Chevron Corp. (NYSE:CVX)

The period under review demonstrates significant fluctuations in economic profit. Initial observations reveal a substantial shift from negative economic profit to positive, followed by a return to negative figures. Net operating profit after taxes (NOPAT) experienced considerable volatility, while the cost of capital remained relatively stable, increasing slightly over the period before decreasing in the final year. Invested capital showed an overall increase, peaking in 2022 before experiencing a slight decline.

NOPAT Trend

Net operating profit after taxes began at a substantial loss in 2020, followed by a strong recovery and positive performance in 2021 and 2022. However, NOPAT decreased significantly in 2023 and remained relatively stable in 2024. This suggests a potential weakening of operational profitability in recent years despite continued positive values.

Cost of Capital

The cost of capital exhibited a gradual increase from 2020 to 2022, peaking at 15.28%. It remained stable in 2023 and then decreased slightly to 15.08% in 2024. This indicates a moderate increase in the required rate of return on investment, followed by a slight easing of that requirement.

Invested Capital

Invested capital generally increased from 2020 to 2022, reaching 212,342 US$ millions. It remained consistent between 2022 and 2023, and then experienced a minor decrease in 2024 to 208,395 US$ millions. This suggests a period of capital expansion followed by stabilization and a slight contraction.

Economic Profit Analysis

Economic profit was significantly negative in 2020 and 2021. A positive economic profit of 9,344 US$ millions was achieved in 2022, indicating that the company generated returns exceeding its cost of capital during that year. However, economic profit returned to negative territory in both 2023 and 2024, reaching -12,937 US$ millions and -11,337 US$ millions respectively. This reversal suggests that, despite positive NOPAT, the returns generated were insufficient to cover the cost of the invested capital in the latter two years.

The interplay between NOPAT, cost of capital, and invested capital resulted in a volatile economic profit profile. While the company demonstrated an ability to generate positive economic profit, this was not sustained, and recent performance indicates a failure to generate returns commensurate with the capital employed.

The data reveals notable fluctuations in profitability metrics over the observed five-year period. Initially, both net income and net operating profit after taxes (NOPAT) were negative in 2020, indicating a challenging financial environment or operational difficulties that year.

A significant turnaround is apparent in 2021, where both net income and NOPAT transition to positive figures. Net income improves markedly from a loss of 5,543 million US dollars in 2020 to a gain of 15,625 million US dollars in 2021. Similarly, NOPAT moves from a negative 10,295 million US dollars to a positive 19,443 million US dollars. This change suggests improved operational performance and profitability.

The positive trend continues into 2022, with net income reaching its highest point at 35,465 million US dollars and NOPAT following suit with 41,794 million US dollars. This peak indicates a period of especially strong financial results, likely driven by favorable market conditions or operational efficiencies.

Subsequently, both metrics decrease in 2023 but remain positive, with net income declining to 21,369 million US dollars and NOPAT dropping to 19,473 million US dollars. Although reduced from the previous year, these levels still reflect solid profitability.

In 2024, the trend stabilizes with a slight decrease in net income to 17,661 million US dollars, while NOPAT marginally rises to 20,090 million US dollars. The relatively stable results in the final year suggest an adjustment phase or normalization after the previous years' volatility.

Overall Trend

Initially negative performance in 2020, followed by a significant recovery and peak in 2022, then a moderated but stable profitability in subsequent years.

Net Income

Shifted from a substantial loss in 2020 to a peak in 2022, followed by a decline though maintaining positive levels through 2024.

Net Operating Profit After Taxes (NOPAT)

Mirrored the net income pattern with negative values in 2020, peaking in 2022, and settling at stable positive levels thereafter.

Financial Implications

The significant improvements from 2020 to 2022 imply successful management initiatives or external factors favoring profitability, while the subsequent moderate decrease points to normalization or increased market pressures.

The financial data reveals a significant fluctuation in the income tax expense (benefit) over the five-year period ending December 31, 2024. In 2020, a negative income tax expense value indicates a tax benefit, contrasting sharply with subsequent years where the figures show a tax expense. The income tax expense rose markedly from 5,950 million USD in 2021 to a peak of 14,066 million USD in 2022. This was followed by a decline to 8,173 million USD in 2023, and then a slight increase to 9,757 million USD in 2024.

Cash operating taxes exhibit a broadly similar trend to income tax expense, with amounts generally increasing over the period. Starting from 1,885 million USD in 2020, cash operating taxes rose substantially to 5,416 million USD in 2021, nearly doubling to 12,067 million USD in 2022. Thereafter, cash operating taxes decreased to 7,986 million USD in 2023, before modestly rising again to 8,681 million USD in 2024.

Income Tax Expense (Benefit)

Displayed volatility between 2020 and 2024, with a reversal from a tax benefit in 2020 to substantial tax expenses in following years. This indicates varied taxable income or changes in tax-related factors.

Cash Operating Taxes

Demonstrated a consistent upward trajectory from 2020 to 2022, peaking in 2022, followed by a notable decline in 2023 and a partial rebound in 2024, reflecting fluctuations in operational taxable activities or possibly changes in tax rates or policy implementations.

General Observation

The parallel movement of income tax expense and cash operating taxes suggests alignment between accounting reported tax obligations and actual cash tax payments. Both measures peaked in 2022, indicating possibly the highest taxable earnings or less favorable tax conditions during that year, before adjusting downward in 2023 and slightly increasing thereafter.

The data reveals several noteworthy trends across the financial metrics over the five-year period ending December 31, 2024.

Total reported debt & leases

There was a significant reduction in total reported debt and leases from 48,221 million US dollars in 2020 to 27,370 million in 2022. This downward trend continued in 2023 reaching 26,070 million, but there was a slight increase to 29,611 million in 2024. Overall, the company appears to have actively managed its debt, substantially lowering its obligations in the earlier years before a moderate rise in the final year.

Total Chevron Corporation stockholders’ equity

Stockholders' equity showed a consistent upward trajectory from 131,688 million US dollars in 2020 to a peak of 160,957 million in 2023. However, in 2024, equity decreased slightly to 152,318 million. This pattern suggests a generally healthy growth in equity, reflecting retained earnings or increases in capital, with a minor decline in the most recent year which could warrant further examination.

Invested capital

Invested capital experienced fluctuations during the period studied. It started at 197,314 million US dollars in 2020, saw a marginal decline to 193,606 million in 2021, followed by an increase to 212,342 million in 2022. The figure remained virtually unchanged in 2023 at 212,337 million, before slightly decreasing to 208,395 million in 2024. This indicates an overall stable level of capital investment, with periods of both expansion and modest contraction.

In summary, while debt levels decreased significantly in the initial years, there was a rebound in the latest year. Shareholders’ equity grew steadily until a slight pullback in the last year. Invested capital remained relatively stable with minor variations. These trends imply active financial management focusing on reducing leverage and maintaining shareholder value, with some adjustments apparent in the most recent period.

The economic spread ratio exhibited considerable fluctuation between 2020 and 2024. Initially negative, the ratio improved significantly in 2022 before declining again in subsequent years. This movement correlates with changes in economic profit, while invested capital remained relatively stable.

Economic Spread Ratio

In 2020, the economic spread ratio was -18.64%, indicating a substantial shortfall in returns relative to the cost of capital. A marked improvement occurred in 2021, with the ratio increasing to -4.61%, suggesting a narrowing of the gap between returns and capital costs. The ratio turned positive in 2022, reaching 4.40%, signifying that returns exceeded the cost of capital. However, this positive trend reversed in 2023 and 2024, with the ratio declining to -6.09% and -5.44% respectively, indicating a renewed underperformance relative to the cost of capital.

Economic profit demonstrated a similar pattern of volatility. Beginning with a significant loss in 2020, it improved substantially in 2021 and became positive in 2022. However, economic profit returned to negative territory in 2023 and remained negative in 2024, mirroring the decline observed in the economic spread ratio.

Invested Capital

Invested capital remained relatively consistent throughout the period, fluctuating between US$193.606 million and US$212.342 million. The slight decrease observed in 2024, to US$208.395 million, does not appear to be a primary driver of the changes in the economic spread ratio, as the more significant shifts are linked to economic profit.

The observed trends suggest a strong relationship between economic profit and the economic spread ratio. While invested capital remained stable, fluctuations in economic profit were the primary factor influencing the ratio’s performance. The return to negative economic profit in 2023 and 2024 resulted in a corresponding decline in the economic spread ratio, indicating a weakening of the company’s ability to generate returns exceeding its cost of capital.

The economic profit margin exhibited significant fluctuations over the five-year period. Initially negative, it improved substantially before declining again. A detailed examination of the trends reveals key insights into the company’s profitability relative to its cost of capital.

Economic Profit Margin Trend

In 2020, the economic profit margin was -38.94%, indicating substantial value destruction. This represents a significant shortfall where returns did not cover the cost of capital. A marked improvement occurred in 2021, with the margin increasing to -5.73%, suggesting a reduction in value destruction, though still negative. The year 2022 saw a positive margin of 3.96%, demonstrating the creation of economic profit. However, this positive trend reversed in 2023 and 2024, with the margin declining to -6.57% and -5.86% respectively, indicating a return to value destruction.

Relationship to Sales

Sales and other operating revenues increased considerably from 2020 to 2022, rising from US$94,471 million to US$235,717 million. This increase coincided with the improvement in the economic profit margin during that period. However, despite a slight decrease in sales in 2023 and 2024 to US$196,913 million and US$193,414 million respectively, the economic profit margin continued to decline, suggesting that factors beyond revenue volume were influencing profitability. The negative economic profit in 2023 and 2024, despite substantial sales, indicates that the cost of capital exceeded the returns generated from those sales.

Economic Profit

The absolute value of economic profit followed a similar pattern. Starting with a large negative value of -US$36,787 million in 2020, it decreased to -US$8,920 million in 2021, then became positive at US$9,344 million in 2022. Subsequently, it turned negative again, reaching -US$12,937 million in 2023 and -US$11,337 million in 2024. This confirms the trend observed in the economic profit margin and highlights the volatility in the company’s ability to generate returns exceeding its cost of capital.

Overall, the analysis suggests a period of improved economic performance in 2022, followed by a return to underperformance in the subsequent two years. Further investigation would be required to determine the underlying drivers of these fluctuations, such as changes in operating costs, capital structure, or the cost of capital itself.