Parker-Hannifin Corp. (NYSE:PH)

The analysis of the quarterly financial ratios reveals several noteworthy trends over the examined periods.

Return on Assets (ROA)

The ROA demonstrated an initial upward trend, increasing from 6.73% in September 2017 to a peak of 9.38% in March 2019. Following this peak, there was a gradual decline, with some fluctuations, dropping to 6.01% by December 2020. The ratio then experienced a moderate recovery, reaching 9.27% in September 2021. However, after this recovery, ROA exhibited a consistent downward trajectory, falling to 4.13% by December 2022. This pattern indicates an initial improvement in asset profitability, followed by volatility and a notable decline in the most recent periods.

Financial Leverage

Financial leverage started at a ratio of 2.85 in September 2017 and showed some variability across the timeline. Initially, it decreased to a low of 2.53 by September 2018. From there, it generally increased with fluctuations, reaching a high of 3.32 in December 2019. After a brief stabilization around the 3.2 mark in 2020, it declined to 2.38 in December 2021, marking the lowest point during the period. Subsequently, leverage increased again, climbing to 3.42 by September 2022 before slightly retreating to 3.27 in December 2022. This fluctuation in leverage indicates changing reliance on debt financing or asset structure adjustments over time.

Return on Equity (ROE)

The ROE trajectory mirrors some aspects of ROA, reflecting both profitability and leverage effects. Starting at 19.16% in September 2017, ROE rose steadily to a peak of 25.37% in June 2019. Following this peak, a gradual decline ensued, with percentages falling to 18.21% in September 2020. A modest recovery pushed ROE up to 22.09% by September 2021. However, similar to ROA, the latter period saw a pronounced decline, with ROE reaching 13.52% in December 2022. This significant reduction in equity returns suggests diminishing profitability and/or possible changes in capital structure in the recent quarters.

Overall, the financial ratios reveal that the company experienced strong profitability and moderate leverage from 2017 through mid-2019. Following this period, there was increased volatility and a downward trend in both ROA and ROE, accompanied by fluctuating financial leverage. The weakening performance in the latest quarters may warrant attention to operational efficiency, capital management, and market conditions impacting returns.

Net Profit Margin

The net profit margin exhibited a generally positive trend from late 2017 through 2021, starting at 8.37% in September 2017 and reaching a peak of 12.61% in September 2021. Following this peak, there was a noticeable decline, with the margin falling to 7.33% by December 2022. This pattern indicates an initial period of improving profitability efficiency, followed by a significant reduction in profit margins towards the end of the observed period.

Asset Turnover

Asset turnover increased from 0.80 at the end of September 2017 to a high of 0.95 in December 2018, suggesting an enhanced efficiency in using assets to generate sales in that period. However, from early 2019 onward, asset turnover demonstrated a persistent downward trend, declining steadily to 0.56 by December 2022. This indicates a decreasing capability to efficiently utilize assets for revenue generation over the latter part of the timeline.

Financial Leverage

Financial leverage ratio experienced fluctuations throughout the period. It decreased from 2.85 in September 2017 to a low of approximately 2.38 in September 2021, suggesting a reduction in dependency on debt financing during that time. Subsequently, leverage increased notably, peaking around 3.42 in September 2022, and remaining elevated through year-end 2022. This reflects a recent trend toward higher use of debt or other liabilities to finance assets.

Return on Equity (ROE)

ROE followed a pattern similar to net profit margin, rising from 19.16% in September 2017 to a peak of 25.37% in June 2019. After this peak, ROE declined overall, with some fluctuations, reaching 13.52% by December 2022. The rise in ROE during the earlier years coincided with improvements in profitability and operational efficiency, while the later decline suggests reduced effectiveness in generating returns on shareholders’ equity.

Summary

The company demonstrated a phase of improving profitability and operational efficiency from 2017 through approximately 2019-2021, as reflected by increasing net profit margins and ROE, combined with higher asset turnover early on. However, from 2021 to the end of 2022, the trends indicate a downturn, with falling profitability metrics, decreasing asset utilization efficiency, and rising financial leverage. This shift suggests growing challenges in maintaining operational effectiveness and profitability, accompanied by increased financial risk due to higher leverage.

Tax Burden

The tax burden ratio exhibits a generally increasing trend from late 2017 through 2022. Initially around 0.60 to 0.65 in the end of 2017 and early 2018 periods, it rises to a level near 0.80 from 2019 onward, reaching a peak of approximately 0.82 in mid-2022. This trend indicates a greater proportion of pre-tax income retained after taxes over time.

Interest Burden

This ratio remains relatively stable around 0.88 to 0.91 during 2017 to 2019, reflecting consistent interest expense relative to operating income. However, starting in 2019, a gradual decline is observed, dipping to about 0.80 by the end of 2022. This suggests a rising impact of interest expenses or financial costs on profitability in recent quarters.

EBIT Margin

The EBIT margin shows an overall increasing pattern from approximately 12.5% in late 2017 to a peak near 17.8% in mid-2021, signaling improving operational efficiency and profitability on earnings before interest and taxes. However, from late 2021 through 2022, a noticeable decline occurs, with margins falling back to roughly 11.4% by the end of 2022. This indicates a recent contraction in operating profitability.

Asset Turnover

The asset turnover ratio demonstrates significant variation. Initially rising from 0.80 in late 2017 to a high near 0.95 in late 2018, the ratio then trends downward, dropping consistently from 2019 onward to a low near 0.55 by the end of 2022. This decline suggests reduced efficiency in utilizing assets to generate sales in recent periods.

Financial Leverage

Financial leverage fluctuates noticeably over the examined periods. Starting near 2.85 in late 2017, it declines to about 2.5 by mid-2018, then increases sharply to over 3.3 by late 2019. After a moderate decline in 2020 and early 2021, leverage rises again substantially, reaching a peak above 3.4 by late 2022. These variations indicate changing reliance on debt financing over time, with a tendency toward higher leverage in the latest periods.

Return on Equity (ROE)

ROE exhibits a rising trend from roughly 15.8% in late 2017 to a peak above 25% in mid-2019, reflecting enhanced overall profitability and effective use of equity. Following this peak, the ratio declines gradually, with a sharper drop evident after 2021, falling to approximately 13.5% by the end of 2022. This decline corresponds with observed decreases in EBIT margin and asset turnover, indicating reduced returns for shareholders in recent periods.

The financial data reveals notable trends in key performance indicators over the observed periods. Net Profit Margin, Asset Turnover, and Return on Assets (ROA) exhibit patterns that reflect changes in operational efficiency and profitability.

Net Profit Margin

The Net Profit Margin shows an overall upward trend from late 2017 through the end of 2021, beginning at 8.37% in September 2017 and rising to a peak of around 12.61% in September 2021. This indicates improvements in profitability relative to sales. However, following this peak, the margin declines significantly during 2022, reaching approximately 7.33% by December 2022. This drop may suggest increased costs, reduced pricing power, or other pressures affecting profit retention.

Asset Turnover

The Asset Turnover ratio initially improves from 0.80 in September 2017 to a high of 0.95 in December 2018, demonstrating increased efficiency in generating sales from assets. After that peak, the ratio declines steadily, with minor fluctuations, falling to around 0.56 by the end of 2022. This downward movement indicates decreasing efficiency in utilizing assets to drive revenue, which may signal challenges in managing asset base or slowing sales growth relative to assets.

Return on Assets (ROA)

Return on Assets follows a trajectory broadly consistent with the trends in Net Profit Margin and Asset Turnover. Starting at 6.73% in September 2017, ROA ascends to a high of approximately 9.38% at the beginning of 2019 and then oscillates with a secondary peak in late 2021 reaching around 9.27%. Subsequently, ROA decreases sharply throughout 2022, ending near 4.13%. This pattern reflects the combined impact of shrinking profit margins and declining asset turnover, underscoring reduced overall efficiency in generating returns from assets during the latter period.

In summary, the data depicts a period of strengthening profitability and efficiency up to around 2021, followed by a significant deterioration in these metrics throughout 2022. The decline in both profit margins and asset utilization metrics implies operational or market challenges affecting financial performance in the most recent periods analyzed.

The analysis of the quarterly financial data reveals several notable trends in key profitability and operational efficiency metrics over the examined periods.

Tax Burden

The tax burden ratio exhibited a generally upward trend throughout the timeframe, starting at 0.75 and increasing to a range around 0.8 in most recent quarters, peaking slightly at 0.82. This suggests a gradual increase in the proportion of earnings retained after taxes, indicating an effective tax management or changes in tax policies impacting the entity’s net profitability positively.

Interest Burden

The interest burden ratio maintained relatively high values initially around 0.89 to 0.91 but showed a mild declining trend in later periods, reaching approximately 0.80 by the end of the last quarter. This trend indicates an improvement in the firm’s ability to cover interest expenses, potentially due to reduced interest costs or improved operating income that cushions interest expenses impact.

EBIT Margin

The EBIT margin experienced an overall increase from 12.58% in the earliest quarter to a peak of approximately 17.78% before declining sharply to around 11.38%-11.47% in the latest quarters. This rising and then declining pattern may reflect cyclical variations in operational profitability, potential margin compression, or cost structure adjustments impacting the earnings before interest and taxes.

Asset Turnover

Asset turnover ratio initially rose from 0.80 to a peak of 0.95 but subsequently declined steadily to about 0.55-0.56 in the most recent quarters. This drop indicates decreasing efficiency in utilizing assets to generate revenues, possibly pointing to asset base growth outpacing sales or challenges in operational effectiveness affecting revenue generation.

Return on Assets (ROA)

The ROA followed a pattern similar to the EBIT margin, improving from around 6.73% up to a peak near 9.38% before declining to approximately 4.13%-4.18% towards the end of the period. This reflects fluctuations in overall profitability relative to asset levels, with recent quarters indicating reduced profitability or increased asset investment without proportional income gains.

In summary, the financial indicators portray a company that achieved improvements in profitability and interest cost management in the mid-periods but faced downward pressure on margins, asset utilization, and returns in the later quarters. The decline in asset turnover and ROA merits attention as it may signal operational challenges or shifts in asset deployment strategies, while the relatively stable but increased tax burden suggests ongoing tax-related cost considerations.

Tax Burden

The tax burden ratio demonstrates a general upward trend from 0.75 in late 2017 to around 0.80 by the end of 2022. The ratio increased steadily, reaching a peak of 0.82 mid-2022 before slightly declining to 0.80. The initial period showed lower tax efficiency, but this improved over time, indicating a higher proportion of pre-tax income retained after taxes in more recent quarters.

Interest Burden

The interest burden ratio experienced some fluctuations over the observed periods. Starting at 0.89 in September 2017, it remained relatively stable around 0.88 to 0.91 until late 2019. From early 2020 onward, this ratio gradually decreased, falling to 0.80 by the end of 2022. This decline suggests an increasing interest expense relative to operating income, potentially indicating higher debt servicing costs or changes in financing structure in later periods.

EBIT Margin

The EBIT margin shows a positive trend from around 12.6% in the third quarter of 2017 to a peak exceeding 17% in late 2021. Notably, there was a significant increase starting in late 2020 through 2021, reaching a maximum of 17.78% in the third quarter of 2021. However, this margin decreased in 2022, dropping to approximately 11.4% by the end of the year. The variation implies improved operating efficiency leading up to 2021, followed by a decline that could reflect operational challenges or increased costs.

Net Profit Margin

The net profit margin exhibited an upward movement from 8.37% in September 2017 to a high above 12% in mid-2021. This increase aligns with the improvement in EBIT margin during the same timeframe, suggesting effective cost control and profitability enhancements. Subsequently, there was a decline in net profit margin throughout 2022, falling close to 7.3% by the year's end. This downward trend points to pressures on overall profitability, possibly due to increased expenses, tax, or interest burdens impacting net earnings.