Sherwin-Williams Co. (NYSE:SHW)

Return on Assets (ROA)

The Return on Assets exhibited a downward trend from 9.95% in 2020 to 8.94% in 2022, indicating a decrease in efficiency in generating profit from assets during this period. However, this trend reversed in 2023 and continued into 2024, with ROA rising to 10.41% and further to 11.35%. This recovery and subsequent improvement suggest enhanced operational performance or asset utilization in the latter years.

Financial Leverage

Financial Leverage increased significantly from 5.65 in 2020 to a peak of 8.48 in 2021, reflecting a higher degree of debt financing relative to equity. Subsequently, leverage decreased steadily over the next three years, reaching 5.83 by 2024. This decline indicates a deliberate reduction in reliance on debt, potentially lowering financial risk and indicating a strategic shift towards a more conservative capital structure.

Return on Equity (ROE)

Return on Equity rose sharply from 56.23% in 2020 to a high of 76.5% in 2021, coinciding with the peak in financial leverage. This suggests that the company effectively used increased leverage to amplify shareholder returns during this time. However, ROE declined to 65.12% in 2022 and remained relatively stable at around 64-66% thereafter. Despite the reduction from the peak, ROE levels remained strong, indicating sustained profitability for shareholders even as leverage decreased.

The financial performance indicators over the five-year period exhibit noteworthy trends in profitability, efficiency, leverage, and return metrics.

Net Profit Margin

The net profit margin demonstrated a fluctuating but overall improving trajectory. Starting at 11.06% in 2020, it declined to a low of 9.12% in 2022 but subsequently increased to reach 11.61% by 2024. This suggests an initial compression in profitability margins, followed by a recovery and gradual enhancement in profit generation relative to revenue.

Asset Turnover

Asset turnover improved steadily from 0.9 in 2020 to 1.0 in 2023, indicating enhanced efficiency in utilizing assets to generate sales. In 2024, the ratio slightly declined to 0.98 but remained close to the prior year’s peak, reflecting sustained asset productivity over time.

Financial Leverage

Financial leverage experienced a substantial increase from 5.65 in 2020 to a peak of 8.48 in 2021, indicating higher reliance on debt or external financing during this period. Thereafter, leverage progressively decreased, reaching 5.83 by 2024, which approaches the early 2020 level. This trend suggests a deleveraging phase following an interval of elevated leverage.

Return on Equity (ROE)

ROE showed significant variability, rising sharply from 56.23% in 2020 to 76.5% in 2021, followed by a decline to 64.29% in 2023 and a slight subsequent recovery to 66.19% in 2024. Despite fluctuations, ROE remained at a high level throughout, indicating strong profitability relative to shareholder equity.

In summary, the data indicates a period of increasing financial leverage peaking in 2021, which corresponds to a surge in ROE but a reduction in net profit margin and a modest increase in asset turnover. The latter years reflect a strategic reduction in leverage accompanied by improved net profitability and sustained asset efficiency, resulting in a stable and robust return on equity.

Tax Burden

The tax burden ratio exhibited minor fluctuations over the five-year period, starting at 0.81 in 2020 and peaking at 0.83 in 2021, before gradually decreasing to 0.77 in 2023 and slightly rising again to 0.78 in 2024. This pattern suggests a relatively stable but slightly improving tax efficiency over time.

Interest Burden

The interest burden ratio remained quite stable, ranging narrowly between 0.87 and 0.89 across the periods. Starting at 0.88 in 2020, it marginally decreased to 0.87 in 2021 and 2022, then slightly increased to 0.89 by 2024. This consistency implies steady management of interest expenses relative to earnings before interest and taxes.

EBIT Margin

The EBIT margin showed a notable dip from 15.57% in 2020 to a low of 12.95% in 2021, indicating a reduction in operational profitability. However, it gradually improved over the subsequent years, reaching 16.74% by 2024, surpassing the initial margin. This upward trend reflects enhanced operational efficiency or cost management in recent years.

Asset Turnover

Asset turnover increased steadily from 0.9 in 2020 to a peak of 1.0 in 2023, followed by a slight decline to 0.98 in 2024. This indicates an overall improvement in the efficiency with which assets generate revenue, although the slight drop in the final year suggests cautious management or shifting asset utilization.

Financial Leverage

Financial leverage experienced significant variation, rising sharply from 5.65 in 2020 to 8.48 in 2021, suggesting increased use of debt financing. Thereafter, it trended downward to 5.83 by 2024, indicating a move towards de-leveraging or a strengthening equity base. The high leverage in 2021 could have increased financial risk, which appears to have been mitigated in subsequent years.

Return on Equity (ROE)

ROE showed considerable volatility, escalating from 56.23% in 2020 to a peak of 76.5% in 2021, likely boosted by the high financial leverage in that year. It declined thereafter, stabilizing in the mid-60% range by 2024. While lower than the peak, the sustained high ROE suggests strong overall profitability relative to equity, with some normalization following the leveraged growth phase.

The analysis of the financial ratios over the given five-year period reveals several notable trends and developments.

Net Profit Margin (%)

The net profit margin started at 11.06% in 2020, experienced a decline over the next two years to reach a low of 9.12% in 2022, and then showed a recovery trend after 2022. By 2023, it increased to 10.36% and further improved to 11.61% in 2024, surpassing the initial value at the beginning of the period. This indicates that the company's profitability relative to its revenue was somewhat compressed during the middle years but strengthened substantially by the end of the analyzed term.

Asset Turnover (ratio)

Asset turnover displayed a generally positive trend throughout the period. Starting at 0.90 in 2020, it moved upward to peak at 1.00 in 2023, with slight fluctuations around this value. The slight dip to 0.98 in 2024 remains close to its peak, suggesting consistent efficiency in utilizing assets to generate revenue. This stability indicates that the company maintained effective asset use over time.

Return on Assets (ROA) (%)

Return on assets showed a pattern very similar to net profit margin but is influenced by both profitability and asset utilization efficiency. ROA began at 9.95% in 2020, declined to a low of 8.94% in 2022, then reversed this trend by rising to 10.41% in 2023 and further to 11.35% in 2024. This improvement beyond the initial value indicates enhanced overall effectiveness in generating profits from the company’s asset base, aligned with both improved margins and consistent asset turnover.

Overall, the company experienced a period of declining profitability and asset efficiency from 2020 to 2022, followed by a marked recovery phase from 2023 to 2024. The improved net profit margin and ROA by 2024 suggest stronger operational performance and better utilization of resources, while the asset turnover ratio’s stability confirms sustained asset productivity. These trends reflect a positive turnaround and strengthening financial performance in the later years.

Tax Burden

The tax burden ratio demonstrated slight fluctuations over the observed period. Starting at 0.81 in 2020, it increased to a peak of 0.83 in 2021, followed by a decline to 0.77 in 2023, before marginally rising again to 0.78 in 2024. This pattern suggests minor variability in the proportion of pre-tax income retained after taxes.

Interest Burden

The interest burden ratio remained relatively stable, with a marginal downward trend from 0.88 in 2020 to 0.87 in 2021 and 2022, before gradually increasing to 0.89 in 2024. This indicates a consistent level of earnings available after interest expenses, with a slight improvement in recent periods.

EBIT Margin

The EBIT margin showed notable volatility. It decreased from 15.57% in 2020 to 12.95% in 2021, followed by a small recovery to 13.38% in 2022. Subsequently, it increased more significantly to 15.3% in 2023 and further to 16.74% in 2024. These movements reflect variations in operational profitability, with a strong recovery and improvement toward the end of the period.

Asset Turnover

The asset turnover ratio exhibited a gradual upward trend from 0.90 in 2020 to a peak of 1.00 in 2023, then slightly decreased to 0.98 in 2024. This indicates improving efficiency in the utilization of assets to generate sales, stabilizing at a high level toward the end of the period.

Return on Assets (ROA)

The ROA showed a decline from 9.95% in 2020 to around 8.94% in 2022, indicating a dip in overall asset profitability during these years. However, from 2023 onward, there was a notable recovery, with ROA increasing to 10.41% and then 11.35% in 2024. This suggests enhanced effectiveness in generating profits from the asset base in the latter part of the examined timeframe.

Tax Burden

The tax burden ratio shows a generally declining trend from 0.81 in 2020 to 0.77 in 2023, indicating a gradual decrease in the proportion of earnings paid as tax over this period. However, there is a slight increase to 0.78 in 2024, which suggests a minor uptick in tax expense relative to earnings in the most recent year.

Interest Burden

The interest burden ratio remains relatively stable across the five-year span, fluctuating marginally between 0.87 and 0.89. This consistency suggests that the impact of interest expenses on earnings has been well-managed and stable over time, with only minimal variations observed.

EBIT Margin

The EBIT margin experienced a decline from 15.57% in 2020 to a low of 12.95% in 2021, followed by a moderate recovery to 13.38% in 2022. From 2022 onwards, there is a clear upward trend, reaching 15.3% in 2023 and further improving to 16.74% in 2024. This progression indicates an improving operational profitability and efficiency in recent years.

Net Profit Margin

The net profit margin mirrors a similar pattern to the EBIT margin, starting at 11.06% in 2020, declining to 9.12% in 2022, and then recovering steadily to 11.61% by 2024. The improvement from 2022 onwards suggests enhanced profitability after accounting for all expenses, including taxes and interest, with a notable positive trajectory in the last two years.