Air Products & Chemicals Inc. (NYSE:APD)

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited fluctuations over the analyzed period. It initially increased from approximately 1.42 billion USD in 2015 to 1.66 billion USD in 2016, but then declined sharply to 1.27 billion USD in 2017. A recovery trend occurred in 2018, with NOPAT rising to 1.48 billion USD, followed by a significant increase in 2019 to about 2.04 billion USD, and a further modest increase to approximately 2.19 billion USD in 2020. Overall, the NOPAT reflects some volatility but demonstrates a positive growth trend towards the end of the period.

Cost of Capital

The cost of capital showed a gradual upward trend from 11.43% in 2015 to a peak of 12.86% in 2019. This indicates an increasing hurdle rate for investments during this timeframe. In 2020, a slight decrease to 12.08% was noted, which might suggest some relaxation in capital costs or changes in market conditions.

Invested Capital

Invested capital increased consistently throughout the period, rising from approximately 14.34 billion USD in 2015 to 20.88 billion USD in 2020. This steady growth indicates ongoing capital deployment, potentially reflecting investment in infrastructure, acquisitions, or other assets to support business operations and growth.

Economic Profit

The economic profit values were negative across all years, indicating that the returns generated did not exceed the cost of capital. The losses were most pronounced in 2017 and 2018, with economic profits of approximately -658 million USD and -599 million USD, respectively. There was an improvement in 2019, with a reduced loss of around -136 million USD, but it worsened again in 2020 to approximately -333 million USD. This persistent negative economic profit suggests that despite increases in operating profit and invested capital, the company struggled to generate value above its capital costs during this period.

Net Income Attributable to Air Products

The net income exhibited notable volatility over the analyzed periods. There was a significant decline from 1,277,900 thousand US dollars in 2015 to 631,100 thousand US dollars in 2016, marking a substantial reduction. This was followed by a remarkable recovery in 2017, where net income more than quadrupled to 3,000,400 thousand US dollars. Subsequently, net income decreased considerably to 1,497,800 thousand US dollars in 2018 before gradually increasing again in 2019 and 2020 to 1,760,000 and 1,886,700 thousand US dollars respectively. Overall, the data reflect episodic fluctuations with a general upward trend in the last two years.

Net Operating Profit After Taxes (NOPAT)

The NOPAT showed a more consistent pattern compared to net income. It increased from 1,418,609 thousand US dollars in 2015 to 1,657,195 thousand US dollars in 2016, demonstrating growth. However, in 2017, NOPAT decreased to 1,274,219 thousand US dollars, representing a decline after the previous growth. From 2017 onwards, NOPAT exhibited an upward trajectory, reaching 1,476,037 thousand US dollars in 2018, and significantly increasing to 2,040,608 thousand US dollars in 2019, followed by further improvement to 2,189,491 thousand US dollars in 2020. This reflects an overall positive trend in operating profitability in the later years.

Comparative Analysis

While net income showed substantial volatility with marked peaks and troughs, NOPAT reflected a steadier and more consistent increase over time. The sharp fluctuations in net income could indicate the impact of non-operational factors such as extraordinary items, taxes, or accounting adjustments. In contrast, the rising NOPAT suggests improving operational efficiency and profitability from core business activities, particularly evident in the substantial growth from 2018 through 2020.

Income Tax Provision

The income tax provision showed a fluctuating trend over the analyzed periods. Starting at 415,900 thousand US dollars in 2015, it increased significantly to 586,500 thousand in 2016. In 2017, there was a notable decline to 260,900 thousand, followed by a recovery to 524,300 thousand in 2018. The provision then slightly decreased to 480,100 thousand in 2019 and remained almost stable at 478,400 thousand in 2020. This pattern indicates variability in income tax obligation, with a peak in 2016, a trough in 2017, and relative stabilization in the latest years.

Cash Operating Taxes

Cash operating taxes demonstrated a generally decreasing trend after 2016. Initially, there was an increase from 451,612 thousand US dollars in 2015 to 577,067 thousand in 2016. However, subsequent years saw a decline to 350,387 thousand in 2017, followed by a transient increase to 617,809 thousand in 2018, the highest in the analyzed range. The values then dropped substantially to 457,325 thousand in 2019 and further to 338,146 thousand in 2020. This suggests a reduction in the cash outflow related to operating taxes in recent years, despite some volatility earlier in the period.

The analyzed financial data reveals several notable trends in the company's capital structure over the six-year period ending September 30, 2020.

Total reported debt & leases

The total debt and leases experienced variability during the period. From 2015 to 2016, debt slightly increased, reaching around 6.42 billion USD. However, a significant reduction followed in the subsequent years, with debt levels decreasing markedly to approximately 3.59 billion USD by 2019. In 2020, there was a sharp increase to over 8.31 billion USD, representing the highest debt level in the period under review. This pattern suggests potentially strategic borrowing or financing activities, with a conservative approach in the middle years and a notable spike in the latest year.

Total Air Products shareholders’ equity

Shareholders’ equity showed a generally increasing trend throughout the period. Starting at about 7.25 billion USD in 2015, it experienced a slight decline in 2016 but then consistently grew each year, reaching approximately 12.08 billion USD by 2020. This steady growth in equity indicates strengthening capitalization and possibly accumulated earnings or capital injections supporting the company's financial position.

Invested capital

Invested capital, reflecting the total funds used for operational assets, showed a continuous upward trend from around 14.34 billion USD in 2015 to over 20.88 billion USD in 2020. The increase was gradual from 2015 through 2019, with a more pronounced escalation in 2020. The upward movement suggests ongoing investment in company assets, which may align with growth initiatives or strategic expansion.

Overall, the data indicates the company maintained a robust equity base while managing its debt levels with some fluctuation, culminating in a significant rise in debt in 2020. Concurrently, continued investment in capital assets is evident, possibly reflecting growth or modernization efforts. The combination of higher equity and invested capital alongside increased debt in the latest year could imply a leveraged approach to fund expansion or other financial strategies.

The financial data presents a multi-year view of economic profit, invested capital, and economic spread ratio for the period from 2015 to 2020. Several notable trends and patterns emerge from the analysis of these metrics.

Economic Profit

Economic profit shows a consistent negative trend throughout the entire period, indicating that the company has been experiencing losses in terms of economic value added. Despite fluctuations, the losses have been substantial in all years, with the most significant negative economic profit occurring in 2017 at -657,550 thousand US dollars. After this peak loss in 2017, the economic profit slightly improved but remained negative, with a notable decline again in 2020 reaching -332,645 thousand US dollars. This pattern suggests challenges in generating returns above the cost of capital.

Invested Capital

Invested capital exhibits a steady upward trend across the years. Starting from approximately 14.34 billion US dollars in 2015, invested capital increased consistently every year, reaching over 20.88 billion US dollars by 2020. This growth reflects ongoing capital investment or asset accumulation by the company, signifying expansion or increased resource allocation despite the persistent negative economic profits.

Economic Spread Ratio

The economic spread ratio, which measures the difference between return on invested capital and the cost of that capital, remains negative in all observed years. This indicates that the return generated on the invested capital was insufficient to cover its cost consistently over the period. The ratio experienced the largest negative spread in 2017 at -4.2%, corresponding with the largest economic loss. Although there were slight improvements in some years, such as 2016 and 2019, the spread remained negative, with a decrease to -1.59% again in 2020.

Overall, the data reflects a challenging financial performance in terms of value creation. Despite increased capital investment over the period, the company has consistently failed to earn an economic return above its cost of capital, resulting in persistent economic losses and negative economic spreads. The peak negative performance in 2017 suggests a particularly difficult year, with partial improvements in subsequent years not sufficient to reverse the overall trend.

Sales

Sales exhibited a fluctuating pattern over the periods analyzed. Beginning at approximately 9.89 billion US dollars in 2015, sales generally declined, reaching a low point near 8.19 billion in 2017. Thereafter, sales recovered somewhat but remained below the initial 2015 figure, fluctuating around 8.85 to 8.93 billion from 2018 through 2020. This indicates a period of volatility and absence of consistent growth in revenue.

Economic Profit

The economic profit figures reflect consistent negative values across all years, signaling that economic losses were incurred during the entire period. The losses worsened substantially in 2017, reaching approximately -657.6 million US dollars, the largest deficit in the series. After 2017, the economic losses reduced in magnitude but remained significant, with a moderate decline to around -136.2 million in 2019, followed by another increase in losses to -332.6 million in 2020. The data indicates persistent challenges in generating positive economic profit.

Economic Profit Margin

The economic profit margin similarly displayed negative percentages throughout, corroborating the trend in economic profit values. The margin reached its lowest point in 2017 at -8.03%, coinciding with the highest absolute economic losses. Although the margin improved modestly in 2019 to -1.53%, indicating a reduction in relative economic loss, it deteriorated again to -3.76% by 2020. The overall negative margins emphasize ongoing issues with profitability relative to sales revenue.

Summary of Trends

The company experienced a downward trend in sales early in the period followed by a partial recovery but not to the original levels. Economic profitability was consistently negative, with the greatest losses in 2017. While there was some improvement in economic profit and margin after that year, they remained negative, indicating ongoing challenges in achieving economic profitability. The data suggests a need for strategic measures to enhance both revenue stability and profitability.