Exxon Mobil Corp. (NYSE:XOM)

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 a dramatic recovery from a substantial loss in 2020 to a considerable profit in 2021, continuing to increase through 2022 before declining in 2023 and 2024.

NOPAT Trend

NOPAT moved from a loss of US$34,098 million in 2020 to a profit of US$32,736 million in 2021. This positive trend continued with US$62,749 million in 2022, but then decreased to US$37,855 million in 2023 and further to US$31,476 million in 2024. The decline in recent years suggests potential challenges in maintaining profitability despite the initial strong recovery.

Cost of Capital Trend

The cost of capital exhibited an increasing trend throughout the period, rising from 10.87% in 2020 to 12.92% in 2024. This consistent increase in the cost of capital likely contributed to the challenges in generating positive economic profit in later years, as a higher cost of capital necessitates greater operational efficiency to achieve profitability.

Invested Capital Trend

Invested capital generally increased over the period, moving from US$273,920 million in 2020 to US$378,995 million in 2024. The most significant increase occurred between 2023 and 2024. This expansion of invested capital, coupled with the rising cost of capital, placed increased pressure on NOPAT to generate sufficient returns.

Economic Profit Trend

Economic profit began at a substantial loss of US$63,884 million in 2020. It improved significantly to a loss of only US$335 million in 2021, and then turned positive, reaching US$24,570 million in 2022. However, economic profit became negative again in 2023 at US$-1,395 million, and further deteriorated to US$-17,488 million in 2024. This pattern indicates that while the company was able to generate positive economic profit for a period, it has struggled to sustain this performance in the face of rising capital costs and fluctuating NOPAT.

The interplay between NOPAT, cost of capital, and invested capital demonstrates a complex financial performance. While the company experienced a period of strong economic profit generation, the increasing cost of capital and continued investment have created headwinds, resulting in a return to negative economic profit in the most recent years. Continued monitoring of these factors will be crucial for assessing future financial performance.

The financial data reveals significant fluctuations in the profitability metrics over the five-year period ending December 31, 2024. Both net income and net operating profit after taxes (NOPAT) demonstrate notable volatility, reflecting changing business dynamics and external factors impacting the company.

Net Income (Loss) Attributable to ExxonMobil

The company experienced a substantial net loss in the year 2020, with a figure of negative $22.44 billion. This was followed by a strong recovery in 2021, marked by a sharp turnaround to a net income of $23.04 billion. The upward trend continued robustly into 2022, reaching a peak of $55.74 billion, which represents the highest profit in the examined period. However, the subsequent years showed a moderation in profitability, with net income declining to $36.01 billion in 2023 and further to $33.68 billion in 2024. Despite these decreases, profits remained significantly positive compared to the loss in 2020.

Net Operating Profit After Taxes (NOPAT)

Similar to net income, NOPAT followed a correlated pattern. The year 2020 registered a pronounced negative figure of $34.10 billion, indicating operational challenges and tax impacts during that period. Recovery commenced in 2021 with NOPAT switching to a positive $32.74 billion, followed by a peak in 2022 at $62.75 billion, surpassing the net income peak and underscoring efficient operational performance. Afterwards, NOPAT experienced a decline to $37.86 billion in 2023 and further contraction to $31.48 billion in 2024. These trends suggest the company maintained operational profitability after taxes but faced headwinds causing reduced returns post-2022.

Overall, the data indicates that the company underwent a significant turnaround after 2020, reflecting recovery from adverse conditions that year. The peak in 2022 represents a period of considerable profitability, although the subsequent decline in the following two years points to either reduced market conditions, increased costs, or other operational challenges. Despite the decline post-2022, the company remained profitable with both net income and NOPAT well above the negative values seen in 2020.

The financial data exhibits significant fluctuations in both income tax expense (benefit) and cash operating taxes over the observed five-year period.

Income Tax Expense (Benefit)

The income tax expense started with a substantial benefit of -5,632 million USD at the end of 2020, indicating a tax advantage or credit in that year. However, this shifted markedly in 2021, changing to a positive expense of 7,636 million USD. The upward trend continued into 2022, peaking at 20,176 million USD. Although there was a decline in 2023 to 15,429 million USD, the figure remained significantly elevated compared to 2021 and 2020. By 2024, the expense decreased slightly further to 13,810 million USD, yet maintaining a higher level than in the initial years.

Cash Operating Taxes

The cash operating taxes demonstrate a strong growth trajectory from 2,695 million USD in 2020 to 7,904 million USD in 2021. This upward momentum accelerated, reaching 16,789 million USD in 2022. Following this peak, cash operating taxes slightly declined to 14,713 million USD in 2023 but rebounded modestly to 14,916 million USD in 2024. The overall pattern suggests a multi-year increase with a peak in 2022, followed by stabilization at a high level.

Overall, both tax-related metrics indicate increased tax obligations and cash outflows in the recent years, especially from 2021 onwards. The simultaneous rise in income tax expense and cash operating taxes reflects heightened tax liabilities that stabilize but remain elevated compared to 2020 levels. The initial benefit observed in 2020 may represent one-time tax credits or adjustments, followed by normalization or growth in tax expenses consistent with business conditions in the subsequent years.

Total reported debt & leases

The total reported debt and leases exhibit a significant downward trend from 2020 to 2022, decreasing from $72,802 million to $46,787 million. This reduction suggests a strategy of debt reduction or improved liability management. From 2022 onwards, the figure stabilizes, with a slight increase to $48,188 million by 2024, indicating a relatively steady level of debt in the most recent periods.

Total ExxonMobil share of equity

Shareholder equity shows a consistent upward trend over the entire period. Starting at $157,150 million in 2020, it increases steadily each year, reaching a notable $263,705 million in 2024. This growth reflects strengthening equity positions, possibly driven by retained earnings, asset appreciation, or additional capital infusion.

Invested capital

Invested capital remains relatively stable between 2020 and 2021, with a slight slight decline from $273,920 million to $272,673 million. From 2021 onwards, invested capital steadily rises, reaching $378,995 million in 2024. This upward trend may indicate increased investments in assets or expansion initiatives to support long-term operational growth.

Overall, the financial data indicates a strategic reduction and subsequent stabilization of debt, coupled with strong growth in shareholder equity. The increase in invested capital alongside equity growth suggests ongoing investment in operational capacity supported by a solid equity base, contributing to a potentially stronger financial position over the assessed period.

The economic spread ratio exhibited significant fluctuations over the five-year period. Initially negative, the ratio improved substantially before declining again in subsequent years. Economic profit demonstrated a similar pattern of volatility, moving from a substantial loss to a positive value and then back into negative territory.

Economic Spread Ratio

In 2020, the economic spread ratio was -23.32%, indicating a considerable shortfall in returns relative to the cost of invested capital. A dramatic improvement occurred in 2021, with the ratio increasing to -0.12%, suggesting a near-breakeven performance. The ratio turned positive in 2022, reaching 8.27%, signifying that returns exceeded the cost of capital. However, this positive trend was short-lived, as the ratio decreased to -0.45% in 2023 and further to -4.61% in 2024. This indicates a weakening of the company’s ability to generate returns above its cost of capital in the latter two years.

Invested capital generally increased throughout the period. From 2020 to 2024, invested capital rose from US$273,920 million to US$378,995 million. This increase in invested capital occurred alongside the fluctuating economic spread ratio, suggesting that increased investment did not consistently translate into improved profitability relative to the capital employed.

Economic Profit and Invested Capital Relationship

The relationship between economic profit and invested capital mirrors the trend in the economic spread ratio. The substantial loss in economic profit in 2020 corresponded with the lowest economic spread ratio. The improvement in economic profit to US$24,570 million in 2022 aligned with the highest economic spread ratio. The subsequent declines in economic profit in 2023 and 2024, to -US$1,395 million and -US$17,488 million respectively, coincided with the decreasing economic spread ratio. This suggests a strong correlation between the company’s ability to generate economic profit and its economic spread.

The observed pattern suggests a sensitivity to external factors or internal operational changes impacting profitability. The company’s performance relative to its cost of capital appears to be unstable over the analyzed timeframe.

The economic profit margin exhibited significant fluctuations over the five-year period. Initially negative, it demonstrated a substantial improvement before reverting to negative values. A detailed examination of the trends reveals key insights into the company’s profitability from an economic value perspective.

Economic Profit Margin Trend

In 2020, the economic profit margin stood at -35.77%. This indicates a substantial shortfall in generating returns exceeding the cost of capital. A dramatic improvement occurred in 2021, with the margin increasing to -0.12%, suggesting a near-breakeven performance in economic terms. The year 2022 saw a positive margin of 6.16%, representing a period where the company generated economic profit. However, this positive trend was short-lived, as the margin declined to -0.42% in 2023 and further to -5.15% in 2024. This recent decline suggests a weakening in the company’s ability to generate value above its cost of capital.

The economic profit margin’s movement closely mirrors the fluctuations in economic profit. The substantial negative economic profit in 2020 directly contributed to the low margin. The improvement in 2021 and the positive economic profit in 2022 were reflected in the corresponding margin increases. The return to negative economic profit in 2023 and 2024 resulted in the subsequent decline in the economic profit margin.

Relationship to Sales

Sales and other operating revenue increased significantly from 2020 to 2022, rising from US$178,574 million to US$398,675 million. While sales decreased slightly in 2023 and 2024, remaining relatively stable around US$335-340 billion, the economic profit margin did not consistently benefit from these revenue levels. The inability to translate increased sales into sustained economic profit, as evidenced by the declining margin in 2023 and 2024, suggests potential issues with cost management or capital efficiency despite strong revenue.

Overall, the economic profit margin demonstrates a volatile performance. While a period of economic profitability was achieved in 2022, the subsequent decline raises concerns about the company’s long-term value creation potential. Further investigation into the factors driving these fluctuations, particularly the cost of capital and operational efficiency, is warranted.