United Rentals Inc. (NYSE:URI)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not sufficiently offset the increasing cost of capital applied to the invested capital base. Invested capital generally increased over the period, contributing to the sustained negative economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$1,784 million in 2018 to US$1,925 million in 2019, indicating improved operational profitability. However, it decreased significantly to US$1,323 million in 2020, likely due to external factors. A substantial recovery occurred in 2021, reaching US$2,048 million, followed by further growth to US$3,088 million in 2022, representing the highest NOPAT value within the observed timeframe.

Cost of Capital

The cost of capital exhibited a consistent upward trend throughout the period, rising from 14.29% in 2018 to 20.63% in 2022. This increase suggests a growing risk profile or changes in the market conditions affecting the company’s funding costs.

Invested Capital

Invested capital showed a general increasing trend, moving from US$17,871 million in 2018 to US$22,485 million in 2022. There was a slight decrease in 2020, mirroring the decline in NOPAT, but it resumed its upward trajectory in subsequent years. This growth in invested capital, coupled with the rising cost of capital, contributed to the negative economic profit.

Economic Profit

Economic profit remained negative across all years examined. The magnitude of the negative economic profit increased from US$-769 million in 2018 to US$-822 million in 2019. It experienced a substantial decline to US$-1,772 million in 2020, coinciding with the decrease in NOPAT and increase in cost of capital. While the negative economic profit lessened slightly in 2021 to US$-1,689 million, it remained substantial and continued to US$-1,550 million in 2022. The consistent negative values indicate that the company is not generating returns exceeding its cost of capital.

In summary, despite increases in NOPAT in later years, the rising cost of capital and growing invested capital base consistently resulted in negative economic profit. The trend suggests a need to evaluate strategies for improving returns on invested capital or managing capital costs more effectively.

Net Income Trends

The net income demonstrated a generally positive trajectory over the five-year period. Starting at 1,096 million US dollars in 2018, it exhibited a moderate increase in 2019 to 1,174 million. However, in 2020, there was a noticeable decline to 890 million, which may reflect operational or market challenges during that year. In the following years, the net income recovered robustly, rising to 1,386 million in 2021 and reaching a significant peak of 2,105 million in 2022. This indicates a strong improvement in profitability towards the end of the period under review.

Net Operating Profit After Taxes (NOPAT) Trends

The NOPAT figures show a similar pattern to net income but with generally higher absolute values. Beginning at 1,784 million US dollars in 2018, NOPAT increased to 1,925 million in 2019. Like net income, it saw a decline in 2020 down to 1,323 million, suggesting a potential operational impact consistent with that year's challenges. The subsequent years saw substantial recovery and growth, with NOPAT rising sharply to 2,048 million in 2021 and further to 3,088 million in 2022. This indicates enhanced operational efficiency and profitability after tax, reflecting strong business performance in the latter years.

Comparative Insights

Both net income and NOPAT experienced a dip in 2020, likely due to external or internal disruptions affecting the company’s financial results. Despite this setback, the company demonstrated robust recovery and growth in 2021 and 2022, with both metrics exceeding prior peak levels. The growth in NOPAT outpaces that of net income, which could imply improved operational profitability and tax efficiency. Overall, the data reflects resilience and improving profitability over the five-year period, culminating in significantly stronger financial outcomes in the most recent year.

Provision for Income Taxes

The provision for income taxes showed a general upward trend over the analyzed period. Starting at $380 million in 2018, it decreased to $340 million in 2019 and further declined to $249 million in 2020. However, from 2020 onward, there was a notable increase, reaching $460 million in 2021 and continuing to rise to $697 million in 2022. This suggests fluctuations in taxable income or changes in tax planning strategies, with a significant rise in the last two years under review.

Cash Operating Taxes

Cash operating taxes exhibited considerable volatility throughout the years. Beginning at $228 million in 2018, the amount increased to $279 million in 2019, followed by a sharp rise to $517 million in 2020. Subsequently, cash operating taxes decreased to $287 million in 2021 and further dropped slightly to $260 million in 2022. The spike in 2020 may reflect extraordinary tax payments or adjustments, whereas the reduction post-2020 indicates normalization or timing differences in tax payments relative to income.

Total Reported Debt & Leases

The total reported debt and leases showed a decreasing trend from 12,395 million USD at the end of 2018 to 10,409 million USD by the end of 2020. Following that decline, there was a slight increase in 2021 to 10,508 million USD and a more pronounced rise to 12,223 million USD by the end of 2022. Overall, debt levels decreased initially but exhibited an upward reversal in the last two years.

Stockholders’ Equity

Stockholders’ equity progressively increased throughout the five-year period, rising from 3,403 million USD in 2018 to 7,062 million USD in 2022. The growth was consistent year-on-year, with the most substantial increments occurring in 2021 and 2022. This indicates a strengthening of the equity base and suggests enhanced retained earnings or equity issuance over time.

Invested Capital

Invested capital experienced fluctuations, starting at 17,871 million USD in 2018 and peaking at 18,200 million USD in 2019 before declining to the lowest point of 17,027 million USD in 2020. From 2020 onward, there was a recovery and marked growth to 19,019 million USD in 2021 and further to 22,485 million USD in 2022. The overall trend after 2020 reflects expanding invested capital, which may result from increased asset acquisition or other investments.

The economic spread ratio exhibited a declining trend over the five-year period, although with some fluctuation. Economic profit consistently remained negative throughout the observed timeframe, while invested capital generally increased. These factors combined to drive the observed changes in the economic spread ratio.

Economic Spread Ratio

The economic spread ratio decreased from -4.30% in 2018 to -4.52% in 2019, indicating a slight worsening in the relationship between returns and the cost of capital. A significant decline was then observed in 2020, with the ratio reaching -10.40%. While the ratio improved somewhat in 2021 to -8.88%, it continued to decline in 2022, settling at -6.89%. This suggests that, despite some improvement in the most recent year, the company’s returns consistently failed to cover the cost of its invested capital.

Economic Profit

Economic profit demonstrated a consistent negative value across all years examined. The magnitude of the loss increased from US$769 million in 2018 to US$822 million in 2019. The largest loss occurred in 2020, reaching US$1,772 million, before decreasing to US$1,689 million in 2021 and US$1,550 million in 2022. While the absolute value of the loss decreased in the last two years, it remained substantial.

Invested Capital

Invested capital generally increased over the period. It rose from US$17,871 million in 2018 to US$18,200 million in 2019. A decrease was noted in 2020, falling to US$17,027 million, but it then rebounded to US$19,019 million in 2021 and continued to grow significantly to US$22,485 million in 2022. This increase in invested capital, coupled with consistently negative economic profit, likely contributed to the worsening economic spread ratio, particularly in the earlier years.

The combination of negative economic profit and increasing invested capital suggests a need for evaluation of capital allocation efficiency and profitability improvements. The slight improvement in the economic spread ratio in 2022, alongside a reduction in the magnitude of economic loss, may indicate positive, albeit limited, progress.

The economic profit margin exhibited a consistently negative trend over the five-year period. While remaining negative throughout, the magnitude of the negative margin fluctuated, demonstrating periods of increased and decreased economic loss.

Economic Profit Margin

The economic profit margin began at -9.55% in 2018 and improved slightly to -8.79% in 2019. However, 2020 saw a substantial decline, with the margin reaching -20.78%. A partial recovery occurred in 2021, with the margin lessening to -17.33%, but this improvement was not sustained. The most recent year, 2022, showed further improvement, reaching -13.26%, representing the least negative margin within the observed period.

Adjusted revenues generally increased throughout the period, yet this revenue growth did not translate into positive economic profit. The largest increase in adjusted revenues occurred between 2021 and 2022, rising from US$9,748 million to US$11,690 million. Despite this significant revenue increase, the economic profit remained negative, although at a reduced magnitude.

Relationship between Revenue and Economic Profit Margin

The observed trend suggests that while the company is increasing its top line revenue, it is not generating sufficient economic profit relative to its capital employed. The improvement in the economic profit margin in 2022, despite continued negative values, indicates a potential increase in efficiency or a reduction in the cost of capital, but further investigation would be required to confirm this.

Economic profit itself consistently registered as a loss, with the largest loss occurring in 2020 at -US$1,772 million. Losses decreased in both 2021 and 2022, aligning with the observed trend in the economic profit margin.

Economic Profit Trend

The economic profit decreased from -US$769 million in 2018 to -US$822 million in 2019. The most substantial decrease occurred between 2019 and 2020, with the loss nearly doubling. Subsequent years showed reductions in the magnitude of the loss, reaching -US$1,550 million in 2022.