General Mills Inc. (NYSE:GIS)

The financial data over the six-year period reveals several notable trends concerning the company’s profitability, cost of capital, invested capital, and economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrates fluctuations but generally maintains a positive and sizable value throughout the period. Starting from approximately 2.22 billion USD in 2014, it experiences a decline to about 1.62 billion USD in 2015, promptly recovers in 2016 and 2017 to over 2 billion USD, dips again in 2018, before rising to a peak of approximately 2.27 billion USD in 2019. This suggests operational profitability remained robust despite intermediate variations.

Cost of Capital

The cost of capital fluctuates mildly over the years, beginning at 10.39% in 2014 and decreasing slightly to 10.34% in 2015, then increasing to a peak of 10.88% in 2016. From there, it declines to its lowest point of 8.82% in 2018 before rising again to 9.44% in 2019. This variability may reflect changes in the company’s risk profile or broader market conditions influencing capital costs.

Invested Capital

Invested capital shows a relatively stable pattern initially, decreasing from approximately 19.36 billion USD in 2014 to 18.40 billion USD in 2016, with a slight increase in 2017. A significant surge occurs in 2018, with invested capital rising sharply to 27.61 billion USD, remaining almost at the same high level in 2019 (27.39 billion USD). This considerable increase suggests substantial investments or acquisitions during 2018 and 2019.

Economic Profit

The economic profit presents considerable volatility and alternates between positive and negative values. Starting at approximately 207.6 million USD in 2014, it turns negative in 2015 at -373.2 million USD, then recovers modestly to 26.2 million USD in 2016 and further improves to 158.3 million USD in 2017. However, in 2018, it swings to a significant negative figure of -514.1 million USD and remains negative in 2019 at -311.5 million USD. The negative economic profit in the latter years, despite positive NOPAT, indicates that the returns generated did not exceed the cost of invested capital, likely driven by the sharp increase in invested capital and variable cost of capital.

In summary, while operational profitability as measured by NOPAT remains strong, the sharp rise in invested capital and fluctuations in the cost of capital have resulted in negative economic profit in recent years, signaling challenges in generating returns above the cost of capital. The company’s significant investments or expansions starting in 2018 have yet to translate into commensurate economic value addition.

The financial data shows the annual performance of the company over a six-year period from 2014 to 2019. Two key metrics are presented: net earnings attributable to the company and net operating profit after taxes (NOPAT).

Net Earnings Attributable to the Company

The net earnings exhibit fluctuations throughout the period. Starting from $1,824,400 thousand in 2014, there is a notable decline to $1,221,300 thousand in 2015. This is followed by a recovery phase where net earnings increase to $1,697,400 thousand in 2016 but then slightly dip to $1,657,500 thousand in 2017. The peak is observed in 2018 at $2,131,000 thousand, representing the highest net earnings in this timeframe. However, the following year, 2019, shows a decline to $1,752,700 thousand, reflecting a decrease of approximately 17.8% from the previous year’s peak.

Net Operating Profit After Taxes (NOPAT)

NOPAT also shows variability but with a generally increasing trend. It begins at $2,219,325 thousand in 2014 and declines in 2015 to $1,616,844 thousand, mirroring the net earnings pattern. Thereafter, NOPAT steadily recovers and increases, reaching $2,029,941 thousand in 2016 and continuing its ascent with minor fluctuation to $2,079,159 thousand in 2017 and $1,920,512 thousand in 2018. The highest value is recorded in 2019 at $2,274,308 thousand, representing a strong recovery and the highest operational efficiency in terms of post-tax profits over the period.

Overall, both net earnings and NOPAT show an initial decline from 2014 to 2015, likely indicating a challenging year or adverse conditions. Despite this, the company demonstrates resilience with a recovery phase from 2016 onward. Net earnings reach their peak in 2018 but experience a downturn in 2019. Conversely, NOPAT recovers more robustly, peaking in 2019 and displaying stronger operational profitability relative to net earnings. This divergence in the final year may suggest changes in non-operating items, tax impacts, or other factors affecting net earnings differently than operating profit.

The financial data reveals a fluctuating trend in the income taxes and cash operating taxes over the six-year period.

Income Taxes

Income taxes decreased significantly from 883,300 thousand US dollars in May 2014 to 586,800 thousand US dollars in May 2015, representing a notable reduction.

Subsequently, there was an increase to 755,200 thousand US dollars in May 2016, followed by a decline to 655,200 thousand US dollars in May 2017.

In May 2018, income taxes declined sharply to 57,300 thousand US dollars, marking the lowest point in the period analyzed, before rising to 367,800 thousand US dollars in May 2019.

Cash Operating Taxes

Cash operating taxes exhibited a more stable but variable trend, starting at 821,360 thousand US dollars in May 2014 and decreasing to 676,323 thousand US dollars in May 2015.

There was a slight increase to 745,707 thousand US dollars in May 2016, followed by a decrease to 579,670 thousand US dollars in May 2017.

The value rose again to 674,791 thousand US dollars in May 2018 before declining sharply to 383,900 thousand US dollars in May 2019.

Overall, both income taxes and cash operating taxes show substantial volatility over the years. Income taxes show a steep decline around 2018, while cash operating taxes, although variable, remain generally higher than income taxes except for 2018. The trends suggest potential changes in tax obligations or tax planning strategies impacting these financial items during the examined period.

Total Reported Debt & Leases

The total reported debt and leases showed a fluctuating trend over the six-year period. Initially, there was a moderate increase from approximately $9.13 billion in 2014 to $9.58 billion in 2015, followed by a decline to about $8.79 billion in 2016. In 2017, the debt level rose again to roughly $9.93 billion. A significant increase occurred in 2018, reaching approximately $16.32 billion, the highest level in the period analyzed. This peak was followed by a slight reduction to $14.93 billion in 2019, indicating a partial deleveraging but maintaining a relatively high debt position compared to earlier years.

Stockholders’ Equity

Stockholders’ equity experienced a downward trajectory between 2014 and 2017, decreasing from approximately $6.53 billion to around $4.33 billion. This decline suggests a reduction in the net value attributable to shareholders during this period. However, equity started to recover in 2018, increasing notably to $6.14 billion, and continued to grow in 2019, reaching about $7.05 billion. The recovery indicates a strengthening of the company’s equity base in the latter years analyzed.

Invested Capital

Invested capital exhibited relative stability from 2014 to 2017, ranging between approximately $18.4 billion and $19.4 billion. In 2018 there was a marked increase to roughly $27.61 billion, which was sustained in 2019 with a slight decrease to $27.38 billion. This sharp increase in invested capital parallels the rise in total reported debt and leases during the same period, suggesting significant capital allocation or asset acquisition financed largely through debt.

Overall Analysis

The financial data indicates that the company increased its leverage significantly in 2018 and maintained a higher debt load in 2019 relative to the earlier years. This period also coincides with a substantial jump in invested capital, signaling possibly intensified investment activity or expansion. Meanwhile, stockholders’ equity contracted from 2014 through 2017 but recovered afterward, possibly reflecting improved profitability or capital injections. The trends suggest a strategic phase of investment funded by increased debt, with signs of balance sheet strengthening towards the end of the period.

Economic Profit

The economic profit exhibited substantial volatility over the six-year period. It began with a positive value of approximately $207.6 million in 2014, followed by a sharp decline to a negative $373.2 million in 2015. The metric recovered somewhat in 2016 and 2017, recording $26.2 million and $158.3 million respectively, before declining again to negative figures in 2018 and 2019, with values of approximately -$514.1 million and -$311.5 million.

Invested Capital

Invested capital showed relative stability from 2014 through 2017, with values fluctuating between approximately $18.4 billion and $19.3 billion. However, there was a marked increase in 2018, jumping significantly to $27.6 billion, and this elevated level was maintained in 2019 at $27.4 billion. This trend indicates a substantial increase in the company’s invested capital starting in 2018.

Economic Spread Ratio

The economic spread ratio followed a pattern similar to the economic profit, displaying pronounced fluctuations. It started at a positive 1.07% in 2014 but turned negative in 2015 at -1.94%. A slight recovery to 0.14% in 2016 and further improvement to 0.83% in 2017 was observed. However, the ratio declined again sharply in 2018 to -1.86% and remained negative at -1.14% in 2019. This indicates periods of economic returns being below the company’s cost of capital, especially in later years.

Economic Profit

The economic profit exhibited significant volatility over the six-year period. It started with a positive value of 207,600 thousand US dollars in 2014 but sharply declined to a negative 373,182 thousand US dollars in 2015. A partial recovery occurred in 2016 and 2017, with positive figures of 26,246 and 158,334 thousand US dollars, respectively. However, this improvement was not sustained as economic profit again declined markedly to negative 514,132 thousand US dollars in 2018 and remained negative at 311,458 thousand US dollars in 2019. This pattern indicates inconsistency in the company’s ability to generate returns above its cost of capital during the interval.

Net Sales

Net sales demonstrated a generally downward trend from 2014 through 2017, decreasing from 17,909,600 thousand US dollars to 15,619,800 thousand US dollars. In 2018, net sales slightly increased to 15,740,400 thousand US dollars and then experienced a noticeable rebound to 16,865,200 thousand US dollars in 2019. Despite fluctuations, the overall trajectory suggests challenges in maintaining sales figures at consistently high levels, although recent years showed signs of stabilization and growth.

Economic Profit Margin

The economic profit margin mirrored the instability observed in economic profit values. Starting at a positive 1.16% in 2014, the margin turned negative at -2.12% in 2015, followed by a brief return to positive territory with 0.16% in 2016 and 1.01% in 2017. The margin then declined substantially to -3.27% in 2018 and remained negative at -1.85% in 2019. This indicates fluctuating efficiency in converting sales into economic profit, with recent years reflecting operational and profitability pressures.