Linde plc (NASDAQ:LIN)

The financial performance, as measured by economic profit, demonstrates a consistent pattern of negative economic value creation over the five-year period. While net operating profit after taxes (NOPAT) increased significantly, it has not been sufficient to overcome the cost of capital applied to the invested capital base.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a steady increase from US$3,800 million in 2021 to US$7,182 million in 2025. The most substantial increase occurred between 2022 and 2023, growing from US$3,833 million to US$6,386 million. Growth moderated in subsequent years, with increases of approximately US$428 million and US$368 million in 2024 and 2025, respectively.

Cost of Capital

The cost of capital fluctuated modestly over the period. It rose from 13.95% in 2021 to a peak of 14.22% in 2023, before declining to 14.09% in 2024 and further to 13.92% in 2025. These changes, while present, were relatively small and do not appear to be a primary driver of the observed economic profit trends.

Invested Capital

Invested capital consistently increased throughout the period, rising from US$72,560 million in 2021 to US$80,195 million in 2025. The largest absolute increase occurred between 2024 and 2025, with an addition of US$5,311 million. This growth in invested capital, coupled with the cost of capital, contributes significantly to the negative economic profit.

Economic Profit

Economic profit remained negative across all five years. While the magnitude of the loss decreased from US$6,325 million in 2021 to US$3,739 million in 2024, it increased slightly to US$3,978 million in 2025. This indicates that, despite the growth in NOPAT, the returns generated are consistently below the required rate of return on invested capital. The increase in economic loss in 2025 suggests that the growth in NOPAT was insufficient to offset the increased invested capital and its associated cost.

In summary, the organization experienced increasing operational profitability, but this was outpaced by the growth in invested capital and the associated cost of that capital, resulting in a persistent economic loss. The slight increase in economic loss in the most recent year warrants further investigation to determine the sustainability of current performance and potential strategies for value creation.

Net income and net operating profit after taxes (NOPAT) exhibited positive trends over the five-year period. Both metrics demonstrate consistent growth, with a notable acceleration in later years. The difference between net income and NOPAT remains relatively small throughout the period, suggesting limited impact from financing or non-operating activities.

NOPAT Trend

NOPAT increased from US$3,800 million in 2021 to US$7,182 million in 2025. The growth was moderate between 2021 and 2022, with an increase of approximately 0.87%. A significant jump occurred between 2022 and 2023, with NOPAT rising to US$6,386 million, representing a growth of approximately 66.7%. This upward trajectory continued from 2023 to 2025, with increases of approximately 6.8% and 12.5% respectively.

Relationship between Net Income and NOPAT

The values for net income and NOPAT are closely aligned across all reported years. In 2021, NOPAT was US$3,800 million, compared to net income of US$3,826 million. This difference of US$26 million remained relatively consistent in 2022 (US$3,833 million NOPAT vs. US$4,147 million net income, a difference of US$314 million). The gap widened slightly in 2023 (US$6,386 million NOPAT vs. US$6,199 million net income) and continued to widen in 2024 (US$6,814 million NOPAT vs. US$6,565 million net income) and 2025 (US$7,182 million NOPAT vs. US$6,898 million net income). These differences suggest increasing non-operating items or financing costs as a percentage of overall profitability.

The consistent growth in NOPAT indicates improving core operational profitability. The increasing divergence between NOPAT and net income warrants further investigation to understand the drivers of these differences, potentially related to interest expense, taxes, or other non-operating items. Overall, the trend in NOPAT is positive and suggests strong underlying business performance.

The provision for income taxes and cash operating taxes both demonstrate an increasing trend over the five-year period. However, the magnitude of increase differs between the two items, and both exhibit some fluctuation in growth rate.

Provision for Income Taxes

The provision for income taxes increased from US$1,262 million in 2021 to US$1,814 million in 2023, representing a substantial rise. Growth slowed in 2024 to US$2,002 million, and then decreased slightly to US$1,989 million in 2025. This suggests a potential stabilization or minor reduction in tax obligations after a period of significant growth.

Cash Operating Taxes

Cash operating taxes exhibited a consistent increase throughout the period, rising from US$1,537 million in 2021 to US$2,516 million in 2025. The increase from 2021 to 2022 was US$298 million, while the increase from 2024 to 2025 was US$311 million, indicating a relatively consistent absolute increase in cash tax payments. The growth rate, however, decelerated slightly over time.

Relationship between Provision and Cash Taxes

Cash operating taxes consistently exceeded the provision for income taxes in each year. The difference between the two items varied between approximately US$275 million and US$527 million. This difference suggests the presence of timing differences between accounting income and taxable income, or potentially deferred tax assets/liabilities. The gap narrowed slightly between 2021 and 2023, then widened again in 2024 and 2025, indicating a changing dynamic in these timing differences.

Overall, the company experienced increasing tax obligations, both from an accounting perspective (provision for income taxes) and a cash flow perspective (cash operating taxes). The consistent difference between the two items warrants further investigation to understand the underlying causes and potential implications for future cash flows and financial reporting.

Analysis of the presented financial information reveals trends in the company’s capital structure and invested capital over a five-year period. Total reported debt and leases demonstrate a consistent upward trajectory, while total shareholders’ equity exhibits more fluctuation. Invested capital generally increases throughout the period, though its growth appears to be influenced by both debt and equity movements.

Debt & Leases

Total reported debt and leases increased steadily from US$15,216 million in 2021 to US$28,069 million in 2025. The rate of increase accelerated in later years, with a substantial rise between 2024 and 2025. This suggests an increasing reliance on debt financing.

Shareholders’ Equity

Total Linde plc shareholders’ equity decreased from US$44,035 million in 2021 to US$38,092 million in 2024, before experiencing a slight increase to US$38,245 million in 2025. This initial decline could be attributed to share repurchases, dividend payments, or unrealized losses. The stabilization in 2025 suggests a potential bottoming out of equity reduction.

Invested Capital

Invested capital remained relatively stable between 2021 and 2023, fluctuating around US$72-73 billion. A noticeable increase occurred in 2024, reaching US$74,884 million, and continued into 2025, reaching US$80,195 million. This growth in invested capital correlates with the increasing debt levels, indicating that debt financing is contributing to capital expansion. The slight dip in invested capital between 2021 and 2022 is likely due to the decrease in shareholders’ equity offsetting the increase in debt.

The combined effect of rising debt and fluctuating equity results in a generally increasing trend in invested capital. The company appears to be actively employing debt to fund its operations and growth initiatives, particularly in the later years of the observed period. Further investigation into the specific uses of the increased debt would be beneficial to assess the efficiency and effectiveness of these capital allocation decisions.

The economic spread ratio exhibited a notable improvement over the observed period, though economic profit remained negative. Invested capital generally increased throughout the timeframe. A detailed examination of these trends follows.

Economic Spread Ratio

The economic spread ratio, representing the difference between the return on invested capital and the weighted average cost of capital, demonstrated a consistent, albeit gradual, positive trend. Beginning at -8.72% in 2021, it improved to -4.96% by 2025. This indicates a narrowing gap between the company’s returns and its cost of capital. The largest single-year improvement occurred between 2022 and 2023, moving from -8.75% to -5.52%. Subsequent improvements were more modest.

Economic Profit

Despite the improvement in the economic spread ratio, economic profit remained negative throughout the period. While the magnitude of the loss decreased from US$6,325 million in 2021 to US$3,978 million in 2025, the company did not generate positive economic profit. The smallest loss was recorded in 2024 at US$3,739 million.

Invested Capital

Invested capital experienced a general upward trend, increasing from US$72,560 million in 2021 to US$80,195 million in 2025. There was a slight decrease between 2021 and 2022, but subsequent years showed consistent growth. The largest increase in invested capital occurred between 2024 and 2025, with an addition of US$5,311 million.

In summary, while the company’s efficiency in generating returns relative to its cost of capital improved, as evidenced by the economic spread ratio, it continued to destroy economic value as indicated by the consistently negative economic profit. The increasing invested capital base did not translate into positive economic profit generation during this period.

The financial performance, as indicated by economic profit and its margin, demonstrates a consistent pattern of negative economic profit over the five-year period from 2021 to 2025. However, the magnitude of the economic loss appears to be decreasing, alongside an improving economic profit margin.

Economic Profit

Economic profit exhibits a negative value each year. The largest economic loss occurred in 2021 and 2022, at approximately US$6.3 billion. A reduction in the absolute value of the loss is observed in subsequent years, reaching US$3.7 billion in 2023, before slightly increasing to US$3.978 billion in 2025. This suggests a gradual improvement in the company’s ability to generate returns exceeding its cost of capital, although it remains unprofitable from an economic perspective.

Sales

Sales revenue increased from US$30.793 billion in 2021 to US$33.364 billion in 2022. While there was a slight decrease in 2023 to US$32.854 billion, sales recovered in 2024 to US$33.005 billion and continued to grow to US$33.986 billion in 2025. This indicates a generally positive trend in revenue generation, despite the persistent negative economic profit.

Economic Profit Margin

The economic profit margin is consistently negative throughout the period, reflecting the negative economic profit. The margin improved from -20.54% in 2021 to -18.98% in 2022. This improvement continues through 2023 and 2024, reaching -12.33% and -11.33% respectively. The margin experienced a slight deterioration in 2025, settling at -11.71%. The consistent negative value indicates that the company’s returns are not covering its cost of capital, but the increasing margin suggests a narrowing gap between the two.

In summary, while the company demonstrates revenue growth, it continues to destroy economic value. The trend in the economic profit margin, however, suggests a positive trajectory, indicating that the company is becoming more efficient in generating returns, even if those returns are not yet exceeding the cost of capital.