales then stabilized around 14.3 billion USD in mid-2019 and slightly declined in mid-2020 to about 13.7 billion USD, possibly reflecting external market pressures. Subsequently, a recovery occurred with sales rising to approximately 14.3 billion USD in mid-2021 and a notable increase to over 15.8 billion USD by mid-2022. Overall, net sales demonstrated resilience and growth despite mid-period fluctuations.

Operating Profit Margin (OPM)

The operating profit margin showed variability with an overall upward trend followed by a recent decline. Initially, the margin increased from 12.48% in mid-2017 to a peak of 15% in mid-2019. A slight decrease occurred in mid-2020 to 13.32%, then a marked improvement to 17.42% in mid-2021, representing the highest margin within the timeframe. Nevertheless, the margin decreased to 11.79% by mid-2022, the lowest point observed in the dataset. This pattern suggests fluctuating operational efficiency and profitability relative to sales over the analyzed years.

Net Sales

Net sales exhibited a generally increasing trend over the six-year period. Starting at approximately 12.0 billion USD in mid-2017, sales rose steadily to reach nearly 15.9 billion USD by mid-2022. Although there was a minor dip in 2020, likely reflecting external economic pressures, the overall trajectory indicates growth and recovery in subsequent years.

Invested Capital

Invested capital showed a consistent upward trend, increasing from around 13.5 billion USD in 2017 to approximately 22.0 billion USD by 2022. The increase was somewhat steady, with a notable acceleration starting in 2019 and continuing through 2022. This rise suggests significant capital investment activity or asset accumulation over the period.

Turnover of Capital (TO)

Turnover of capital, calculated as the ratio of net sales to invested capital, experienced fluctuations and a general decline over the six years. The ratio peaked at 1.10 in 2018 but then decreased to 0.72 by 2022. This indicates that despite increasing sales, the growth in invested capital outpaced sales growth, resulting in reduced efficiency in capital utilization over time.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes exhibited an overall upward trend from 2017 through 2021, increasing from approximately $1.5 billion to nearly $2.5 billion. However, in 2022, this figure declined significantly, falling to approximately $1.87 billion. This suggests a peak in operating profitability in 2021 followed by a notable downturn in the subsequent year.

Cash Operating Taxes

Cash operating taxes displayed fluctuating behavior over the period. Starting at $368 million in 2017, taxes more than doubled in 2018 to $745 million, then declined sharply in 2019 and 2020 to levels below 2017 values. Subsequently, taxes rose again in 2021 and 2022, reaching $703 million in the latter year. This pattern indicates variability in tax payments that do not align linearly with the operating profit trend.

Effective Cash Tax Rate (CTR)

The effective cash tax rate demonstrated significant volatility throughout the time frame. It escalated to a high of approximately 38.61% in 2018, substantially higher than the 24.52% observed in 2017. Thereafter, the rate declined greatly, averaging around 20% during 2019 and 2020, before a moderate rise to 24.19% in 2021. In 2022, it again surged to 37.62%, close to the peak rate experienced in 2018. This variability in tax rate possibly reflects changes in tax planning, legislation, or profitability structure impacting taxable income.

Summary of Relationships and Implications

The interplay between net operating profit before taxes and cash operating taxes reveals that while profit peaked in 2021, corresponding tax payments followed a less consistent trajectory, influenced by the fluctuating effective tax rates. The substantial increase in the effective tax rate in 2018 and 2022 coincides with comparatively higher tax payments, despite the operating profit being lower in 2022 than in 2021. These observations suggest changes in either the company's tax strategy, regulatory environment, or the composition of taxable income, contributing to uneven tax expense relative to operating profit.