Trane Technologies plc (NYSE:TT)

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Trane Technologies plc, effective income tax rate (EITR) reconciliation

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
U.S. statutory income tax rate	21.00%	21.00%	21.00%	21.00%	21.00%
Non-U.S. tax rate differential	-2.80%	-2.80%	-1.10%	-1.90%	-1.80%
Tax on U.S. subsidiaries on non-U.S. earnings	0.30%	-0.30%	0.30%	1.10%	0.70%
State and local income taxes	1.10%	2.00%	4.30%	3.10%	0.10%
Valuation allowances	-0.70%	-1.10%	-1.10%	-2.40%	0.70%
Change in permanent reinvestment assertion	0.00%	0.00%	0.00%	0.00%	-2.30%
Transition tax	0.00%	0.00%	0.00%	0.00%	1.50%
Remeasurement of deferred tax balances	0.00%	0.00%	0.00%	0.00%	0.30%
Stock based compensation	-0.80%	-1.80%	-1.70%	-1.50%	-0.90%
Expiration of carryforward tax attributes	0.00%	0.00%	1.10%	0.00%	0.00%
Other adjustments	-0.80%	1.60%	0.20%	0.90%	-2.40%
Effective tax rate	17.30%	18.60%	23.00%	20.30%	16.90%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The effective income tax rate (EITR) demonstrated a fluctuating trend between 2018 and 2022, characterized by an initial increase that peaked in 2020 followed by a consistent decline. While the U.S. statutory income tax rate remained constant at 21.00% throughout the entire period, the EITR varied from a low of 16.90% in 2018 to a high of 23.00% in 2020, before settling at 17.30% by the end of 2022.

International Tax Influence: Non-U.S. tax rate differentials consistently acted as a reduction to the statutory rate. This downward pressure intensified over time, moving from -1.10% in 2020 to -2.80% in both 2021 and 2022. The tax impact on U.S. subsidiaries regarding non-U.S. earnings remained marginal, fluctuating between -0.30% and 1.10%.
Domestic and State Tax Volatility: State and local income taxes were a primary driver of the EITR increase observed between 2018 and 2020, where the rate climbed from 0.10% to a peak of 4.30%. This contribution subsequently diminished, falling to 1.10% by 2022, contributing to the overall reduction of the effective tax burden in the later years.
Recurring Tax Benefits: Stock-based compensation provided a continuous tax benefit throughout the five-year period, reducing the EITR annually. The most significant impact occurred in 2021 at -1.80%, while the lowest impact was in 2022 at -0.80%. Valuation allowances also generally provided a benefit from 2019 onward, reaching a peak reduction of -2.40% in 2019.
One-Time and Exceptional Adjustments: The 2018 fiscal year was marked by significant non-recurring items, including a transition tax increase of 1.50% and a reduction of 2.30% stemming from changes in permanent reinvestment assertions. In 2020, the EITR was further impacted by a 1.10% increase due to the expiration of carryforward tax attributes, which contributed to that year's peak effective rate.

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Trane Technologies plc, components of deferred tax assets and liabilities

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Inventory and accounts receivable	11,200)	11,000)	11,700)	17,700)	20,300)
Fixed assets and intangibles	2,600)	5,600)	9,500)	35,300)	39,200)
Operating lease liabilities	112,000)	106,000)	101,000)	140,200)	—)
Postemployment and other benefit liabilities	254,600)	285,700)	323,500)	392,500)	386,100)
Product liability	5,500)	4,600)	4,800)	70,000)	95,100)
Funding liability	—)	73,700)	71,800)	—)	—)
Other reserves and accruals	181,500)	171,200)	164,800)	157,100)	153,900)
Net operating losses and credit carryforwards	346,000)	453,300)	509,000)	659,200)	589,900)
Other	40,700)	29,000)	58,500)	40,600)	28,600)
Gross deferred tax assets	954,100)	1,140,100)	1,254,600)	1,512,600)	1,313,100)
Deferred tax valuation allowances	(199,800)	(258,600)	(320,500)	(373,700)	(332,200)
Deferred tax assets net of valuation allowances	754,300)	881,500)	934,100)	1,138,900)	980,900)
Inventory and accounts receivable	(50,700)	(18,600)	(22,300)	(20,000)	(18,600)
Fixed assets and intangibles	(1,069,000)	(1,135,400)	(1,186,000)	(1,358,300)	(1,220,900)
Operating lease right-of-use assets	(110,400)	(104,400)	(99,500)	(140,200)	—)
Postemployment and other benefit liabilities	(15,700)	(21,300)	(14,100)	(11,000)	(9,700)
Other reserves and accruals	(5,500)	(5,200)	(7,200)	(12,500)	(11,800)
Product liability	—)	—)	(200)	—)	(1,200)
Undistributed earnings of foreign subsidiaries	(28,000)	(27,800)	(22,400)	(39,300)	(39,500)
Other	(1,600)	(6,900)	(3,200)	(22,200)	(10,600)
Gross deferred tax liabilities	(1,280,900)	(1,319,600)	(1,354,900)	(1,603,500)	(1,312,300)
Net deferred tax assets (liabilities)	(526,600)	(438,100)	(420,800)	(464,600)	(331,400)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The net deferred tax position remains a liability throughout the analyzed period, with the net deferred tax liability increasing from 331.4 million US dollars in 2018 to 526.6 million US dollars by the end of 2022. This widening deficit reflects a simultaneous decline in gross deferred tax assets and the persistence of significant deferred tax liabilities associated with fixed assets.

Deferred Tax Asset Trends: Gross deferred tax assets peaked in 2019 at 1.51 billion US dollars before entering a consistent decline to 954.1 million US dollars in 2022. The most significant contributor to this decline is the reduction in net operating losses and credit carryforwards, which decreased from 659.2 million US dollars in 2019 to 346 million US dollars in 2022, suggesting the utilization of tax losses to offset taxable income. Additionally, postemployment and other benefit liabilities saw a steady reduction from 386.1 million US dollars in 2018 to 254.6 million US dollars in 2022.
Valuation Allowances and Realizability: A downward trend is observed in deferred tax valuation allowances, which fell from 332.2 million US dollars in 2018 to 199.8 million US dollars in 2022. This reduction indicates an increase in management's confidence regarding the realizability of the existing deferred tax assets, although the overall net deferred tax assets decreased from 980.9 million US dollars in 2018 to 754.3 million US dollars in 2022.
Deferred Tax Liability Components: Gross deferred tax liabilities remained substantial, ranging between 1.28 billion and 1.60 billion US dollars. The primary driver of these liabilities is fixed assets and intangibles, which consistently represented the largest component, though it decreased slightly from a peak of 1.35 billion US dollars in 2019 to 1.06 billion US dollars in 2022. Operating lease right-of-use assets became a permanent fixture of the liability profile starting in 2019, stabilizing at approximately 110.4 million US dollars by 2022.
Net Tax Position Analysis: The trajectory of the net deferred tax position shows a shift toward a larger net liability. While gross deferred tax liabilities contracted slightly from 2019 to 2022, the more rapid depletion of deferred tax assets—specifically the utilization of operating loss carryforwards—led to a net liability expansion. The net deferred tax liability grew from 331.4 million US dollars in 2018 to 526.6 million US dollars in 2022, representing a significant increase in the long-term deferred tax obligation.

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Trane Technologies plc, Financial Data: Reported vs. Adjusted

Trane Technologies plc, adjustments to financial statements

US$ in thousands

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Adjustment to Total Liabilities
Total liabilities (as reported)	11,976,400)	11,786,700)	11,729,600)	13,179,900)	10,850,100)
Less: Noncurrent deferred tax liabilities, net	526,600)	438,100)	420,800)	464,600)	331,400)
Total liabilities (adjusted)	11,449,800)	11,348,600)	11,308,800)	12,715,300)	10,518,700)
Adjustment to Total Trane Technologies Plc Shareholders’ Equity
Total Trane Technologies plc shareholders’ equity (as reported)	6,088,600)	6,255,900)	6,407,700)	7,267,600)	7,022,700)
Less: Net deferred tax assets (liabilities)	(526,600)	(438,100)	(420,800)	(464,600)	(331,400)
Total Trane Technologies plc shareholders’ equity (adjusted)	6,615,200)	6,694,000)	6,828,500)	7,732,200)	7,354,100)
Adjustment to Net Earnings Attributable To Trane Technologies Plc
Net earnings attributable to Trane Technologies plc (as reported)	1,756,500)	1,423,400)	854,900)	1,410,900)	1,337,600)
Add: Deferred income tax expense (benefit)	67,800)	(25,200)	22,200)	16,800)	(143,800)
Net earnings attributable to Trane Technologies plc (adjusted)	1,824,300)	1,398,200)	877,100)	1,427,700)	1,193,800)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

The financial adjustments focused on the removal of deferred taxes reveal a consistent systematic reduction in reported liabilities and a corresponding increase in shareholders' equity across the five-year period from 2018 to 2022. These adjustments suggest a reclassification where deferred tax obligations are excluded from the liability profile to provide a modified view of the company's solvency and capital structure.

Impact on Total Liabilities: A consistent gap exists between reported and adjusted total liabilities, with adjusted figures remaining lower in every analyzed year. The magnitude of this reduction increased from US$ 331.4 million in 2018 to US$ 526.6 million by 2022, indicating a growth in the volume of deferred taxes being removed from the liability base over the period.
Impact on Shareholders' Equity: Shareholders' equity exhibits a mirrored relationship to the liability adjustments. The adjusted equity values are systematically higher than the reported values, with the difference exactly matching the reduction in liabilities for each corresponding year. Despite a general downward trend in reported equity from 2019 to 2022, the adjusted figures present a more robust equity position, concluding at US$ 6,615.2 million in 2022 compared to the reported US$ 6,088.6 million.
Analysis of Net Earnings Adjustments: Adjustments to net earnings attributable to shareholders are less uniform than the balance sheet modifications. The variance between reported and adjusted earnings fluctuated between negative and positive values. While 2018 and 2021 showed adjusted earnings lower than reported, 2019, 2020, and 2022 showed adjusted earnings that exceeded reported figures. The most significant positive adjustment occurred in 2022, where adjusted net earnings reached US$ 1,824.3 million against reported earnings of US$ 1,756.5 million.
Overall Financial Trends: Reported total liabilities peaked in 2019 at US$ 13,179.9 million before stabilizing near US$ 12 billion in subsequent years. Net earnings experienced a notable contraction in 2020, dropping to US$ 854.9 million, followed by a strong recovery trend through 2022. The application of tax adjustments consistently modifies the reported leverage by reducing liabilities and increasing equity.

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Trane Technologies plc, Financial Ratios: Reported vs. Adjusted

Trane Technologies plc, adjusted financial ratios

	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net Profit Margin
Reported net profit margin	10.98%	10.07%	6.86%	8.50%	8.54%
Adjusted net profit margin	11.41%	9.89%	7.04%	8.60%	7.62%
Financial Leverage
Reported financial leverage	2.97	2.89	2.83	2.82	2.55
Adjusted financial leverage	2.73	2.70	2.66	2.65	2.44
Return on Equity (ROE)
Reported ROE	28.85%	22.75%	13.34%	19.41%	19.05%
Adjusted ROE	27.58%	20.89%	12.84%	18.46%	16.23%
Return on Assets (ROA)
Reported ROA	9.71%	7.88%	4.71%	6.89%	7.47%
Adjusted ROA	10.09%	7.74%	4.83%	6.97%	6.66%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

An analysis of the financial ratios from 2018 to 2022 reveals a general trend of expansion in profitability and leverage, interrupted by a notable contraction in 2020. The removal of deferred taxes provides a adjusted perspective that modifies the interpretation of the company's operational efficiency and capital structure.

Net Profit Margin: Both reported and adjusted net profit margins exhibited a V-shaped trajectory, dipping in 2020 before reaching five-year peaks in 2022. A significant shift is observed in the relationship between the two metrics; while the adjusted margin was lower than the reported margin in 2018 (7.62% vs 8.54%), it surpassed the reported margin by 2022 (11.41% vs 10.98%), suggesting a change in the impact of deferred tax accounting on bottom-line profitability over time.
Financial Leverage: Financial leverage showed a consistent year-over-year increase throughout the period. Reported leverage rose from 2.55 in 2018 to 2.97 in 2022. In every instance, the adjusted leverage remained lower than the reported figure, ending at 2.73 in 2022. This indicates that deferred tax items contribute to a higher reported leverage ratio, and their removal presents a more conservative view of the company's debt-to-equity positioning.
Return on Equity (ROE): ROE experienced significant volatility, with a sharp decline in 2020 followed by a strong recovery to 28.85% reported by 2022. Adjusted ROE consistently trailed the reported figures across the entire five-year span. The gap between reported and adjusted ROE was most pronounced in 2018 and 2021, implying that deferred tax considerations consistently provided an uplift to the reported returns on shareholder equity.
Return on Assets (ROA): ROA mirrored the general trend of a 2020 decline followed by growth. Notably, while reported ROA grew from 7.47% to 9.71%, the adjusted ROA demonstrated a more robust recovery, increasing from 6.66% in 2018 to 10.09% in 2022. By the end of the period, the adjusted ROA exceeded the reported ROA, suggesting that the removal of deferred taxes reveals a higher underlying efficiency in asset utilization than is reflected in the reported figures.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to Trane Technologies plc	1,756,500)	1,423,400)	854,900)	1,410,900)	1,337,600)
Net revenues	15,991,700)	14,136,400)	12,454,700)	16,598,900)	15,668,200)
Profitability Ratio
Net profit margin¹	10.98%	10.07%	6.86%	8.50%	8.54%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to Trane Technologies plc	1,824,300)	1,398,200)	877,100)	1,427,700)	1,193,800)
Net revenues	15,991,700)	14,136,400)	12,454,700)	16,598,900)	15,668,200)
Profitability Ratio
Adjusted net profit margin²	11.41%	9.89%	7.04%	8.60%	7.62%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ Net profit margin = 100 × Net earnings attributable to Trane Technologies plc ÷ Net revenues
= 100 × 1,756,500 ÷ 15,991,700 = 10.98%

² Adjusted net profit margin = 100 × Adjusted net earnings attributable to Trane Technologies plc ÷ Net revenues
= 100 × 1,824,300 ÷ 15,991,700 = 11.41%

The financial performance between 2018 and 2022 is characterized by a notable contraction in 2020 followed by a strong recovery and expansion phase. Both reported and adjusted net earnings exhibited a V-shaped trajectory, with 2022 representing the peak for both absolute earnings and profit margins within the observed period.

Net Earnings Trends: Reported net earnings grew modestly from 2018 to 2019 before experiencing a significant decline in 2020, dropping to 854.9 million USD. A robust recovery followed, with earnings increasing to 1.42 billion USD in 2021 and reaching 1.76 billion USD by 2022. Adjusted net earnings followed a nearly identical pattern, peaking at 1.82 billion USD in 2022.
Reported Net Profit Margin: The reported net profit margin remained stable at approximately 8.5% during 2018 and 2019, before falling to 6.86% in 2020. Subsequent years showed significant improvement, with the margin breaking the 10% threshold in 2021 and reaching 10.98% in 2022, indicating enhanced operational efficiency or favorable revenue growth relative to costs.
Adjusted Net Profit Margin: The adjusted net profit margin demonstrated a consistent upward trend following the 2020 trough of 7.04%. From this low point, the margin expanded to 9.89% in 2021 and further to 11.41% in 2022. This represents a total expansion of 437 basis points over two years, suggesting that the underlying core profitability of the business strengthened significantly during the recovery period.
Reported versus Adjusted Variance: The relationship between reported and adjusted margins fluctuated over the five-year period. In 2018, the reported margin was higher than the adjusted margin. However, by 2022, the adjusted net profit margin exceeded the reported margin by 43 basis points, indicating that non-recurring or adjusting items had a negative impact on the reported bottom line in the final year of the analysis.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Total assets	18,081,600)	18,059,800)	18,156,700)	20,492,300)	17,914,900)
Total Trane Technologies plc shareholders’ equity	6,088,600)	6,255,900)	6,407,700)	7,267,600)	7,022,700)
Solvency Ratio
Financial leverage¹	2.97	2.89	2.83	2.82	2.55
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Total assets	18,081,600)	18,059,800)	18,156,700)	20,492,300)	17,914,900)
Adjusted total Trane Technologies plc shareholders’ equity	6,615,200)	6,694,000)	6,828,500)	7,732,200)	7,354,100)
Solvency Ratio
Adjusted financial leverage²	2.73	2.70	2.66	2.65	2.44

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ Financial leverage = Total assets ÷ Total Trane Technologies plc shareholders’ equity
= 18,081,600 ÷ 6,088,600 = 2.97

² Adjusted financial leverage = Total assets ÷ Adjusted total Trane Technologies plc shareholders’ equity
= 18,081,600 ÷ 6,615,200 = 2.73

A consistent upward trajectory in financial leverage is evident from 2018 through 2022, occurring alongside a general contraction in shareholders' equity following a peak in 2019.

Shareholders' Equity Trends: Reported shareholders' equity increased from 7.02 billion US dollars in 2018 to a peak of 7.27 billion US dollars in 2019, before entering a period of steady decline to 6.09 billion US dollars by the end of 2022. Adjusted shareholders' equity followed a similar pattern, peaking at 7.73 billion US dollars in 2019 and declining to 6.62 billion US dollars by 2022. Throughout the five-year period, adjusted equity remained consistently higher than reported equity.
Financial Leverage Progression: Reported financial leverage exhibited a continuous year-over-year increase, rising from 2.55 in 2018 to 2.97 in 2022. Similarly, adjusted financial leverage grew steadily from 2.44 in 2018 to 2.73 in 2022. The parallel increase in both metrics indicates a systemic rise in leverage relative to the equity base.
Comparison of Reported and Adjusted Metrics: A persistent variance is observed between reported and adjusted figures. Adjusted financial leverage remained consistently lower than reported leverage in every period analyzed. This divergence is directly attributable to the higher values assigned to adjusted shareholders' equity, which serves to moderate the leverage ratio compared to the reported figures.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to Trane Technologies plc	1,756,500)	1,423,400)	854,900)	1,410,900)	1,337,600)
Total Trane Technologies plc shareholders’ equity	6,088,600)	6,255,900)	6,407,700)	7,267,600)	7,022,700)
Profitability Ratio
ROE¹	28.85%	22.75%	13.34%	19.41%	19.05%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to Trane Technologies plc	1,824,300)	1,398,200)	877,100)	1,427,700)	1,193,800)
Adjusted total Trane Technologies plc shareholders’ equity	6,615,200)	6,694,000)	6,828,500)	7,732,200)	7,354,100)
Profitability Ratio
Adjusted ROE²	27.58%	20.89%	12.84%	18.46%	16.23%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ ROE = 100 × Net earnings attributable to Trane Technologies plc ÷ Total Trane Technologies plc shareholders’ equity
= 100 × 1,756,500 ÷ 6,088,600 = 28.85%

² Adjusted ROE = 100 × Adjusted net earnings attributable to Trane Technologies plc ÷ Adjusted total Trane Technologies plc shareholders’ equity
= 100 × 1,824,300 ÷ 6,615,200 = 27.58%

The financial trajectory between 2018 and 2022 is characterized by a significant recovery in profitability following a downturn in 2020, coupled with a consistent reduction in the shareholders' equity base after 2019.

Net Earnings Trends: Reported net earnings experienced a volatile period, declining from US$ 1,410.9 million in 2019 to US$ 854.9 million in 2020, before ascending to a peak of US$ 1,756.5 million by the end of 2022. Adjusted net earnings followed a nearly identical pattern, though they surpassed reported earnings in 2022, reaching US$ 1,824.3 million.
Shareholders' Equity Dynamics: A downward trend in equity is observable after 2019. Reported total shareholders' equity decreased from US$ 7,267.6 million in 2019 to US$ 6,088.6 million in 2022. Adjusted total shareholders' equity also declined during this period, falling from US$ 7,732.2 million in 2019 to US$ 6,615.2 million in 2022.
Return on Equity (ROE) Performance: Both reported and adjusted ROE exhibited a V-shaped recovery. Reported ROE dropped to 13.34% in 2020 but expanded sharply to 28.85% by 2022. Adjusted ROE mirrored this movement, moving from a low of 12.84% in 2020 to 27.58% in 2022. The substantial increase in ROE during the final two years of the period is driven by the dual effect of rising net earnings and a shrinking equity denominator.

The divergence between reported and adjusted ROE remained relatively narrow throughout the period. However, the adjusted ROE consistently remained lower than the reported ROE, suggesting that the adjustments applied to the equity base exerted a more significant influence on the ratio than the adjustments applied to net earnings.

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	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to Trane Technologies plc	1,756,500)	1,423,400)	854,900)	1,410,900)	1,337,600)
Total assets	18,081,600)	18,059,800)	18,156,700)	20,492,300)	17,914,900)
Profitability Ratio
ROA¹	9.71%	7.88%	4.71%	6.89%	7.47%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net earnings attributable to Trane Technologies plc	1,824,300)	1,398,200)	877,100)	1,427,700)	1,193,800)
Total assets	18,081,600)	18,059,800)	18,156,700)	20,492,300)	17,914,900)
Profitability Ratio
Adjusted ROA²	10.09%	7.74%	4.83%	6.97%	6.66%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

¹ ROA = 100 × Net earnings attributable to Trane Technologies plc ÷ Total assets
= 100 × 1,756,500 ÷ 18,081,600 = 9.71%

² Adjusted ROA = 100 × Adjusted net earnings attributable to Trane Technologies plc ÷ Total assets
= 100 × 1,824,300 ÷ 18,081,600 = 10.09%

The financial performance from 2018 to 2022 is characterized by a period of volatility followed by strong growth in profitability and asset utilization. A significant contraction is observed in 2020, which served as a trough for both earnings and return metrics, preceding a robust recovery phase through 2022.

Net Earnings Trends: Reported net earnings exhibited a fluctuating trajectory, starting at US$ 1,337,600 thousand in 2018 and reaching a peak of US$ 1,756,500 thousand in 2022. Adjusted net earnings followed a similar pattern, though they peaked slightly higher at US$ 1,824,300 thousand in 2022. The most substantial decline occurred in 2020, where reported earnings fell to US$ 854,900 thousand, representing the lowest point in the analyzed period.
Return on Assets (ROA) Analysis: The Reported ROA experienced a downward trend from 2018 (7.47%) through 2020 (4.71%), before rebounding strongly to 9.71% by December 31, 2022. The Adjusted ROA displayed a comparable V-shaped recovery, declining from 6.97% in 2019 to 4.83% in 2020, and ultimately escalating to a period high of 10.09% in 2022. The acceleration in ROA during 2021 and 2022 indicates a marked improvement in the efficiency of asset deployment to generate earnings.
Comparison of Reported versus Adjusted Metrics: A shifting relationship is observed between reported and adjusted figures. In 2018, reported net earnings and ROA were higher than their adjusted counterparts. However, by 2022, adjusted net earnings (US$ 1,824,300 thousand) and Adjusted ROA (10.09%) exceeded reported figures. This divergence suggests that non-recurring items and accounting adjustments had varying impacts on the financial results over the five-year span, with recent adjustments providing a more favorable view of underlying operational performance.

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