Exxon Mobil Corp. (NYSE:XOM)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) experienced a dramatic shift from a substantial loss in 2020 to positive figures in subsequent years, although with variability. The cost of capital remained relatively stable, increasing modestly over the five-year period. Invested capital generally trended upward, with a notable increase in the most recent year. These factors combined to produce a volatile pattern in economic profit.

NOPAT Trend

NOPAT began at a loss of US$34,098 million in 2020. A strong recovery occurred in 2021, reaching US$32,736 million. Further growth was observed in 2022, peaking at US$62,749 million, before declining to US$37,855 million in 2023 and US$31,476 million in 2024. This suggests sensitivity to external factors impacting operational performance.

Cost of Capital

The cost of capital exhibited a gradual increase throughout the period, moving from 12.58% in 2020 to 14.98% in 2024. While the increases were incremental, they contribute to a higher hurdle rate for generating economic profit.

Invested Capital

Invested capital remained relatively consistent between 2020 and 2022, fluctuating around US$270-297 billion. A substantial increase was observed in 2024, reaching US$378,995 million. This suggests significant capital deployment in the latest year, potentially through acquisitions or large-scale projects.

Economic Profit

Economic profit mirrored the NOPAT trend, starting with a significant loss of US$68,552 million in 2020. It improved to a loss of US$5,585 million in 2021 and turned positive in 2022, reaching US$18,452 million. However, economic profit became negative again in 2023 (US$7,653 million loss) and experienced a further decline in 2024, resulting in a loss of US$25,314 million. The negative economic profit in 2024, despite positive NOPAT, indicates that the return on invested capital was below the cost of capital.

The interplay between NOPAT, cost of capital, and invested capital resulted in a fluctuating economic profit. While the company demonstrated an ability to generate positive NOPAT in most years, maintaining economic profitability proved challenging, particularly with the increasing cost of capital and substantial capital investments in the final year of the period.

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 improved significantly in 2022 before declining again in subsequent periods. This movement correlates with changes in economic profit and invested capital.

Economic Spread Ratio Trend

In 2020, the economic spread ratio was -25.03%, indicating a substantial shortfall in returns relative to the cost of capital. A marked improvement occurred in 2021, with the ratio increasing to -2.05%, suggesting a narrowing of the gap between returns and capital costs. The ratio turned positive in 2022, reaching 6.21%, signifying that returns exceeded the cost of capital. However, this positive trend was short-lived, as the ratio decreased to -2.49% in 2023 and further to -6.68% in 2024, demonstrating a renewed underperformance relative to the cost of capital.

The economic spread ratio’s movement appears linked to the volatility of economic profit. While invested capital generally increased over the period, economic profit experienced significant swings, driving the fluctuations in the economic spread ratio. The largest decline in the ratio occurred in 2024, coinciding with the most substantial negative economic profit figure.

Relationship to Economic Profit

The economic spread ratio is directly influenced by economic profit. The negative economic profit values in 2020, 2023, and 2024 resulted in corresponding negative economic spread ratios. The positive economic profit in 2022 drove the ratio into positive territory. This suggests that the company’s ability to generate returns above its cost of capital is highly sensitive to overall profitability.

Relationship to Invested Capital

Invested capital increased steadily from 2020 to 2024. However, this increase in capital employed did not consistently translate into improved economic spread ratios. The ratio’s decline in 2023 and 2024, despite rising invested capital, indicates that the returns generated from the additional capital were insufficient to offset the cost of that capital.

The observed trend suggests a potential challenge in effectively deploying capital to generate returns that exceed the associated costs. Further investigation into the factors driving economic profit, alongside the efficiency of capital allocation, may be warranted.

The economic profit margin exhibited significant fluctuations over the five-year period. Initially negative, it improved substantially before declining again. 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 -38.39%, indicating a substantial shortfall in generating returns exceeding the cost of capital. A marked improvement occurred in 2021, with the margin increasing to -2.02%, suggesting a narrowing of the gap between economic profit and capital costs. The year 2022 saw a positive economic profit margin of 4.63%, demonstrating the generation of value above the cost of capital. However, this positive trend reversed in 2023, with the margin declining to -2.29%. The decline continued into 2024, resulting in a margin of -7.46%, representing the largest negative margin observed during the analyzed period.

The economic profit margin’s volatility appears correlated with changes 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. Conversely, the negative economic profit in 2023 and 2024 resulted in negative economic profit margins.

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 billion, the economic profit margin decreased during these periods. This suggests that increased revenue alone did not guarantee improved economic profitability, and that cost of capital considerations played a significant role.

The observed trend indicates that while the company experienced periods of value creation, these were interspersed with periods where returns did not cover the cost of capital. The increasing negative margin in the latter years of the period warrants further investigation into the factors driving the decline in economic profitability despite relatively stable revenue.