RTX Corp. (NYSE:RTX)

The financial performance, as measured by economic profit, demonstrates a notable shift over the five-year period. Initially, the company experienced substantial economic losses, which gradually diminished before improving significantly in the final year. A review of the underlying components reveals the drivers of this trend.

Net Operating Profit After Taxes (NOPAT)

NOPAT began at a loss of US$1,590 million in 2020, then increased substantially to a profit of US$5,054 million in 2021. Subsequent years saw a moderate decline to US$4,663 million in 2022 and US$4,118 million in 2023, before rising again to US$6,483 million in 2024. This indicates volatility in core operational profitability, with a strong recovery in the most recent year.

Cost of Capital

The cost of capital exhibited a slight upward trend from 7.17% in 2020 to 7.66% in 2024. While the increases were incremental, the rising cost of capital represents a growing hurdle for generating positive economic profit.

Invested Capital

Invested capital consistently decreased over the period, moving from US$115,597 million in 2020 to US$111,328 million in 2024. This suggests a reduction in the company’s asset base, potentially through divestitures, improved efficiency, or decreased investment in new projects.

Economic Profit

Economic profit, calculated as NOPAT less the cost of capital applied to invested capital, was negative throughout the entire period. The largest loss occurred in 2020 at US$9,879 million. Losses decreased to US$3,494 million in 2021, then remained relatively stable around US$4.0 billion for 2022 and 2023. A significant improvement is observed in 2024, with the economic loss reduced to US$2,047 million. This improvement is attributable to the combined effect of increased NOPAT and a slower rate of decline in invested capital.

In summary, while the company consistently failed to generate economic profit over the observed period, the trend indicates a clear improvement in recent performance. The substantial increase in NOPAT in 2024, coupled with the decreasing invested capital, contributed to a significantly reduced economic loss. Continued monitoring of these trends will be crucial to assess whether the company can achieve positive economic profit in the future.

Net Income (Loss) Attributable to Common Shareowners

The data reveals a significant turnaround in net income over the five-year span. Starting with a substantial loss of $3,519 million in 2020, the company moved to positive net income in 2021, earning $3,864 million. This positive trajectory continued with net income increasing to $5,197 million in 2022. However, there was a notable decline in 2023, with net income dropping to $3,195 million. The year 2024 saw a substantial recovery, with net income rising again to $4,774 million. Overall, the trend shows strong volatility but an underlying recovery and growth following initial losses.

Net Operating Profit After Taxes (NOPAT)

NOPAT also exhibits considerable improvement from 2020 through 2024. It started in negative territory at -$1,590 million in 2020, then sharply increased to $5,054 million in 2021. A slight decrease occurred in 2022, with NOPAT falling to $4,663 million, followed by a further decline to $4,118 million in 2023. In 2024, there was a substantial increase to $6,483 million, marking the highest point during the observed period. This suggests strong operating performance recovery and improved profitability post-2020.

General Observations

Both net income and NOPAT reveal a pattern of initial recovery after a period of losses, with some fluctuations between 2022 and 2023. The company demonstrates resilience with net income and operating profit growing significantly from 2020 lows to much higher figures by 2024. The decline in 2023 warrants attention as it interrupts the otherwise upward trend, but the subsequent recovery indicates an overall positive financial health trajectory.

Income Tax Expense

The income tax expense exhibits variability over the analyzed five-year period. Starting at 575 million US dollars in 2020, it increased notably to 786 million in 2021. However, in 2022, it declined to 700 million before experiencing a further reduction to 456 million in 2023. In 2024, a significant rise to 1181 million occurred, marking the highest level in the period. The fluctuation suggests the influence of changing taxable income, tax rates, or tax planning strategies impacting reported tax expenses.

Cash Operating Taxes

Cash operating taxes show a generally upward trend with some volatility. Beginning at 978 million US dollars in 2020, this figure increased to 1158 million in 2021. A sharp and substantial increase to 2635 million is seen in 2022, more than doubling the previous year’s amount. This peak was followed by a considerable decline to 1197 million in 2023. In 2024, cash operating taxes rose again to 1638 million. This pattern indicates significant fluctuations in actual cash tax payments, potentially reflecting changes in tax regulations, timing of tax payments, or differences between accounting tax expense and cash tax outflows.

Total Reported Debt & Leases

The total reported debt and leases remained relatively stable from 2020 through 2022, with values around 33,800 million US dollars. However, a notable increase occurred in 2023, where the amount rose sharply to 45,587 million US dollars. This increase was followed by a slight decline in 2024 to 43,260 million US dollars, yet still remaining substantially higher than the levels observed in the initial years.

Shareowners’ Equity

Shareowners’ equity showed a slight upward trend from 2020 to 2021, reaching 73,068 million US dollars. It then experienced a minor decrease in 2022, followed by a significant reduction in 2023 to 59,798 million US dollars. In 2024, the equity levels stabilized modestly with a small increase to 60,156 million US dollars, but overall, the equity remained below the earlier period’s highs.

Invested Capital

Invested capital demonstrated a gradual decline over the entire period. From 115,597 million US dollars in 2020, it decreased steadily each year to reach 111,328 million US dollars by 2024. This consistent downward trend suggests a contraction in the company's invested assets or capital base over this timeframe.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern of negative economic profit over the five-year period from 2020 to 2024. While the magnitude of the economic loss decreased in the most recent year, the company has not yet generated positive economic profit.

Economic Profit

Economic profit exhibits a decreasing trend from a loss of US$9,879 million in 2020 to a loss of US$3,494 million in 2021. This improvement was not sustained, as losses remained substantial at US$4,007 million in 2022 and US$4,060 million in 2023. A notable reduction in the economic loss is observed in 2024, with a reported loss of US$2,047 million, representing the smallest loss over the analyzed period.

Invested Capital

Invested capital experienced a gradual decline throughout the period, decreasing from US$115,597 million in 2020 to US$111,328 million in 2024. The rate of decrease appears relatively consistent year-over-year, suggesting a deliberate reduction in capital employed or potentially asset disposals.

Economic Spread Ratio

The economic spread ratio, reflecting the efficiency of capital allocation, consistently registered negative values across the five years. The ratio improved from -8.55% in 2020 to -3.05% in 2021, mirroring the improvement in economic profit. However, the ratio worsened slightly in 2022 and 2023, reaching -3.54% and -3.62% respectively. The most recent year, 2024, shows a significant improvement to -1.84%, indicating a more efficient use of invested capital compared to prior years, although still resulting in a negative spread.

The convergence of decreasing invested capital and a narrowing negative economic spread ratio in 2024 suggests potential operational improvements or strategic shifts. However, continued monitoring is necessary to determine if these trends will lead to positive economic profit in future periods.

The financial performance, as indicated by economic profit and its margin, demonstrates a consistent pattern of negative economic profit over the five-year period from 2020 to 2024. However, there is a noticeable improvement in the economic profit margin towards the end of the observed timeframe.

Economic Profit

Economic profit exhibits substantial fluctuations in absolute terms. Beginning with a loss of US$9,879 million in 2020, it improved to a loss of US$3,494 million in 2021. Subsequent years, 2022 and 2023, show relatively stable losses around US$4 billion. A significant reduction in the economic loss is observed in 2024, decreasing to US$2,047 million. This suggests increasing efficiency in capital allocation or improved operational performance in the most recent year.

Net Sales

Net sales demonstrate a consistent upward trend throughout the period. From US$56,587 million in 2020, sales increased to US$64,388 million in 2021, then to US$67,074 million in 2022, and US$68,920 million in 2023. The most substantial increase occurs between 2023 and 2024, with net sales reaching US$80,738 million. This indicates strong revenue growth, which, however, has not yet translated into positive economic profit.

Economic Profit Margin

The economic profit margin consistently registers as negative across all observed years. The margin begins at -17.46% in 2020, indicating a substantial economic loss relative to net sales. A considerable improvement is seen in 2021, with the margin increasing to -5.43%. The margin stabilizes around -5.9% to -6.0% in 2022 and 2023. A marked positive shift is evident in 2024, with the economic profit margin improving to -2.54%. This suggests that while the company continues to generate an economic loss, the magnitude of the loss is decreasing relative to its revenue, potentially due to improved cost management or capital efficiency.

In summary, while net sales are growing, the company continues to destroy economic value, as evidenced by the negative economic profit. However, the trend in the economic profit margin suggests a positive trajectory, indicating that the company is becoming more efficient in generating returns on its invested capital, and is moving closer to economic profitability.