Cintas Corp. (NASDAQ:CTAS)

The financial performance, as measured by economic profit, demonstrates a clear improving trend over the observed period. Initially, the entity experienced negative economic profit, but transitioned to positive economic profit and continued growth in subsequent years. This improvement is driven by increases in net operating profit after taxes and, to a lesser extent, changes in invested capital and the cost of capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited volatility initially, decreasing from US$1,006,907 thousand in 2019 to US$973,389 thousand in 2020. However, a consistent upward trend is then observed, reaching US$1,624,422 thousand in 2024. This indicates improving operational efficiency and profitability over the latter part of the period.

Cost of Capital

The cost of capital generally increased throughout the period, rising from 16.41% in 2019 to 17.53% in 2024. While increasing, the rate of increase slowed in later years. This suggests a potentially increasing risk profile or changing market conditions impacting funding costs.

Invested Capital

Invested capital remained relatively stable between 2019 and 2021, fluctuating around US$6.5 billion. A moderate increase is then observed, culminating in US$7,220,061 thousand in 2024. This suggests a measured expansion of the asset base.

Economic Profit

Economic profit began with negative values in 2019 (-US$59,522 thousand) and 2020 (-US$112,015 thousand), indicating that returns were not exceeding the cost of capital. A significant turning point occurred in 2022, with economic profit becoming positive at US$239,917 thousand. This positive trend continued, with economic profit increasing to US$358,986 thousand in 2024. The magnitude of the increase suggests improving value creation for stakeholders.

In summary, the entity demonstrated a successful transition from generating returns below the cost of capital to generating substantial economic profit. This improvement is primarily attributable to growth in NOPAT, despite a rising cost of capital and moderate increases in invested capital. The trend suggests effective capital allocation and operational improvements.

The financial data reveals notable trends in profitability over the six-year period ending May 31, 2024. Both net income and net operating profit after taxes (NOPAT) demonstrate consistent growth, indicating strengthening financial performance.

Net Income Trends

Net income experienced minor fluctuations in the early years, with a slight decrease from 884,981 thousand USD in 2019 to 876,037 thousand USD in 2020. From 2020 onwards, net income shows a steady upward trajectory, increasing annually to reach 1,571,592 thousand USD by 2024. This upward trend suggests successful operational and revenue enhancements that have contributed to improved bottom-line results.

NOPAT Trends

NOPAT follows a similar pattern but with more pronounced growth. After a slight dip from 1,006,907 thousand USD in 2019 to 973,389 thousand USD in 2020, NOPAT increased significantly each year thereafter, culminating at 1,624,422 thousand USD in 2024. The stronger growth in NOPAT compared to net income may reflect efficiency improvements, effective tax management, or a focus on after-tax operating profitability.

Comparative Insights

Over the period analyzed, the gap between NOPAT and net income widened, indicating that operating profitability net of taxes is improving at a faster rate than net income alone. This could suggest improved operational efficiency or changes in financial structure affecting income components outside operating results.

Overall Pattern

The data illustrates resilience and gradually accelerating profitability growth following 2020, which may correspond with recovery or strategic initiatives undertaken by the company. The consistent upward movement in these key profitability metrics over multiple years points toward a robust and improving financial profile.

The financial data demonstrates a noticeable upward trend in income tax expense over the six-year period. Starting at approximately $220 million in 2019, the tax expense decreased slightly in the following two years, reaching a low point of around $177 million in 2021. From 2021 onwards, however, there is a significant increase, peaking at just over $400 million in 2024. This reflects a substantial rise in tax obligations in the most recent years.

Similarly, cash operating taxes exhibit a consistent increase throughout the period. Beginning at about $208 million in 2019, the cash operating taxes experienced a progressive growth, with a minor dip in 2022 around $231 million, followed by a sharp rise in subsequent years. By 2024, cash operating taxes peaked at approximately $454 million, more than doubling the starting figure.

Income Tax Expense

Initial decline from 2019 to 2021, followed by a strong upward trajectory through 2024.

Cash Operating Taxes

Consistent growth with a slight fluctuation in 2022, culminating in a substantial increase by 2024.

Overall Trends

Both income tax expense and cash operating taxes show marked increases over the analyzed period, especially from 2021 onward, indicating rising tax burdens which may reflect higher taxable income or changes in tax rates or regulations.

The financial data over the six-year period reveals several notable trends in the company's capital structure and financial position.

Total reported debt & leases

Debt levels exhibit some fluctuations but generally show a decreasing trend from 2019 through 2024. The total reported debt decreased from approximately $3.05 billion in 2019 to around $2.67 billion in 2024, with the highest value observed in 2019 and a notable decline by 2020. Debt levels increased slightly during 2021 and 2022 but again decreased in subsequent years.

Shareholders’ equity

Shareholders’ equity increases consistently over the period, reflecting growth in net assets attributable to shareholders. It rose from about $3.00 billion in 2019 to approximately $4.32 billion in 2024, with a significant rise between 2019 and 2021, followed by some variability but an overall upward trajectory through to 2024. This suggests strengthening financial stability and retained earnings growth.

Invested capital

The invested capital, representing the total amount of capital invested in the company's operations, experiences moderate growth. Starting at roughly $6.50 billion in 2019, it remains relatively stable through 2020 but then steadily increases to about $7.22 billion by 2024. This gradual growth indicates continued investment in business assets or operations, supporting expansion or enhancement efforts.

Overall, the data indicates that the company has been managing its debt prudently while enhancing its equity base and overall capital investment. This pattern implies a strengthening balance sheet and potentially a lower financial risk profile over the analyzed period.

The economic spread ratio demonstrates a significant positive trend over the observed period. Initially negative, the ratio transitions to positive values and exhibits increasing magnitude. This suggests a growing ability to generate returns exceeding the cost of capital.

Economic Spread Ratio

In May 31, 2019, the economic spread ratio was -0.92%, indicating that returns generated were below the cost of invested capital. This negative value persisted in May 31, 2020, with a further decline to -1.73%, representing the lowest point in the observed period.

A substantial improvement is evident in May 31, 2021, as the ratio moved to -0.26%, signaling a narrowing gap between returns and the cost of capital.

The year ending May 31, 2022, marked a turning point, with the ratio becoming positive at 3.63%. This positive trend continued, with the ratio increasing to 4.11% in May 31, 2023, and further to 4.97% in May 31, 2024. This consistent increase suggests improving profitability relative to invested capital.

The progression of the economic spread ratio aligns with the trend in economic profit. The initial negative economic profits correspond with the negative spread ratios, and the subsequent increase in economic profit is mirrored by the increasing positive economic spread ratio. This correlation indicates that improvements in profitability are directly contributing to a higher return on invested capital.

Invested Capital

Invested capital generally increased over the period, from US$6,499,367 thousand in May 31, 2019, to US$7,220,061 thousand in May 31, 2024. While invested capital grew, the economic spread ratio’s positive trajectory demonstrates that the increase in capital was effectively deployed to generate higher returns.

The observed trend in the economic spread ratio suggests a strengthening financial performance and an enhanced ability to create value for investors. The consistent improvement over the years indicates effective capital allocation and operational efficiency.

The economic profit margin demonstrates a significant improvement over the observed period. Initially negative, the metric transitions to positive values and exhibits a consistent upward trajectory. This suggests increasing efficiency in capital allocation and a growing ability to generate returns exceeding the cost of capital.

Economic Profit Margin

In May 31, 2019, the economic profit margin stood at -0.86%. This indicates that the company’s economic profit was negative, meaning returns did not cover the cost of capital employed.

The margin deteriorated further in May 31, 2020, reaching -1.58%, representing the lowest point in the observed period. This suggests a widening gap between returns and the cost of capital.

A substantial improvement is noted in May 31, 2021, with the economic profit margin increasing to -0.25%. While still negative, this represents a significant reduction in the shortfall between returns and capital costs.

By May 31, 2022, the economic profit margin turned positive, reaching 3.05%. This signifies that the company began generating returns exceeding its cost of capital.

Continued growth is evident in May 31, 2023, with the margin rising to 3.20%. This indicates sustained profitability above the cost of capital.

The most recent observation, May 31, 2024, shows a further increase to 3.74%. This represents the highest economic profit margin within the period, demonstrating a strengthening ability to generate value for investors.

The progression from negative to positive and consistently increasing economic profit margins suggests effective strategic initiatives, improved operational efficiency, or favorable market conditions. The trend warrants further investigation to identify the key drivers of this positive performance.

Revenue Correlation

Revenue consistently increased throughout the period, moving from US$6,892,303 thousand in May 31, 2019 to US$9,596,615 thousand in May 31, 2024. The improvement in economic profit margin appears to coincide with revenue growth, suggesting a potential relationship between the two.

The observed trend in economic profit margin is favorable and indicates improving financial performance. Continued monitoring of this metric, alongside its underlying drivers, is recommended.