Emerson Electric Co. (NYSE:EMR)

Net Operating Profit After Taxes (NOPAT)

The NOPAT experienced fluctuations throughout the period. It increased from $2,212 million in 2014 to a peak of $2,871 million in 2015, then declined sharply to $1,731 million in 2016. Following this decline, NOPAT stabilized and gradually recovered, reaching $2,461 million in 2019. Overall, there is evidence of volatility with a general recovery trend in the latter years.

Cost of Capital

The cost of capital remained relatively stable, fluctuating within a narrow range between 15.0% and 16.45% over the years. It started at 15.94% in 2014, decreased slightly in 2015 to 15.0%, and then gradually increased to its highest point in 2018 at 16.45%, before a slight decrease to 16.13% in 2019. The stability indicates consistent market and risk perception conditions during the period.

Invested Capital

Invested capital demonstrated a downward trend from 2014 through 2017, declining from $17,628 million to $15,181 million. This was followed by a modest recovery from 2018 to 2019, with invested capital rising to $16,266 million. The decrease in invested capital in earlier years could indicate asset divestitures or efficiency improvements, whereas the later increase might suggest renewed investments or growth initiatives.

Economic Profit

Economic profit revealed a challenging profitability landscape throughout this period. It started with a negative value of -$597 million in 2014, improved to a positive $272 million in 2015, then deteriorated again to negative values in subsequent years. While the losses decreased in magnitude from -$794 million in 2016 to -$163 million in 2019, the company consistently failed to generate economic profit, indicating that returns did not exceed the cost of capital substantially during most of the period analyzed.

Overall Analysis

The data suggests that despite episodes of increased operating profit, the company's returns were insufficient to overcome the costs associated with capital employed for most of the years observed. The volatility in NOPAT combined with the relatively stable but high cost of capital contributed to persistent negative economic profits. The reduction in invested capital over several years could reflect attempts to optimize asset utilization. The recovery in NOPAT and invested capital toward the end of the period might indicate strategic initiatives aimed at improving operational performance and capital allocation. However, persistent negative economic profit values suggest that creating shareholder value remained a significant challenge.

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.

Economic Profit Trends

Economic profit demonstrated significant variability over the period analyzed. In 2014, the company reported a substantial negative economic profit, which shifted to a positive value in 2015. However, the economic profit turned negative again in subsequent years, although the magnitude of the losses decreased steadily from 2017 to 2019, indicating some improvement in economic value generation.

Invested Capital Evolution

The invested capital exhibited a general declining trend from 2014 through 2017, reaching its lowest point in 2017. Thereafter, it showed a recovery, increasing in 2018 and 2019, but did not return to the initial level observed in 2014. This pattern suggests adjustments in the capital base possibly linked to strategic investments or divestitures.

Economic Spread Ratio Development

The economic spread ratio followed a parallel pattern with economic profit, starting with negative returns in 2014, turning positive in 2015, and then reverting to negative values for the remainder of the period. Although negative, the ratio showed progressive improvement from 2016 onwards, moving closer to breakeven by 2019. This indicates that the company improved its return on invested capital relative to its cost of capital, albeit without achieving positive spreads consistently.

Overall Insights

The financial indicators collectively reveal a period of instability in value creation, with the company facing challenges to maintain consistent economic profit and positive returns above the cost of capital. The improvement in the economic spread ratio and the reduction in economic losses toward the end of the period suggest that initiatives to enhance performance may have been partially effective. The fluctuations in invested capital further imply strategic shifts in resource allocation during the timeframe under review.

The financial performance over the six-year period reveals several notable trends in both profitability and sales figures. The economic profit, expressed in millions of US dollars, demonstrates fluctuation but generally shows improvement towards the final year. Specifically, the economic profit started at a negative value of -597 million in 2014, improved to a positive 272 million in 2015, but then reversed to negative territory in subsequent years, though the magnitude of losses decreased progressively from -794 million in 2016 to -163 million in 2019.

Net sales exhibited a decreasing trend initially, dropping substantially from 24,537 million in 2014 to 14,522 million in 2016. After this decline, sales slightly increased in the following years, reaching 18,372 million by 2019. Despite this recovery, net sales in 2019 were still lower than those in the initial years of the period under review, indicating challenges in maintaining top-line growth.

The economic profit margin, expressed as a percentage, mirrors the fluctuations observed in economic profit. It began with a negative margin of -2.43% in 2014, improved to a positive margin of 1.22% in 2015, and then declined sharply to -5.47% in 2016. Thereafter, the margin progressively improved each year but remained negative throughout the period, closing at -0.89% in 2019. This trend suggests persistent difficulties in generating returns above the cost of capital despite some improvement in the latter years.

Economic Profit

Fluctuated with notable volatility; marked improvement in the final year but persisted in negative territory overall except for 2015.

Net Sales

Experienced a sharp decline in the first half of the period followed by a partial recovery, yet did not return to the initial high levels.

Economic Profit Margin

Correlated with economic profit trends; generally negative throughout except for one positive year; showed a gradual recovery toward less negative values by the end of the period.