Phillips 66 (NYSE:PSX)

The analysis of economic profit from 2015 to 2019 reveals a persistent trend of negative value creation, although the magnitude of these losses diminished over the observed period. While operational profitability increased consistently, it remained insufficient to offset the total cost of capital associated with the invested capital base.

Net Operating Profit After Taxes (NOPAT)

A consistent upward trajectory is observed in NOPAT, which rose from US$ 3,281 million in 2015 to US$ 5,344 million in 2019. This steady growth indicates an improvement in underlying operational performance and an increased capacity to generate profit from core business activities.

Invested Capital and Cost of Capital

Invested capital exhibited a general growth trend, increasing from US$ 42,469 million in 2015 to US$ 50,827 million in 2019, despite a slight contraction in 2018. During the same period, the cost of capital remained relatively stable, fluctuating within a narrow range between 14.52% and 15.51%, ending the period at its lowest recorded level.

Economic Profit Performance

Economic profit remained negative throughout the five-year duration, signaling that the return on invested capital did not exceed the company's weighted average cost of capital. However, a positive trend in value recovery is evident, as the economic deficit narrowed from US$ -3,306 million in 2015 to US$ -2,035 million in 2019. This improvement is primarily attributed to the growth in NOPAT, which outpaced the increase in the total capital charge.

The financial data reveals distinct trends in net income and net operating profit after taxes (NOPAT) over the five-year period.

Net Income Attributable to Phillips 66

Net income experienced significant volatility throughout the period. Starting at US$4,227 million in 2015, net income decreased sharply to US$1,555 million in 2016, representing a notable decline. However, in the following years, net income rebounded strongly, rising to US$5,106 million in 2017 and further increasing to US$5,595 million in 2018. In 2019, net income declined again to US$3,076 million. This pattern indicates fluctuating profitability with considerable short-term variations.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a more consistent upward trend over the same period. Beginning at US$3,281 million in 2015, NOPAT increased steadily to US$4,480 million in 2016, US$4,664 million in 2017, US$5,129 million in 2018, and finally US$5,344 million in 2019. This gradual growth suggests improving core operational efficiency and profitability despite the fluctuations in net income.

In summary, while net income experienced notable fluctuations, particularly with a steep drop in 2016 followed by a peak in 2018, NOPAT demonstrated a steady and gradual improvement throughout the period. This contrast may indicate effects from non-operational factors influencing net income, whereas operating performance exhibited consistent enhancement.

The financial data reveals considerable fluctuations in both income tax expense (benefit) and cash operating taxes over the five-year period.

Income Tax Expense (Benefit)

There is a notable volatility in income tax expense figures, beginning with a high expense of 1,764 million USD in 2015, dropping sharply to 547 million USD in 2016. In 2017, the data shows a significant income tax benefit reflected by a negative value of -1,693 million USD. This is followed by a rebound to a positive expense of 1,572 million USD in 2018, before declining again to 801 million USD in 2019. This pattern indicates substantial variability, which could be due to changes in taxable income, tax rate adjustments, or extraordinary tax items within the company’s operational framework.

Cash Operating Taxes

The cash operating taxes also display considerable variation. The taxes paid almost drop from 1,407 million USD in 2015 to just 70 million USD in 2016, then rise to 363 million USD in 2017. A sharp increase occurs in 2018 to 1,429 million USD, followed by a decrease to 716 million USD in 2019. This trend, although somewhat aligned with the income tax expense, suggests fluctuating cash outflows related to tax operations, potentially reflecting changes in operational profitability, deferred tax payments, or differences between cash and accounting tax treatments.

Overall, the data suggests a highly dynamic tax position with considerable year-to-year changes. The negative income tax figure in 2017 particularly stands out as an anomaly, indicating either a tax benefit or adjustment that significantly reduced the tax expense for that year. The disparity between cash operating taxes and income tax expense in some years also implies timing differences between recorded tax expense and actual tax payments.

Total reported debt & leases

The total reported debt and leases show a continuous upward trend from 2015 through 2019. The value increased steadily each year from $10,643 million in 2015 to $13,024 million in 2019, indicating a rise in the company’s financial obligations over the period.

Stockholders’ equity

Stockholders' equity experienced fluctuations during the period. It decreased slightly from $23,100 million in 2015 to $22,390 million in 2016, then increased to a peak of $25,085 million in 2017. This was followed by a marginal decline in 2018 and a minor recovery in 2019, ending at $24,910 million. Overall, equity remained relatively stable with modest variations.

Invested capital

Invested capital showed a consistent growth trend over the five years. Beginning at $42,469 million in 2015, it rose each year and reached $50,827 million in 2019. This increase suggests ongoing capital investment and expansion activities.

Between 2015 and 2019, the financial performance regarding economic value added demonstrated a consistent trajectory of recovery, although the company failed to achieve a positive economic profit during this period. The overarching trend indicates a narrowing gap between the return on invested capital and the cost of capital, suggesting a gradual improvement in capital efficiency.

Economic Profit

Economic profit remained negative throughout the five-year period, indicating that returns did not exceed the cost of capital. However, a general upward trend is observed, with the deficit narrowing from -3,306 million US$ in 2015 to -2,035 million US$ by 2019. A temporary regression occurred in 2017, when the deficit widened to -2,795 million US$ from the previous year's -2,462 million US$, before continuing to improve through 2019.

Invested Capital

The invested capital base expanded over the analyzed timeframe, increasing from 42,469 million US$ in 2015 to 50,827 million US$ in 2019. This growth was largely linear, with a minor exception in 2018, where invested capital decreased slightly to 48,544 million US$ from 49,009 million US$ in 2017.

Economic Spread Ratio

The economic spread ratio exhibited a consistent improvement, ascending from -7.79% in 2015 to -4.00% in 2019. While the ratio remained negative, indicating a continued destruction of economic value, the steady reduction in the negative spread suggests that the company's operating returns are converging toward its cost of capital.

An analysis of the economic value added indicators between 2015 and 2019 reveals a consistent trajectory toward improved financial performance, despite the company operating with negative economic profit throughout the entire period. While the organization failed to generate returns above its cost of capital, the magnitude of this shortfall decreased steadily over the five-year window.

Economic Profit Trends

Economic profit remained negative from 2015 to 2019, indicating that the net operating profit after taxes was insufficient to cover the cost of capital employed. However, a general upward trend is observed, with the deficit narrowing from -3,306 million US dollars in 2015 to -2,035 million US dollars by 2019. A brief reversal in this improvement occurred in 2017, where the economic profit declined to -2,795 million US dollars from the previous year's -2,462 million US dollars, before resuming a recovery path.

Revenue Performance

Sales and other operating revenues exhibited volatility during the period. A significant contraction occurred in 2016, with revenues dropping to 84,279 million US dollars. This was followed by a period of growth, peaking at 111,461 million US dollars in 2018, and a slight correction to 107,293 million US dollars in 2019. The lack of a linear correlation between revenue growth and economic profit suggests that factors other than top-line growth, such as operational efficiency or capital cost reductions, influenced the economic value.

Economic Profit Margin Analysis

The economic profit margin demonstrates the most consistent improvement of all analyzed metrics. The margin moved from -3.34% in 2015 to -1.90% in 2019, showing a year-over-year increase in every reporting period. This steady compression of the negative margin indicates an improving ability to generate value relative to the scale of operations, signaling a gradual convergence toward a positive economic profit threshold.