Emerson Electric Co. (NYSE:EMR)

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes exhibited volatility over the examined periods. Initially, there was a significant increase from 2,212 million USD in 2014 to 2,871 million USD in 2015. However, this was followed by a sharp decline in 2016 to 1,731 million USD. From 2016 onward, NOPAT gradually improved, reaching 2,461 million USD by 2019, indicating a recovery but not surpassing the 2015 peak.

Cost of Capital

The cost of capital fluctuated moderately throughout the timeframe, starting at 15.91% in 2014 and slightly decreasing to 14.98% in 2015. It then increased to a peak of 16.42% in 2018 before a minor decline to 16.11% in 2019. The overall trend shows a relatively high and somewhat unstable cost of capital, which may exert pressure on profitability.

Invested Capital

Invested capital demonstrated a downward trend between 2014 and 2017, declining from 17,628 million USD to 15,181 million USD. This decrease implies a reduction in the capital base, possibly through divestitures or asset optimization. In the subsequent years, there was a modest increase, bringing invested capital back up to 16,266 million USD by 2019, though it remained below the initial level in 2014.

Economic Profit

Economic profit remained negative for most of the analyzed timeframe, except for 2015, when it registered a positive 276 million USD. There was a substantial negative economic profit in 2014, 2016, 2017, and 2018, with the magnitude decreasing over time from -790 million USD in 2016 to -159 million USD in 2019. This pattern suggests that the company's operating profits largely failed to exceed the cost of capital, although there is evidence of gradual improvement in economic value creation by the end of the period.

Summary

Overall, the company experienced fluctuations in profitability and cost of capital, with some recovery in net operating profits after a decline in the mid-period. Despite efforts indicated by the reduction and partial recovery of invested capital, economic profit remained negative except for a brief positive spike in 2015. The decreasing magnitude of negative economic profit toward 2019 points to an improving efficiency in generating returns above the cost of capital, but the company had yet to consistently achieve positive economic profit within the given timeframe.

The analysis of the financial data for the period from September 30, 2014, to September 30, 2019, reveals notable fluctuations in key profitability metrics.

Net Earnings Common Stockholders

The net earnings attributable to common stockholders demonstrate variability over the periods considered. Initially, there was an increase from 2,147 million USD in 2014 to a peak of 2,710 million USD in 2015. This was followed by a significant decrease to 1,635 million USD in 2016 and a slight further reduction to 1,518 million USD in 2017. Subsequently, the earnings recovered, rising to 2,203 million USD in 2018 and marginally improving to 2,306 million USD by 2019. This pattern suggests volatility in profitability, with a notable dip in the middle years before recovery in the latter two years.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a similar trend to net earnings, with an increase from 2,212 million USD in 2014 to 2,871 million USD in 2015, followed by a substantial decrease to 1,731 million USD in 2016. Unlike net earnings, NOPAT stabilizes somewhat in 2017 with a slight increase to 1,776 million USD. In the subsequent years, NOPAT rises consistently, reaching 2,124 million USD in 2018 and 2,461 million USD in 2019. This trend indicates a recovery in operating profitability after a period of decline, with steady improvements in the final two years.

Overall, both net earnings and NOPAT experienced a peak in 2015, followed by a decline over the next one to two years, and then a recovery phase from 2017 onward. The recovery in NOPAT appears somewhat stronger and more consistent than that in net earnings. These trends highlight periods of operational challenges and subsequent improvement in financial performance.

Income Tax Expense

The income tax expense demonstrated a fluctuating downward trend over the six-year period. Starting at $1,164 million in 2014, it increased to a peak of $1,428 million in 2015. However, from 2015 onwards, the figure declined significantly to $697 million in 2016 and further decreased to $660 million in 2017. The downward trend continued, reaching a low of $443 million in 2018, before showing a modest increase to $531 million in 2019. This pattern suggests variability in taxable income or changes in tax rates, with a notable reduction after 2015 and slight recovery toward 2019.

Cash Operating Taxes

Cash operating taxes followed a similar overall declining trajectory with some variation. Beginning at $1,394 million in 2014, the amount rose to $1,525 million in 2015, indicating higher cash tax payments that year. Subsequently, there was a sharp decline to $782 million in 2016 and a marginal decrease to $766 million in 2017. The downward movement persisted, with taxes dropping to $737 million in 2018 and then declining further to $619 million in 2019. This trend mirrors the reduction observed in income tax expense, possibly reflecting lower taxable income or effective tax management strategies resulting in decreased cash tax obligations over time.

Total Reported Debt & Leases

The total reported debt and leases exhibited a non-linear trend over the analyzed periods. It increased from 6,834 million USD in 2014 to peak at 7,624 million USD in 2015, followed by a reduction to 5,137 million USD in 2017. Subsequently, the amount rose again, reaching 6,191 million USD by 2019. This pattern suggests fluctuations in debt management, with a notable decrease in the middle period before a moderate rebound.

Common Stockholders’ Equity

Common stockholders’ equity showed a general decline from 10,119 million USD in 2014 to 7,568 million USD in 2016. Thereafter, it increased to 8,947 million USD in 2018, before descending again to 8,233 million USD in 2019. This series of movements indicates some volatility but overall a downward pressure on equity levels during the period.

Invested Capital

Invested capital steadily decreased from 17,628 million USD in 2014 to a low of 15,181 million USD in 2017. After 2017, it gradually increased to 16,266 million USD by 2019. The downward trend in the initial years followed by a recovery suggests adjustments in the company's capital investment strategy or asset base.

Overall Observations

The data reflects a period of financial adjustment, with both liabilities and equity experiencing declines and recoveries at different times. The decrease in invested capital up until 2017, coupled with reduced debt levels in the same period, could indicate an active effort to deleverage or optimize capital structure. Subsequently, the increases in debt and invested capital alongside fluctuating equity values imply dynamic financial management responsive to changing conditions or strategic priorities.

Net Sales

The net sales figures exhibit a notable decline from the period ending September 30, 2014 to the period ending September 30, 2016, dropping from $24,537 million to $14,522 million. Following this low point, a moderate recovery is observed through to the period ending September 30, 2019, where net sales increased to $18,372 million. The overall trend underscores a period of significant contraction followed by gradual improvement, though the sales level by 2019 remains below the initial 2014 level.

Economic Profit

The economic profit shows substantial volatility and persistent negative values throughout the analyzed periods. There is a brief positive spike in the period ending September 30, 2015, with a profit of $276 million. However, this is followed by a return to larger negative economic profits in subsequent years, ranging from -$790 million to -$159 million. Despite fluctuations, there is a clear trend toward reduction in losses, as evidenced by the improvement from -$440 million in 2018 to -$159 million in 2019.

Economic Profit Margin

The economic profit margin mirrors the pattern observed in economic profit, with generally negative values across the periods except for a positive margin of 1.24% in 2015. The margin experiences a significant decline reaching -5.44% in 2016, followed by gradual improvements toward -0.86% in 2019. This suggests that while profitability remains under pressure, the margin has shown signs of recovery over the latter periods.

Overall Analysis

The financial data indicates a challenging environment marked by decreased revenues and sustained economic losses in the earlier years, with signs of gradual improvement in profitability and sales in more recent periods. The transient positive economic profit and margin in 2015 represent an anomaly in an otherwise negative trend. The overall trajectory toward less negative economic profit and margin by 2019 suggests operational or strategic adjustments may be contributing to a recovery phase, albeit profitability has not fully stabilized into positive territory.