Sherwin-Williams Co. (NYSE:SHW)

The composition of inventories demonstrates fluctuating values over the five-year period. Finished goods consistently represent the largest portion of total inventories, while work in process and raw materials constitute a significantly smaller, though substantial, component.

Total Inventory

Total inventories increased notably from 2021 to 2022, rising from US$1,927.2 million to US$2,626.5 million. Subsequently, a decline is observed in 2023, with inventories decreasing to US$2,329.8 million. This downward trend continues into 2024, reaching US$2,288.1 million, before stabilizing slightly in 2025 at US$2,318.2 million. The 2022 peak suggests a potential build-up, possibly in anticipation of increased demand or supply chain concerns, followed by a correction in subsequent years.

Finished Goods

Finished goods inventory increased from US$1,378.8 million in 2021 to US$1,957.7 million in 2022. A decrease is then apparent in 2023, falling to US$1,810.9 million, and continuing to US$1,751.9 million in 2024. The value experiences a modest increase in 2025, reaching US$1,784.2 million. This pattern mirrors the overall inventory trend, indicating that changes in finished goods are a primary driver of total inventory fluctuations.

Work in Process and Raw Materials

Work in process and raw materials inventory rose from US$548.4 million in 2021 to US$668.8 million in 2022. In 2023, this category decreased to US$518.9 million, and then increased slightly to US$536.2 million in 2024. The value remains relatively stable in 2025 at US$534.0 million. While exhibiting less volatility than finished goods, this component also shows a peak in 2022 followed by a subsequent decline and stabilization.

The relatively consistent values for work in process and raw materials, compared to the more pronounced fluctuations in finished goods, suggest that the company may be managing its early-stage inventory levels more effectively, or that these levels are subject to different demand or supply constraints than finished goods.

The financial information reveals a consistent impact resulting from the adjustment of inventories due to a change in accounting method from LIFO to FIFO. This adjustment affects several key financial statement line items over the five-year period from 2021 to 2025.

Inventory Levels

Reported inventories fluctuate, initially increasing from $1,927.2 million in 2021 to $2,626.5 million in 2022, then decreasing to $2,288.1 million in 2024 before a slight increase to $2,318.2 million in 2025. However, the adjusted inventory values, reflecting the FIFO method, are consistently higher. The difference between reported and adjusted inventories widens from approximately $600 million in 2021 to around $617 million in 2025, indicating a substantial cumulative effect of the LIFO to FIFO conversion.

Current Assets

Reported current assets follow a similar pattern to inventories, peaking at $5,907.7 million in 2022 and declining to $5,400.8 million in 2024 before rising to $6,007.4 million in 2025. The adjustment for inventory increases reported current assets by approximately $593 million in 2021, growing to $616.8 million in 2025. This suggests that a significant portion of the company’s current assets is tied up in inventory, and the change in accounting method materially impacts this representation.

Total Assets

Reported total assets demonstrate a general upward trend, increasing from $20,666.7 million in 2021 to $25,901.7 million in 2025. The adjustment to total assets, driven by the inventory change, consistently adds approximately $593 million to $616.8 million to the reported figures over the period. The impact on total assets, while substantial, remains a relatively small percentage of the overall asset base.

Shareholders’ Equity

Reported shareholders’ equity shows consistent growth, rising from $2,437.2 million in 2021 to $4,598.3 million in 2025. The adjustment to shareholders’ equity also increases year over year, from $593 million in 2021 to $616.8 million in 2025. This increase is likely a result of the cumulative effect of the higher inventory valuation impacting retained earnings through increased reported net income.

Net Income

Reported net income increases from $1,864.4 million in 2021 to $2,568.5 million in 2025, with a slight dip in 2025. The adjustment to net income results in higher figures each year, increasing from $280.9 million in 2021 to $19.6 million in 2025. The decreasing difference suggests the initial, larger impact of the LIFO to FIFO conversion is diminishing over time as the inventory base stabilizes under the new method. The adjustment to net income is most significant in the earlier years of the transition.

In summary, the transition from LIFO to FIFO has a consistent and material impact on reported inventory values, current assets, total assets, shareholders’ equity, and net income. While the absolute dollar amount of the adjustment remains relatively stable, its proportional impact on net income diminishes over the observed period.

The financial metrics presented demonstrate notable differences between reported and adjusted values across the five-year period. These adjustments appear to primarily relate to inventory valuation, likely stemming from a shift between Last-In, First-Out (LIFO) and First-In, First-Out (FIFO) accounting methods. Generally, the adjustments result in lower reported values for profitability and returns, and higher reported values for liquidity and solvency, suggesting LIFO reporting is currently in use.

Liquidity

The reported current ratio exhibits fluctuation, beginning at 0.88 and declining to 0.79 before recovering to 0.87. However, the adjusted current ratio consistently remains higher, starting at 0.99 and showing a similar pattern of decline and recovery to reach 0.96. This indicates that adjusting for inventory valuation improves the assessment of short-term liquidity. The difference between reported and adjusted ratios suggests a significant impact from inventory valuation on the company’s ability to meet its short-term obligations.

Profitability

Reported net profit margin shows an initial decrease from 9.35 to 9.12, followed by an increase to 11.61, and a slight decrease to 10.90. The adjusted net profit margin generally trends lower than the reported margin, beginning at 10.76 and ending at 10.84. This suggests that the inventory valuation method employed (likely LIFO) reduces reported profitability. The adjusted figures provide a potentially more accurate representation of underlying profitability, independent of inventory accounting choices.

Asset Utilization

Reported total asset turnover remains relatively stable around 0.98, with a slight decline to 0.91 in the final year. The adjusted total asset turnover mirrors this trend, remaining close to 0.95 and also declining to 0.89. The adjustments have a minimal impact on this ratio, indicating that the inventory valuation method has a limited effect on how efficiently assets are used to generate sales.

Solvency & Returns

Reported financial leverage decreases steadily from 8.48 to 5.63, while the adjusted financial leverage shows a similar, though less pronounced, decline from 7.02 to 5.08. This indicates that the adjustments reduce the reported level of financial risk. Both reported and adjusted Return on Equity (ROE) demonstrate a downward trend, with ROE decreasing from 76.50 to 55.86 (reported) and from 70.80 to 48.99 (adjusted). Similarly, Return on Assets (ROA) shows a fluctuating pattern, with a general decline in the adjusted figures. The adjustments consistently lower both ROE and ROA, reinforcing the observation that the current inventory valuation method reduces reported returns.

In summary, the adjustments consistently lower reported profitability and returns while improving liquidity and solvency ratios. This pattern suggests the company is currently utilizing an inventory valuation method that reduces reported earnings, likely LIFO. The magnitude of these adjustments should be considered when evaluating the company’s financial performance and position.

The adjusted current ratio exhibited fluctuations over the five-year period. While generally remaining above 0.90, the ratio did not demonstrate a consistent upward or downward trajectory.

Adjusted Current Ratio Trend

The adjusted current ratio began at 0.99 in 2021, increasing to a peak of 1.12 in 2022. A subsequent decline was observed in 2023, falling to 0.93. This downward trend continued into 2024, with the ratio reaching 0.89. A modest recovery occurred in 2025, bringing the adjusted current ratio to 0.96.

The adjusted current assets, which underpin the adjusted current ratio calculation, also showed variability. They increased from US$5,646,700 thousand in 2021 to US$6,700,400 thousand in 2022, then decreased to US$6,180,900 thousand in 2023, followed by a slight decrease to US$6,031,000 thousand in 2024, and finally increased to US$6,624,200 thousand in 2025.

Comparison with Reported Current Ratio

The reported current ratio consistently remained below the adjusted current ratio throughout the period. The reported current ratio showed a similar pattern of fluctuation, starting at 0.88 in 2021, rising to 0.99 in 2022, then declining to 0.83 in 2023 and 0.79 in 2024, before recovering slightly to 0.87 in 2025. The difference between the reported and adjusted ratios suggests the adjustments made to current assets are materially impacting the liquidity assessment.

The fluctuations in both the adjusted current ratio and adjusted current assets indicate potential shifts in the composition of current assets or the methods used to value them. The 2022 peak in the adjusted current ratio coincided with the largest increase in adjusted current assets, suggesting a strong correlation between these two metrics.

The period under review demonstrates fluctuations in both reported and adjusted net income, which correspondingly influence net profit margins. While reported net income generally increased from 2021 to 2023, it experienced a slight decrease in 2025. Adjusted net income followed a similar pattern, with a peak in 2024 followed by a decline in 2025. A closer examination of the net profit margins reveals nuanced trends.

Reported Net Profit Margin

The reported net profit margin exhibited an initial increase from 9.35% in 2021 to 11.61% in 2024. This indicates improving profitability based on reported figures. However, the margin decreased to 10.90% in 2025, suggesting a potential erosion of profitability in the most recent year. The overall trend suggests a positive trajectory, though with recent volatility.

Adjusted Net Profit Margin

The adjusted net profit margin showed a more complex pattern. It began at 10.76% in 2021, decreased to 10.02% in 2022, and further to 9.82% in 2023. A significant increase was then observed in 2024, reaching 11.44%. Similar to the reported margin, the adjusted margin declined in 2025, settling at 10.84%. The 2024 peak suggests the impact of adjustments positively influenced profitability during that year, but the subsequent decrease warrants further investigation.

The divergence between reported and adjusted net profit margins highlights the significance of the adjustments made. The adjusted figures consistently exceed the reported figures, indicating that certain items are being added back to net income during the adjustment process. The fluctuations in both margins suggest sensitivity to underlying business conditions and the impact of these adjustments. The decline in both margins during 2025, despite the prior increases, could indicate emerging challenges or a shift in the cost structure.

Margin Relationship

The difference between the adjusted and reported net profit margins remained relatively stable across the period, generally ranging between 1.0% and 1.6%. This consistency suggests that the nature and magnitude of the adjustments are relatively predictable. However, monitoring this difference is crucial, as significant changes could signal alterations in the company’s accounting practices or the types of items requiring adjustment.

In conclusion, the financial performance, as reflected in these margins, demonstrates a period of growth followed by a recent softening. Further analysis is recommended to understand the drivers behind the 2025 decline and the nature of the adjustments impacting the net profit margin.

The analysis reveals trends in total asset turnover, both reported and adjusted, over a five-year period. Reported total assets demonstrate a consistent increase from 2021 to 2025, while adjusted total assets follow a similar pattern, albeit with slightly higher values. The asset turnover ratios, however, exhibit a more nuanced behavior.

Reported Total Asset Turnover

Reported total asset turnover remained relatively stable between 2021 and 2023, fluctuating around 0.97 to 1.00. A slight decrease was observed in 2024, falling to 0.98, followed by a more noticeable decline to 0.91 in 2025. This suggests a decreasing efficiency in generating sales from reported assets in the latter period.

Adjusted Total Asset Turnover

Adjusted total asset turnover mirrors the trend of the reported ratio, showing incremental increases from 0.94 in 2021 to 0.98 in 2023. Similar to the reported ratio, a decrease is evident in 2024, with the ratio dropping to 0.95. The most significant decline occurs in 2025, where the adjusted turnover ratio falls to 0.89. This indicates a reduction in sales generated per dollar of adjusted assets.

The convergence of both reported and adjusted total asset turnover ratios suggests that the observed trends are not significantly impacted by the adjustments made to total assets. The consistent decline in both ratios in 2025 warrants further investigation to determine the underlying causes, such as potential decreases in sales, increases in assets, or a combination of both. The slight differences between the reported and adjusted ratios throughout the period suggest that the adjustments to total assets have a minor, but consistent, effect on the calculated turnover.

Asset Base Growth

Both reported and adjusted total assets increased over the five-year period, growing from approximately US$20.7 million to US$25.9 million (reported) and US$21.3 million to US$26.5 million (adjusted). This asset growth did not translate into a proportional increase in sales, as evidenced by the declining asset turnover ratios, particularly in 2025.

In summary, while the asset base expanded, the company experienced a diminishing ability to generate sales from its assets, particularly in the final year of the observed period. This trend is consistent whether utilizing reported or adjusted asset figures.

An examination of the financial information reveals trends in both reported and adjusted total assets, shareholders’ equity, and associated leverage ratios over a five-year period. Both reported and adjusted total assets generally increased throughout the period, though the rate of increase varied. Shareholders’ equity also demonstrated consistent growth, with adjusted shareholders’ equity consistently exceeding reported shareholders’ equity.

Total Assets

Reported total assets increased from US$20,666,700 thousand in 2021 to US$25,901,700 thousand in 2025, representing a cumulative increase of approximately 25.3%. Adjusted total assets followed a similar pattern, rising from US$21,259,700 thousand to US$26,518,500 thousand, a cumulative increase of roughly 24.7%. The growth rate appeared to moderate in 2024 and 2025 compared to the earlier years.

Shareholders’ Equity

Reported shareholders’ equity increased steadily from US$2,437,200 thousand in 2021 to US$4,598,300 thousand in 2025, an increase of approximately 88.3%. Adjusted shareholders’ equity exhibited a similar upward trajectory, growing from US$3,030,200 thousand to US$5,215,100 thousand, representing a cumulative increase of about 72.3%. The difference between reported and adjusted shareholders’ equity widened over the period.

Financial Leverage

Reported financial leverage decreased consistently from 8.48 in 2021 to 5.63 in 2025. This indicates a declining reliance on debt financing relative to reported equity. Adjusted financial leverage also demonstrated a downward trend, moving from 7.02 in 2021 to 5.08 in 2025. The adjusted leverage ratio consistently remained lower than the reported leverage ratio throughout the period, suggesting that adjustments to equity reduce the apparent level of financial risk. The rate of decline in both reported and adjusted financial leverage slowed between 2023 and 2025.

The consistent decrease in both reported and adjusted financial leverage ratios suggests improving financial stability over the observed period. The divergence between reported and adjusted figures indicates that the adjustments made to shareholders’ equity have a material impact on the calculated leverage, potentially reflecting differences in accounting treatment or valuation methods.

The period between 2021 and 2025 demonstrates fluctuating performance in both reported and adjusted financial metrics. Net income, both as reported and adjusted, generally increased from 2021 to 2023, followed by a slight decrease in 2025. Shareholders’ equity exhibited consistent growth throughout the observed period, both on a reported and adjusted basis. However, the return on equity, both reported and adjusted, shows a declining trend over the five-year span.

Net Income

Reported net income increased from US$1,864,400 thousand in 2021 to US$2,388,800 thousand in 2023, representing a compound annual growth rate of approximately 8.3%. A subsequent decrease to US$2,568,500 thousand in 2025 indicates a potential softening of profitability. Adjusted net income followed a similar pattern, increasing from US$2,145,300 thousand to US$2,264,100 thousand between 2021 and 2023, before declining to US$2,555,100 thousand in 2025.

Shareholders’ Equity

Reported shareholders’ equity increased steadily from US$2,437,200 thousand in 2021 to US$4,598,300 thousand in 2025, indicating consistent growth in the company’s net worth. Adjusted shareholders’ equity mirrored this trend, growing from US$3,030,200 thousand to US$5,215,100 thousand over the same period. The difference between reported and adjusted equity suggests the presence of certain adjustments impacting the equity calculation.

Return on Equity (ROE)

Reported ROE decreased from 76.50% in 2021 to 55.86% in 2025. This decline suggests a diminishing ability to generate profit from shareholders’ investments. Adjusted ROE exhibited a similar downward trajectory, falling from 70.80% in 2021 to 48.99% in 2025. The consistent difference between reported and adjusted ROE values throughout the period indicates that the adjustments to net income and shareholders’ equity have a material impact on the calculated return. The decline in both reported and adjusted ROE warrants further investigation to determine the underlying causes, such as changes in profitability, asset utilization, or financial leverage.

The observed decrease in ROE, despite growth in shareholders’ equity, suggests that the company’s profitability is not keeping pace with its equity base. This could be due to a variety of factors, and further analysis is recommended to pinpoint the specific drivers of this trend.

The period between 2021 and 2025 demonstrates fluctuating performance in reported and adjusted financial metrics. Reported net income generally increased from 2021 to 2023, peaked in 2024, and then experienced a slight decline in 2025. Adjusted net income followed a similar pattern, though the increases were less pronounced and the 2025 value was closer to the 2022 level. Total assets, both reported and adjusted, exhibited a consistent upward trend throughout the five-year period.

Reported Return on Assets (ROA)

Reported ROA initially decreased from 9.02% in 2021 to 8.94% in 2022. A substantial increase was then observed, reaching 10.41% in 2023 and peaking at 11.35% in 2024. The metric concluded the period with a decrease to 9.92% in 2025. This suggests a period of improving profitability relative to assets, followed by a slight pullback in the final year.

Adjusted Return on Assets (ROA)

Adjusted ROA began at 10.09% in 2021, decreased to 9.49% in 2022, and remained relatively stable at 9.58% in 2023. A rise to 10.90% occurred in 2024, followed by a decline to 9.64% in 2025. The adjusted ROA generally tracked the reported ROA, but with different magnitudes of change. The initial decrease and subsequent increase were less dramatic than those observed in the reported ROA.

Comparison of Reported and Adjusted ROA

Throughout the period, the adjusted ROA consistently exceeded the reported ROA. The difference between the two metrics varied, but generally remained within a range of approximately 0.4% to 1.5%. This indicates that adjustments made to net income and total assets had a positive impact on the calculated return on assets. The convergence of the two ROA figures in 2025 suggests a lessening of the impact of these adjustments.

Asset Growth and ROA

While both reported and adjusted total assets increased consistently, the ROA figures did not follow a strictly corresponding upward trend. This suggests that the growth in assets did not always translate directly into proportional increases in profitability. The peak ROA values in 2023 and 2024 occurred despite continued asset growth, indicating improved efficiency in asset utilization during those years. The decline in ROA in 2025, despite further asset growth, suggests a potential decrease in efficiency.