Linde plc (NASDAQ:LIN)

Net Operating Profit After Taxes (NOPAT)

The NOPAT shows a consistent and significant upward trend over the five-year period. Starting at $2,699 million in 2020, it increased to $3,800 million in 2021 and slightly more to $3,833 million in 2022. This growth accelerated considerably in 2023, reaching $6,386 million, and then showed a moderate increase to $6,814 million in 2024. This indicates a strong improvement in operating profitability, especially notable in the last two years.

Cost of Capital

The cost of capital exhibits a gradual increase from 12.68% in 2020 to a peak of 13.26% in 2023, followed by a slight decrease to 13.15% in 2024. This trend suggests a modest rise in the company’s required rate of return over the years, possibly reflecting changes in market conditions or risk profile, with a small easing in the final year.

Invested Capital

The invested capital shows a decline from $78,771 million in 2020 to $72,560 million in 2021, with only a slight decrease to $72,341 million in 2022. From 2022 onwards, there is a gradual recovery, increasing to $73,409 million in 2023 and further to $74,884 million in 2024. This pattern suggests initial capital reduction or asset divestment followed by stabilization and modest growth in invested assets in the latter years.

Economic Profit

The economic profit remains negative throughout the period, which indicates that the company is not generating returns above its cost of capital. However, the negative economic profit is decreasing in magnitude, from -$7,286 million in 2020 to -$3,031 million in 2024. This improving but still negative trend points to a reduction in value destruction, aligned with the rising NOPAT and relatively stable invested capital, although the company has not yet achieved positive economic profit.

Net Income Trend

The net income exhibited a consistent upward trajectory across the periods analyzed. Starting at 2,501 million US dollars at the end of 2020, it increased notably to 3,826 million in 2021. The growth trend continued, reaching 4,147 million in 2022. The most substantial rise occurred between 2022 and 2023, with net income climbing sharply to 6,199 million. The upward trend persisted into 2024, culminating in a net income of 6,565 million. This steady increase suggests enhanced profitability and potentially successful operational strategies or favorable market conditions over these years.

Net Operating Profit After Taxes (NOPAT) Trend

Similar to net income, NOPAT showed generally favorable growth during the observed timeframe. Beginning at 2,699 million US dollars at the end of 2020, it rose to 3,800 million in 2021, nearly matching the growth pace of net income during the same period. From 2021 to 2022, growth slowed considerably, with NOPAT increasing marginally to 3,833 million. However, the year 2023 marked a sharp increase to 6,386 million, paralleling the significant jump in net income. The upward momentum continued into 2024, with NOPAT reaching 6,814 million. This pattern reflects improving operating efficiency and effective tax management, particularly highlighted by the strong rebound after 2022.

Comparative Observations

Both net income and NOPAT followed closely aligned trajectories, indicating that earnings growth was supported by operating performance improvements. The substantial increases in both metrics occurring between 2022 and 2023 suggest a pivotal year for operational and profitability enhancement. The consistent growth in both figures over the five-year period indicates stable financial health and profitability expansion.

The financial data showcases two key tax-related metrics for the analyzed periods: provision for income taxes and cash operating taxes, both expressed in millions of US dollars. Over the five-year horizon from the end of 2020 to the end of 2024, both metrics exhibit an upward trajectory indicating increasing tax liabilities and operational tax payments.

Provision for Income Taxes

The provision for income taxes shows a consistent increase each year. Starting at 847 million US dollars at the end of 2020, the figure rises to 1,262 million in 2021, reflecting approximately a 49% increase year over year. Subsequent increases are observed with values reaching 1,434 million in 2022, 1,814 million in 2023, and peaking at 2,002 million by the end of 2024. The incremental growth suggests higher taxable income or changes in tax rates or regulations affecting income tax provisions.

Cash Operating Taxes

Cash operating taxes also demonstrate a steady upward trend over the same period. Beginning at 1,245 million US dollars in 2020, this amount increases to 1,537 million in 2021, and rises further to 1,835 million in 2022. The upward momentum continues with 1,947 million recorded in 2023 and 2,205 million by the close of 2024. The progression suggests increased actual cash outflows related to operating tax obligations, consistent with or possibly exceeding the growth pattern of the income tax provision.

In summary, both tax provisions and actual tax payments display a pattern of continuous growth with cash operating taxes consistently higher than provisions for income taxes. This could indicate a timing difference between accrued taxes and cash payments, additional tax obligations beyond income tax, or other operating tax factors influencing the cash tax outflows. The rising trend across both lines suggests the company is experiencing increasing tax costs as part of its operational and profitability changes during the observed periods.

The financial data over the five-year period exhibit notable trends in the company's capital structure and investment levels. The total reported debt and leases show a general upward trajectory, increasing from US$17,223 million in 2020 to US$22,609 million in 2024. This indicates a rising reliance on debt financing over the period, with a significant jump between 2021 and 2022, followed by continued growth in subsequent years.

Concurrently, shareholders' equity demonstrates a consistent decline from US$47,317 million in 2020 to US$38,092 million in 2024. This steady decrease suggests erosion in the company’s net equity base, which could reflect dividend distributions, share repurchases, or losses not apparent from the data provided but warrants further investigation. The reduction in equity, coupled with rising debt levels, points to a shifting balance of the company’s financing sources.

Invested capital remains relatively stable throughout the period, beginning at US$78,771 million in 2020 and experiencing minor fluctuations, ending slightly lower at US$74,884 million in 2024. The investment base appears largely maintained despite the changes in the composition of equity and debt. This stability in invested capital suggests that the company is sustaining its asset base or capital employed at a consistent level while adjusting its financing structures.

Debt Trend

Total reported debt & leases increased by approximately 31% over the five years, indicating enhanced leverage or increased borrowing capacity.

Equity Trend

Total shareholders' equity decreased by about 20%, which could impact the company’s financial flexibility and investor perception.

Invested Capital

Invested capital shows a slight decline of around 5%, suggesting stable asset deployment but potential changes in asset composition or valuation.

Overall Analysis

The simultaneous rise in debt and decline in equity, with stable invested capital, implies a strategic shift towards greater leverage. This could affect the risk profile and cost of capital, highlighting the importance of monitoring debt servicing capacity and equity trends in future periods.

Economic Profit

The economic profit has shown a significant improvement over the five-year period. Starting from a negative value of -7,286 million US dollars in 2020, it consistently became less negative each year, reaching -3,031 million US dollars in 2024. This trend indicates a steady reduction in economic losses, suggesting the company is moving closer to achieving positive economic profitability.

Invested Capital

The invested capital experienced minor fluctuations but generally remained stable with a slight upward trend. It decreased from 78,771 million US dollars in 2020 to 72,341 million in 2022, then increased again, reaching 74,884 million US dollars by 2024. This pattern reflects cautious capital management with moderate reinvestment or asset adjustments.

Economic Spread Ratio

The economic spread ratio, representing the difference between the return on invested capital and the cost of capital, has shown a consistent upward trend toward less negative values. Beginning at -9.25% in 2020, it improved annually to -4.05% in 2024. Although the ratio remains negative, the progress suggests the company is enhancing its operating efficiency or reducing costs relative to its capital base.

Overall Analysis

The overall financial trend reflects a company that is gradually improving its economic performance. The diminishing negative economic profit, coupled with a less negative economic spread ratio, signals enhanced operational effectiveness or capital utilization. Despite ongoing economic losses, the company shows positive momentum in closing the gap between returns and capital costs. The stable invested capital base supports these improvements, indicating controlled capital deployment.

Sales Trend

Sales demonstrated a consistent upward trajectory from 2020 to 2022, increasing from approximately 27.2 billion US dollars in 2020 to over 33.3 billion US dollars in 2022. In 2023, sales slightly decreased but remained relatively stable at around 32.9 billion US dollars, followed by a modest increase to approximately 33.0 billion US dollars in 2024. This indicates overall growth with some stabilization in recent years.

Economic Profit Trend

Economic profit remained negative throughout the observed period, indicating economic losses. However, there was a notable improvement as the economic loss declined from roughly -7.3 billion US dollars in 2020 to about -3.0 billion US dollars in 2024. The largest reduction in economic loss occurred between 2022 and 2023, suggesting an improving profitability trend despite ongoing losses.

Economic Profit Margin

The economic profit margin was negative across all years, reflecting the negative economic profit results relative to sales. The margin improved consistently, moving from -26.75% in 2020 to -9.18% in 2024. This improvement indicates enhanced efficiency or profitability relative to sales over the period, despite the margin remaining in negative territory.

Overall Insights

The data reveals growth in sales accompanied by a gradual reduction in economic losses and improvement in economic profit margin. While the company has not achieved positive economic profit, the decreasing magnitude of economic losses and improving margin percentages suggest positive momentum in financial performance. Stabilization of sales in the later years could indicate a maturing market or stabilization of operational scale.