Philip Morris International Inc. (NYSE:PM)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes displayed an initial upward trend from 8950 million US$ in 2020 to a peak of 10188 million US$ in 2021. Following this peak, a decline is observed with values dropping to 9635 million US$ in 2022, then further decreasing to 8804 million US$ in 2023 and 8281 million US$ in 2024. This indicates a reduction in operating profitability after 2021.

Invested Capital

Invested capital showed a decrease from 31958 million US$ in 2020 to 29268 million US$ in 2021. Afterwards, there was a significant increase, reaching 47466 million US$ in 2022, and continuing to rise to 51440 million US$ in 2023. However, in 2024, invested capital slightly declined to 48390 million US$. Overall, a large expansion of the capital base occurred after 2021.

Return on Invested Capital (ROIC)

The return on invested capital demonstrates a decreasing trend following 2021, coinciding with changes in NOPAT and invested capital. ROIC was highest at 34.81% in 2021, then fell to 20.3% in 2022, continuing to decrease to 17.12% in 2023 and stabilizing marginally at 17.11% in 2024. This decline reflects a reduced efficiency in generating returns relative to the invested capital in the later years.

Overall Analysis

The data reflects a period of peak operational profitability and capital efficiency in 2021, followed by a notable decline in profitability and return on invested capital in subsequent years despite a substantial growth in invested capital from 2021 to 2023. The reduction in ROIC alongside increasing invested capital indicates diminishing returns on increased investments. This trend suggests potential challenges in converting higher capital investment into proportional profit growth over the course of the analyzed years.

The analysis of the financial ratios over the five-year period reveals several noteworthy trends and shifts in the company's financial performance and efficiency metrics.

Operating Profit Margin (OPM)

The operating profit margin shows a clear downward trend, decreasing from 40.45% in 2020 to 30.79% in 2024. This steady decline suggests a reduction in operating efficiency or increasing costs relative to sales over the period.

Turnover of Capital (TO)

The turnover of capital ratio experienced variability, starting at 0.9 in 2020, rising to a peak of 1.07 in 2021, then declining sharply to 0.67 in 2022 and remaining low but slightly improving to 0.78 by 2024. This pattern indicates fluctuating efficiency in the use of capital to generate revenue, with a notable drop after 2021 followed by modest recovery.

1 – Effective Cash Tax Rate (CTR)

This metric showed a gradual decline from 77.11% in 2020 to 71.01% in 2024, reflecting a slight decrease in the proportion of pre-tax earnings retained after cash taxes. This may indicate changes in the tax environment or tax planning strategies resulting in a somewhat lower effective tax burden over time.

Return on Invested Capital (ROIC)

The return on invested capital exhibits a significant fall from a high of 34.81% in 2021 to 17.11% in 2024, nearly halving over the period. This marks a considerable reduction in the overall profitability and efficiency of the capital invested in the business, implying challenges in generating returns consistent with earlier years.

Overall, the company experienced a consistent decline in key profitability and efficiency metrics throughout the period. While some improvement in capital turnover is noted after 2022, the operating profit margin and return on invested capital highlight concerns regarding sustained profitability and effective capital utilization. Additionally, the effective cash tax rate trend supports a moderate optimization of tax liabilities but does not offset the declines in operational and investment returns.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes demonstrated a fluctuating pattern over the analyzed period. It increased from 11,606 million USD in 2020 to a peak of 13,013 million USD in 2021, followed by a decline to 12,241 million USD in 2022. This downward trend continued with values of 11,703 million USD in 2023 and 11,662 million USD in 2024, approaching but not falling below the 2020 level. This trend indicates some pressure on operational profitability after 2021.

Net Revenues

Net revenues exhibited a consistent upward trajectory throughout the period. Starting at 28,694 million USD in 2020, revenues increased steadily each year, reaching 37,878 million USD in 2024. This represents a substantial growth in revenue, reflecting either increased sales volumes, pricing power, or possibly expansion into new markets or products.

Operating Profit Margin (OPM)

The operating profit margin showed a continuous decline from 40.45% in 2020 to 30.79% in 2024. Despite the increase in net revenues, the margin contracted by nearly 10 percentage points over the five years. This suggests rising costs, increased expenses, or pricing pressures that have eroded operating profitability relative to revenue.

Summary of Financial Performance Trends

The analysis reveals a scenario where revenue growth has been strong and steady, yet profitability has faced challenges. The declining operating profit margin alongside the decreasing net operating profit after 2021 indicates that cost management or efficiency improvements may not have kept pace with revenue expansion. The combination of rising revenues and shrinking margins suggests increasing cost pressures or competitive factors impacting profitability. Overall, the company experienced growth in top-line figures but encountered difficulties in sustaining operational profitability levels.

Net Revenues

The net revenues exhibit a consistent upward trend over the period analyzed, increasing from $28,694 million in 2020 to $37,878 million in 2024. The growth is steady year-over-year, with a notable increase between 2022 and 2023, when revenues rose from $31,762 million to $35,174 million. This indicates a positive sales performance and expansion in revenue-generating activities.

Invested Capital

Invested capital shows a fluctuating pattern. Initially, there is a decline from $31,958 million in 2020 to $29,268 million in 2021. Subsequently, there is a sharp increase in 2022, reaching $47,466 million, followed by further growth to $51,440 million in 2023. However, in 2024, invested capital decreases slightly to $48,390 million. These fluctuations suggest significant investments or revaluations occurring mainly in the middle years, potentially to support growth or restructuring efforts.

Turnover of Capital (TO)

The turnover of capital ratio starts at 0.9 in 2020, improves to 1.07 in 2021, reflecting more efficient use of capital relative to revenues. However, a sharp decline follows in 2022, falling to 0.67, and remains relatively stable but low at 0.68 in 2023. In 2024, there is a slight improvement to 0.78. This declining trend indicates that despite increasing revenues, the company’s invested capital grew disproportionately, reducing capital efficiency. The partial recovery in 2024 suggests some improvement in capital utilization.

Overall Insights

The data reflects robust revenue growth alongside considerable volatility in invested capital. The initial decrease followed by a sharp increase in invested capital combined with declining capital turnover points to substantial capital deployment not immediately translating into proportional revenue increases. This could imply strategic investments or acquisitions aimed at long-term growth. The relatively modest recovery in capital turnover by the end of the period indicates potential efficiency gains from those investments, although not yet reaching earlier levels.

Cash Operating Taxes

The cash operating taxes demonstrate an overall increasing trend over the five-year period. Starting at 2,656 million US dollars in 2020, the taxes rose slightly to 2,825 million in 2021, followed by a modest decline to 2,606 million in 2022. Subsequently, there was a rebound to 2,899 million in 2023 and a more pronounced increase to 3,381 million in 2024. This suggests a growing tax burden, particularly in the last two years.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes fluctuated over the period but exhibited a downward trend after peaking in 2021. The figures increased from 11,606 million US dollars in 2020 to 13,013 million in 2021 but then declined to 12,241 million in 2022. The downward movement continued to 11,703 million in 2023 and further to 11,662 million in 2024. This indicates tightening profitability at the operating level before taxes over recent years.

Effective Cash Tax Rate (CTR)

The effective cash tax rate shows a varied pattern, initially decreasing from 22.89% in 2020 to 21.71% in 2021 and further to 21.29% in 2022. However, a reversal occurred subsequently, with the rate increasing to 24.77% in 2023 and rising more sharply to 28.99% in 2024. The increasing tax rate in the latter years contributes to the higher cash tax payments despite declining net operating profits.

Overall Insights

Overall, the analysis reveals that while net operating profit before taxes has decreased since 2021, cash operating taxes have increased, particularly in 2023 and 2024, driven in part by a rising effective cash tax rate. The combination of higher tax rates and increasing tax payments, despite declining profits, may signal potential challenges in tax planning or increased tax liabilities. This dynamic could have implications for the company’s cash flow and net earnings moving forward.