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 in 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 11.05% in 2020 to 13.13% in 2024. This consistent increase in the cost of capital likely contributed to the challenges in generating positive economic profit, particularly in the later years.

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 largest increase occurred between 2023 and 2024. This expansion of invested capital, coupled with a rising cost of capital, placed greater pressure on generating sufficient returns to cover the cost of funding.

Economic Profit Trend

Economic profit began at a loss of US$64,361 million in 2020, improved to a loss of only US$871 million in 2021, and then became positive at US$23,945 million in 2022. However, economic profit turned negative again in 2023 with a loss of US$2,034 million, and further deteriorated to a loss of US$18,287 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 increasing capital costs and potentially moderating operational profitability.

The interplay between NOPAT, cost of capital, and invested capital significantly impacted economic profit. While the initial recovery in NOPAT was sufficient to overcome the cost of capital on the existing invested capital base, the subsequent increases in both cost of capital and invested capital ultimately led to a decline in economic profit. The trend suggests a growing challenge in generating returns that exceed the cost of funding, particularly as the company expands its investment base.

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 considerable fluctuation between 2020 and 2024. Initially negative, the ratio demonstrated improvement before declining again. This analysis details the observed trends and potential implications.

Economic Spread Ratio

In 2020, the economic spread ratio was -23.50%. This indicates a substantial shortfall in returns relative to the cost of capital employed. A significant positive shift occurred in 2021, with the ratio increasing to -0.32%, suggesting a near-breakeven performance. The ratio turned positive in 2022, reaching 8.06%, signifying that returns exceeded the cost of capital. However, this positive trend was short-lived, as the ratio decreased to -0.66% in 2023 and further to -4.83% in 2024. This recent decline suggests a weakening ability to generate returns above the cost of invested capital.

The economic spread ratio’s movement closely mirrors the fluctuations in economic profit. The substantial negative economic profit in 2020 corresponds with the lowest economic spread ratio during the analyzed period. The improvement in economic profit in 2021 and 2022 is reflected in the corresponding increases in the economic spread ratio. The return to negative economic profit in 2023 and 2024 is consistent with the declining economic spread ratio.

Invested Capital

Invested capital generally increased over the period, rising from US$273,920 million in 2020 to US$378,995 million in 2024. This growth in invested capital occurred alongside the fluctuating economic spread ratio. The increasing capital base, coupled with the declining economic spread ratio in the latter years, suggests that the returns generated from each additional dollar invested diminished.

The observed trend indicates a potential challenge in effectively deploying capital to generate returns exceeding the cost of that capital, particularly in 2023 and 2024. While invested capital increased, the ability to translate that investment into positive economic value diminished during those years.

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 was significantly negative, registering at -36.04%. This indicates a substantial shortfall in generating returns exceeding the cost of capital. A dramatic improvement occurred in 2021, with the margin increasing to -0.31%, suggesting a considerable reduction in the gap between economic profit and capital costs. The margin turned positive in 2022, reaching 6.01%, signifying that the company generated economic profit during that year. However, this positive trend was short-lived. The margin declined to -0.61% in 2023 and further decreased to -5.39% in 2024, indicating a renewed inability to generate returns above the cost of capital.

The economic profit margin’s volatility appears closely linked to the fluctuations in economic profit. The substantial negative economic profit in 2020 directly contributed to the low margin. The improvement in 2021 and positive economic profit in 2022 drove the corresponding increases in the margin. 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. This increase likely contributed to the improved economic profit and margin in 2021 and 2022. However, despite a slight increase in sales in 2024, the economic profit margin remained negative, suggesting that increased revenue alone was insufficient to offset rising costs or a higher cost of capital. Sales decreased in 2023, coinciding with a move to negative economic profit.

The observed pattern suggests that while revenue growth can positively influence economic profit margin, it is not the sole determinant. Factors related to cost management and the cost of capital play a crucial role in achieving positive economic profit and a healthy economic profit margin. The recent trend of declining margins despite relatively stable sales warrants further investigation into the underlying cost structure and capital allocation efficiency.