Chevron Corp. (NYSE:CVX)

The period under review demonstrates significant fluctuations in economic profit. Initial observations reveal a substantial improvement in financial performance between 2020 and 2022, followed by a decline in subsequent years. Net operating profit after taxes (NOPAT) experienced a dramatic shift from a loss in 2020 to substantial gains in 2021 and 2022, before moderating in 2023 and 2024.

NOPAT Trend

NOPAT moved from a negative US$10,295 million in 2020 to a positive US$19,443 million in 2021, and further increased to US$41,794 million in 2022. This represents a significant turnaround. However, NOPAT decreased to US$19,473 million in 2023 and remained relatively stable at US$20,090 million in 2024, indicating a potential plateauing of profitability.

Cost of Capital Trend

The cost of capital exhibited a generally increasing trend from 15.43% in 2020 to 17.61% in 2022. This increase suggests a rising cost of funding operations. The cost of capital then decreased slightly to 17.58% in 2023 and further to 17.36% in 2024, potentially reflecting changes in market conditions or the company’s risk profile.

Invested Capital Trend

Invested capital remained relatively stable throughout the period, fluctuating between US$193,606 million and US$212,342 million. A slight decrease is observed in 2024, with invested capital reaching US$208,395 million. This suggests consistent levels of resource allocation within the business.

Economic Profit Trend

Economic profit mirrored the NOPAT trend, starting with a substantial loss of US$40,743 million in 2020. It improved to a loss of US$13,207 million in 2021 and turned positive, reaching US$4,411 million in 2022. However, economic profit declined sharply to a loss of US$17,854 million in 2023 and remained negative in 2024, at a loss of US$16,094 million. This indicates that while the company generated accounting profits, it did not consistently generate returns exceeding its cost of capital.

The divergence between NOPAT and economic profit in 2023 and 2024 suggests that the increasing cost of capital, despite moderate NOPAT levels, significantly impacted the company’s ability to generate economic value. The positive economic profit in 2022 was short-lived, and the subsequent return to negative economic profit highlights the importance of managing capital costs relative to operating performance.

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 demonstrated improvement in 2022 before declining again in subsequent periods. This movement correlates with changes in economic profit and invested capital.

Economic Spread Ratio

In 2020, the economic spread ratio was -20.65%, indicating a substantial shortfall in returns relative to the cost of capital. A notable improvement occurred in 2021, with the ratio increasing to -6.82%, suggesting a narrowing of the gap between returns and capital costs. The ratio turned positive in 2022, reaching 2.08%, signifying that returns exceeded the cost of capital for that year. However, this positive trend reversed in 2023 and 2024, with the ratio declining to -8.41% and -7.72% respectively, indicating a return to underperformance relative to the cost of capital.

The economic spread ratio’s movement is closely tied to the reported economic profit. While invested capital remained relatively stable over the period, the significant swings in economic profit directly influenced the ratio. The positive economic spread in 2022 coincided with positive economic profit, while the negative ratios in 2020, 2021, 2023, and 2024 aligned with negative economic profit values.

Invested Capital

Invested capital experienced a slight decrease from US$197,314 million in 2020 to US$193,606 million in 2021. It then increased to US$212,342 million in 2022, remaining relatively consistent at US$212,337 million in 2023, before decreasing slightly to US$208,395 million in 2024. The changes in invested capital were less pronounced than those observed in economic profit, suggesting that fluctuations in the economic spread ratio were primarily driven by profitability rather than significant shifts in capital deployment.

The observed pattern suggests a sensitivity of returns to external factors or internal operational changes impacting profitability. The brief period of positive economic spread in 2022 appears to be an outlier, as the ratio returned to negative territory in the following two years. Continued monitoring of these metrics is recommended to understand the sustainability of profitability and the effectiveness of capital allocation strategies.

The economic profit margin exhibited significant fluctuations over the five-year period. Initially negative, it demonstrated a period of improvement before reverting to negative values. 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 stood at -43.13%. This indicates substantial economic losses, meaning the company’s return on capital employed was significantly below its cost of capital. A considerable improvement was observed in 2021, with the margin increasing to -8.49%, suggesting a reduction in economic losses. The year 2022 saw a further shift, with the margin turning positive at 1.87%, indicating that the company generated economic profit – its returns exceeded its cost of capital. However, this positive trend was short-lived. The economic profit margin declined sharply to -9.07% in 2023 and remained negative in 2024, at -8.32%.

The volatility in the economic profit margin closely mirrors the fluctuations in economic profit. The substantial negative economic profit in 2020 and 2021 directly contributed to the large negative margins. The positive economic profit in 2022 drove the margin into positive territory. The subsequent return to negative economic profit in 2023 and 2024 resulted in renewed negative margins.

Relationship to Sales

Sales and other operating revenues increased significantly from 2020 to 2022, rising from US$94,471 million to US$235,717 million. This increase likely contributed to the improved economic profit margin in 2022. However, despite a slight decrease in sales in 2023 and 2024, the economic profit margin remained negative, suggesting that factors beyond revenue, such as increased costs or a higher cost of capital, were primarily responsible for the negative economic profit.

The recent trend of negative economic profit margins in 2023 and 2024 warrants further investigation. While revenue remained relatively stable, the inability to generate economic profit suggests potential issues with cost management, capital allocation, or changes in the company’s cost of capital. Continued monitoring of these factors is crucial for assessing the company’s long-term financial health.