Eaton Corp. plc (NYSE:ETN)

The analysis of annual current and deferred income tax expenses over the five-year period reveals notable trends and fluctuations.

Current Income Tax Expense

The current income tax expense demonstrates an overall increasing trend from 2020 to 2024. Beginning at $456 million in 2020, it rises sharply to $780 million in 2021. It then decreases to $573 million in 2022, followed by another significant increase to $786 million in 2023, and finally reaches its highest level at $922 million in 2024. This pattern indicates periods of volatility but with an underlying upward trajectory, suggesting increased taxable income or changes in tax rates over the years.

Deferred Income Tax Benefit

The deferred income tax benefit, which represents reductions in tax expense, fluctuates throughout the timeframe. Starting at a benefit of $125 million in 2020, it decreases substantially to $30 million in 2021, indicating a reduced deferred tax advantage. In 2022, the benefit increases again to $128 million, then grows further to its peak of $182 million in 2023. However, it declines to $154 million in 2024. The variability here might reflect changes in temporary differences between accounting and tax income or adjustments in deferred tax assets and liabilities.

Overall Income Tax Expense

The combined income tax expense, which includes both current expense and deferred benefit, shows a fluctuating but generally upward movement. The expense jumps significantly from $331 million in 2020 to $750 million in 2021, before dropping to $445 million in 2022. Subsequent years see an increase to $604 million in 2023 and further to $768 million in 2024. This pattern mirrors the fluctuations in current and deferred tax components but underscores an increasing tax burden over the period.

In summary, the data reflect a rising trend in current income tax expense with intermittent decreases. The deferred income tax benefit also varies but shows a tendency to increase after an initial drop, affecting the total tax expense. The overall tax expense exhibits volatility yet generally increases over the period, which could impact net profitability and cash flow considerations.

The financial data reveals several notable trends and fluctuations in the components influencing the effective income tax expense rate over the analyzed periods.

Income taxes at the applicable statutory rate

The statutory tax rate remained stable at 25% throughout the five-year span, serving as a consistent benchmark against which other tax components fluctuated.

Ireland tax on trading income

This item exhibited a growing negative impact from -0.2% in 2020, reaching -1.3% in 2022 and 2023, with a partial recovery to -0.9% in 2024, indicating an increasing tax benefit or reduction related to Irish trading income that somewhat moderated in the final year.

Nondeductible interest expense

The percentage peaked markedly at 2.7% in 2020, decreased sharply to 0.6% in 2021, increased again to 2.6% in 2023, and settled at 0.9% in 2024. This pattern suggests variability in interest-related expenses that are nondeductible for tax purposes, impacting tax expense irregularly across the period.

Ireland Other, net

The net impact fluctuated between positive and negative values: starting at 0.4% in 2020, turning negative in 2021 and 2022, then slightly improving to 1.2% in 2024, demonstrating variability in miscellaneous Irish tax effects.

Ireland operations

This item’s contribution decreased from a positive 2.9% in 2020 to negative figures in 2021 and 2022, before rebounding to positive values in 2023 and 2024 (1.1% and 1.2%, respectively), indicating shifting profitability or tax treatment within Irish operations.

Tax impact on sale of businesses

Tax effects from business sales were significant in 2020 (3.9%) and peaked at 9.1% in 2021 but were absent or unreported in subsequent years, reflecting one-time tax events concentrated in the early part of the period.

Earnings taxed at other than the applicable statutory tax rate

This expense showed sustained negative contributions each year, ranging from -14% in 2020 to a reduced negative impact of -6.7% in 2024. The consistent negative values indicate persistent earnings taxed at rates lower than the statutory rate, though the less negative trend suggests improving tax efficiencies or shifts in income jurisdictions.

Other items

Variability is observable here, with values oscillating mildly around zero, peaking at 2.2% in 2023 before declining to -0.2% in 2024, suggesting minor, sporadic impacts from miscellaneous items.

Foreign operations

Foreign operations consistently exerted a negative influence on the tax rate, ranging from -8.5% in 2020 to -6.9% in 2024, though with some fluctuations. This underscores the tax benefits or lower tax regimes outside the statutory rate prevalent in foreign jurisdictions.

Adjustments to tax liabilities

The adjustments remained minor and close to zero, moving between -0.6% and 0.2%, indicating relatively stable corrections or re-assessments in tax liabilities.

Adjustments to valuation allowances

First appearing with slight positive adjustments (0.2% in 2020, 0.1% in 2022), this item turned increasingly negative in 2023 and 2024 (-2.4% and -2.6%), implying increased deductions or recognition of deferred tax assets through valuation changes.

Worldwide operations

Similar to valuation allowances, this item trended from near zero or slight negative influence in early years to a more substantial negative impact (-2.6% and -2.5% in 2023 and 2024), suggesting growing tax advantages or adjustments on a global scale.

Effective income tax expense rate

The overall effective tax rate peaked at 25.9% in 2021, closely aligned with the statutory rate, but decreased significantly to 15.3% in 2022 and hovered around 16-17% thereafter. This decline indicates significant impacts from lower tax rates on earnings, tax benefits from foreign and other operations, and possibly the absence of notable tax costs related to business sales in later years.

In summary, the data shows a stable statutory rate context with dynamic and varied tax components leading to a decreasing effective tax rate after 2021. Key contributing factors to this trend include reduced impact from the sale of businesses, sustained benefits from lower-taxed earnings and foreign operations, and increased valuation allowance adjustments. The variability in nondeductible interest expense and Irish operations also plays a significant role in year-to-year fluctuations.

Employee benefits

The amount allocated to employee benefits showed a significant decrease from 553 million US dollars in 2020 to 266 million in 2022, followed by a slight recovery to 328 million in 2023 and a minor decline to 295 million in 2024. This pattern suggests an initial reduction in employee-related expenses or liabilities, with some degree of stabilization in the final two years.

Depreciation and amortization

Depreciation and amortization expenses have consistently decreased over the observed period, from -1101 million US dollars in 2020 to -791 million in 2024. The steady decline indicates reduced capital assets subject to depreciation or changes in accounting estimates, potentially reflecting asset disposals or completion of asset lifecycles.

Other accruals and adjustments

These accruals rose from 505 million in 2020 to 460 million in 2024, with some intermediate fluctuations. After a drop to 385 million in 2021, levels remained relatively stable, showing a moderate upward trend overall, which may indicate an increasing level of accrued liabilities or adjustments over time.

Accruals and other adjustments

The values are negative throughout the period, starting at -43 million in 2020, reaching a low of -404 million in 2022, and improving to -36 million by 2024. This reversal from a peak negative position suggests a reduction in these liabilities or adjustments in recent years.

Ireland income tax loss carryforwards

The amount reported remains relatively constant and low, fluctuating between 1 and 2 million US dollars during the period, indicating little change in this category of tax assets.

Foreign income tax loss carryforwards

This category experienced a substantial increase from 1815 million in 2020 to 4151 million in 2022, followed by a gradual decline to 3673 million by 2024. The initial growth could reflect increasing tax losses abroad, while the subsequent decline may indicate utilization or expiration of these carryforwards.

Foreign income tax credit carryforwards

Values remained fairly stable, fluctuating narrowly between 252 and 309 million, signaling relatively steady foreign tax credit positions without significant changes.

Valuation allowance for income tax loss and income tax credit carryforwards

The valuation allowance, reflecting potential non-recoverability of tax assets, increased in absolute terms from -1863 million in 2020 to a peak of -4184 million in 2022, before decreasing to -3556 million in 2024. This pattern suggests more conservative recognition of deferred tax assets followed by some optimism or improved realizability from 2023 onwards.

Other valuation allowances

These allowances remained relatively small and stable, averaging around -50 to -67 million, with a missing value in 2024 limiting further analysis.

Deferred income taxes

Deferred income taxes exhibited volatility, moving from a positive 152 million in 2020 to negative values in 2021 and 2022, then returning to positive figures of 56 million and 334 million in 2023 and 2024 respectively. This indicates fluctuations in the timing differences between accounting and tax recognition, with a recent trend towards increased deferred tax assets or reduced liabilities.

The financial data exhibits fluctuations in both deferred income taxes related to noncurrent assets and noncurrent liabilities over the five-year span.

Deferred Income Taxes, Noncurrent Assets

There is an initial decline from 426 million in 2020 to 392 million in 2021, followed by a continued decrease to 330 million in 2022. However, from 2022 onward, the value rebounds significantly, increasing to 458 million in 2023 and further to 609 million in 2024. This trend indicates a recovery after a period of decline, with an overall upward movement in the latter years.

Deferred Income Taxes, Noncurrent Liabilities

The values demonstrate a contrasting pattern compared to noncurrent assets. There is a substantial increase from 277 million in 2020 to 559 million in 2021, remaining relatively stable at 530 million in 2022. However, a decline occurs beginning in 2023, with the figure decreasing to 402 million and further down to 275 million in 2024. This indicates a peak in the middle years followed by a reduction towards the end of the period.

Overall, this data suggests a shift in the composition of deferred income taxes between assets and liabilities, with noncurrent assets' deferred taxes increasing notably in the final two years, while noncurrent liabilities' deferred taxes decrease substantially. The opposing trends highlight potential changes in tax-related accounting positions or underlying asset and liability valuations affecting deferred taxes.

The financial data over the five-year period reveals several noteworthy trends and shifts across reported and adjusted figures for assets, liabilities, equity, and net income attributable to ordinary shareholders.

Total Assets

Reported total assets exhibit a steady increase from 31,824 million US dollars in 2020 to a peak of 38,432 million US dollars in 2023, followed by a slight decline to 38,381 million in 2024. Adjusted total assets follow a similar trajectory, rising from 31,398 million in 2020 to 37,974 million in 2023 and then tapering off marginally to 37,772 million in 2024. The consistency between reported and adjusted total assets suggests minimal impact from deferred income tax adjustments on asset valuations, with growth primarily concentrated from 2020 through 2023.

Total Liabilities

Reported total liabilities increase progressively from 16,851 million US dollars in 2020 to 19,851 million in 2024. Adjusted liabilities also trend upward, from 16,574 million to 19,576 million over the same period. The increase in liabilities appears consistent year-over-year, indicating a gradual expansion in the company’s financial obligations. The gap between reported and adjusted liabilities remains relatively stable, implying consistent treatment of deferred tax effects in liability figures.

Total Eaton Shareholders’ Equity

Reported shareholders’ equity rises significantly from 14,930 million US dollars in 2020 to a high of 19,036 million in 2023 before declining to 18,488 million in 2024. Adjusted equity mirrors this pattern, increasing from 14,778 million to 18,980 million by 2023 and then decreasing to 18,154 million in 2024. The decrease in equity during the last period, despite prior growth, may reflect changes in retained earnings, dividend policies, or other comprehensive income adjustments. The close proximity between reported and adjusted equity values suggests that deferred income tax adjustments have limited influence on equity valuation.

Net Income Attributable to Ordinary Shareholders

Reported net income shows a robust upward trend, from 1,410 million US dollars in 2020 to 3,794 million in 2024, more than doubling within the period. Adjusted net income follows a similar growth trajectory but consistently records slightly lower values than reported income, beginning at 1,285 million in 2020 and reaching 3,640 million in 2024. The divergence between reported and adjusted net income indicates the impact of deferred income tax adjustments in reducing net income figures, though the magnitude of difference remains proportionally modest. The steady increase in net income signifies improved profitability over the years.

Overall, the company's financial position exhibits growth in total assets, liabilities, equity, and net income across the examined timeframe, with the most notable acceleration occurring in profitability. The adjustments for deferred income tax moderately affect net income but have minimal influence on the asset, liability, and equity figures. The slight decline in assets and equity in the final year suggests a potential shift in financial strategy or operating performance that may warrant further analysis.

The financial data from the reported and deferred income tax adjusted figures reveals several key trends over the five-year period analyzed. Overall, there is a consistent upward trajectory in profitability, asset utilization, and return measures.

Net Profit Margin

The reported net profit margin increased from 7.9% in 2020 to 15.25% in 2024, demonstrating a strong improvement in profitability over time. The adjusted net profit margin follows a similar upward trend, increasing from 7.2% to 14.63% across the same timeframe. The slight difference between reported and adjusted margins suggests that tax adjustments have a modest impact on the margin calculations, but both measures indicate enhanced earnings efficiency.

Total Asset Turnover

The total asset turnover ratio, which measures the efficiency of asset utilization to generate sales, shows a gradual increase. Reported ratios rise from 0.56 in 2020 to 0.65 in 2024, while adjusted ratios increase from 0.57 to 0.66 in the same period. The minor differences between reported and adjusted values indicate consistency in asset turnover figures regardless of tax-related adjustments.

Financial Leverage

Financial leverage ratios display a slight decline initially, moving from approximately 2.13 in 2020 down to around 2.00 in 2023, before a minor uptick to 2.08 in 2024. Both reported and adjusted leverage ratios follow this pattern, indicating a modest reduction in reliance on debt financing or equity multipliers through most of the period, with a stabilization toward the end.

Return on Equity (ROE)

ROE shows a substantial upward trend, rising from 9.44% reported in 2020 to 20.52% in 2024. The adjusted ROE also increases from 8.7% to 20.05%, signifying enhanced profitability related to shareholders’ equity. The growth in ROE outpaces that of the net profit margin and asset turnover ratios, suggesting that improvements in leverage and operational efficiency jointly contribute to enhanced equity returns.

Return on Assets (ROA)

The reported ROA grows consistently from 4.43% in 2020 to 9.89% in 2024, with adjusted ROA moving from 4.09% to 9.64%. The increase reflects improved overall profitability on the company's asset base. The parallel movement in reported and adjusted figures indicates that income tax adjustments do not materially affect the operating performance as reflected by ROA.

In summary, the data shows positive momentum in profitability, asset utilization, and returns, with both reported and adjusted results closely aligned. The company demonstrates improving operational efficiency and effective use of financial leverage, contributing to stronger returns on equity and assets over the five-year period. The minor differences observed between reported and adjusted figures imply that tax adjustments moderately influence but do not distort the overall financial performance trends.

Net Income Attributable to Ordinary Shareholders

The reported net income showed a consistent upward trend over the five-year period, increasing from 1,410 million US dollars in 2020 to 3,794 million US dollars in 2024. Similarly, the adjusted net income also increased steadily from 1,285 million US dollars in 2020 to 3,640 million US dollars in 2024. Although both reported and adjusted net incomes rose continuously, the gap between the two measures remained relatively stable, indicating consistent adjustments related to income tax or other non-recurring items across the years.

Net Profit Margin

The reported net profit margin improved significantly over the period, rising from 7.9% in 2020 to 15.25% in 2024. This suggests increasing profitability relative to revenue. The adjusted net profit margin followed a similar positive trajectory, increasing from 7.2% to 14.63% during the same timeframe. The slight difference between reported and adjusted margins indicates that after-tax adjustments had a modest but consistent effect on reported profitability.

Overall Trends and Insights

Both the reported and adjusted financial metrics demonstrate strong and consistent growth year over year. The steady increase in net income and profit margins points to improved operational performance and effective cost or tax management. The alignment of the reported and adjusted figures suggests that the adjustments for deferred income tax or other items did not introduce significant volatility or distortions in the financial results. Overall, the data reflects a positive financial trajectory with increasing profitability and shareholder returns.

The financial data presents a clear progression in both asset values and asset turnover ratios over the five-year period under review. The reported total assets show a steady increase from US$31,824 million in 2020 to US$38,381 million in 2024, indicating growth in the asset base. The adjusted total assets follow a similar upward trend but remain slightly below the reported figures each year, reflecting adjustments likely related to income tax considerations.

The total asset turnover ratios, both reported and adjusted, demonstrate a consistent improvement through the years. The reported total asset turnover rises from 0.56 in 2020 to 0.65 in 2024, while the adjusted total asset turnover ascends from 0.57 to 0.66 over the same period. This upward trajectory suggests enhanced efficiency in using the asset base to generate sales or revenue.

Asset Values

Reported total assets increased by approximately 20.6% from 2020 to 2024, with a corresponding rise in adjusted total assets by around 20.4%, indicating sustained asset growth despite adjustments.

The gap between reported and adjusted total assets remains relatively narrow, reflecting consistent adjustments across years rather than significant fluctuations.

Asset Turnover Ratios

Both reported and adjusted total asset turnover ratios improved steadily, with reported turnover increasing by approximately 16.1% and adjusted turnover by about 15.8% over the period.

The ongoing rise in asset turnover ratios suggests increasing operational efficiency and more effective utilization of the asset base in revenue generation.

Overall Observations

The correlation between asset growth and improved turnover ratios highlights a positive trend in both asset accumulation and the company’s ability to deploy those assets efficiently.

The adjustments related to income tax do not significantly distort these trends, as seen in the close alignment between reported and adjusted figures.

The data reveals several key trends in the financial position and leverage of the company over the five-year period from 2020 to 2024. There is a consistent increase in both reported and adjusted total assets, indicating asset growth, although the growth rate appears to slow slightly in the last year.

Total Assets

Reported total assets increase steadily from US$31,824 million in 2020 to US$38,432 million in 2023, before slightly decreasing to US$38,381 million in 2024. Adjusted total assets follow a similar trend, rising from US$31,398 million in 2020 to US$37,974 million in 2023 and then declining marginally to US$37,772 million in 2024. The adjusted figures consistently fall just below the reported figures, reflecting considerations such as deferred income tax adjustments.

Shareholders' Equity

Reported total Eaton shareholders' equity grows steadily from US$14,930 million in 2020 to a peak of US$19,036 million in 2023 before slightly decreasing to US$18,488 million in 2024. Adjusted equity shows a similar pattern, increasing from US$14,778 million in 2020 to US$18,980 million in 2023, then declining to US$18,154 million in 2024. The close alignment of reported and adjusted equity values suggests limited impact from income tax adjustments on equity during this period.

Financial Leverage

Both reported and adjusted financial leverage ratios demonstrate a gradual decrease from 2020 to 2023, implying a reduction in leverage and potentially improved financial stability. The reported leverage ratio declines from 2.13 in 2020 to 2.02 in 2023, then slightly increases to 2.08 in 2024. Adjusted leverage follows a similar trajectory, dropping from 2.12 in 2020 to 2.00 in 2023, before rising to 2.08 in 2024. This modest increase in 2024 may indicate a slight re-leveraging or changes in asset or equity levels.

Overall, the company exhibits asset and equity growth over the analyzed period, with a general trend toward reduced financial leverage until 2023, followed by a minor reversal in 2024. The adjusted values closely track reported values, suggesting stability in the impact of deferred income tax adjustments on the financial position.

The financial data demonstrates a clear positive trend in the company's profitability and shareholder returns over the five-year period analyzed, from 2020 to 2024.

Net Income Attributable to Ordinary Shareholders

Both reported and adjusted net income figures show consistent growth each year. Reported net income rose from $1,410 million in 2020 to $3,794 million in 2024, representing a substantial increase of approximately 169%. Similarly, the adjusted net income increased from $1,285 million to $3,640 million, reflecting robust earnings growth but at slightly lower levels than reported figures, indicating adjustments that reduce net income moderately throughout the period.

Total Shareholders’ Equity

Shareholders' equity, both reported and adjusted, displayed upward movement from 2020 through 2023, increasing from roughly $14.9 billion to $19.0 billion reported and from $14.8 billion to $18.98 billion adjusted. However, in 2024, equity figures slightly declined to $18.5 billion reported and $18.15 billion adjusted, suggesting a possible capital distribution, asset revaluation, or other equity-impacting events occurring in that year.

Return on Equity (ROE)

Reported ROE improved steadily over the timeframe, increasing from 9.44% in 2020 to 20.52% in 2024, more than doubling. Adjusted ROE mirrored this trend closely, rising from 8.7% to 20.05%. The growth in ROE indicates enhanced efficiency in generating profits from shareholders' equity, with adjusted metrics confirming the underlying profitability excluding certain tax effects.

Overall, the data reveals strong growth in net income and improved profitability ratios, reflecting well on the company's financial performance. The slight decline in equity in the final year warrants attention but does not appear to have halted the strong upward trajectory of returns and earnings.

Net Income Trends

The reported net income attributable to ordinary shareholders shows a consistent upward trend over the five-year period, increasing from $1,410 million in 2020 to $3,794 million in 2024. The adjusted net income follows a similar pattern, rising from $1,285 million to $3,640 million during the same period. The adjustments, which likely reflect income tax effects, result in slightly lower net income figures compared to reported amounts, but both sets indicate strong growth.

Total Assets Trends

Total assets, both reported and adjusted, exhibit steady growth from 2020 through 2023, moving from approximately $31.8 billion to nearly $38.4 billion. However, in 2024, there is a slight decline observed in both reported and adjusted total assets, with reported assets decreasing marginally to about $38.4 billion and adjusted assets to $37.8 billion. This minor dip may indicate asset disposals or revaluations affecting the balance sheet in the most recent year.

Return on Assets (ROA)

Reported ROA has progressively increased from 4.43% in 2020 to 9.89% in 2024, more than doubling over the period. Adjusted ROA demonstrates a comparable trajectory, rising from 4.09% to 9.64%. The adjustment narrows the ROA slightly but both metrics show improved asset utilization and profitability over time.

General Insights

The overall financial performance, as reflected in net income growth and improving ROA, suggests enhanced operational efficiency and profitability. The close alignment between reported and adjusted metrics indicates that deferred income tax adjustments have a consistent but moderate impact on financial results. The slight decline in total assets in 2024 contrasts with the ongoing profitability improvement, potentially indicating more effective asset management or strategic divestitures. The steady increase in ROA despite the minor asset base reduction suggests that earnings growth outpaced asset growth in recent years.