Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
Profitability Ratios (Summary)
Illinois Tool Works Inc., profitability ratios
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
The profitability profile from 2017 to 2021 demonstrates a high level of stability in core operations combined with a significant expansion in net returns and capital efficiency starting in 2018.
- Operational Margin Performance
- Gross profit margins remained remarkably consistent, fluctuating within a narrow range between 41.27% and 41.97%. Similarly, the operating profit margin showed resilience, maintaining a baseline around 24%, with a temporary decline to 22.92% in 2020 before recovering to 24.05% in 2021.
- Net Profitability Trends
- A notable increase in the net profit margin occurred between 2017 and 2018, rising from 11.79% to 17.36%. This elevated level of net profitability was sustained through 2021, reaching a period peak of 18.64%, indicating improved bottom-line efficiency relative to revenue.
- Asset and Equity Returns
- Return on equity (ROE) experienced a substantial surge after 2017, climbing from 36.79% to peak at 83.31% in 2019. While a contraction to 66.30% was observed in 2020, the ratio recovered to 74.32% by 2021. Return on assets (ROA) followed a similar trajectory, increasing from 10.05% in 2017 to a high of 17.24% in 2018, ultimately ending the period at 16.76%.
The divergence between the stable operating margins and the sharply increasing ROE and ROA suggests that the improvements in overall profitability were driven by factors beyond core production costs, potentially involving optimized capital structures or non-operating financial improvements.
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Return on Sales
Return on Investment
Gross Profit Margin
Illinois Tool Works Inc., gross profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Gross profit | 5,966) | 5,199) | 5,922) | 6,164) | 6,005) | |
| Operating revenue | 14,455) | 12,574) | 14,109) | 14,768) | 14,314) | |
| Profitability Ratio | ||||||
| Gross profit margin1 | 41.27% | 41.35% | 41.97% | 41.74% | 41.95% | |
| Benchmarks | ||||||
| Gross Profit Margin, Competitors2 | ||||||
| Boeing Co. | 4.84% | — | — | — | — | |
| Caterpillar Inc. | 26.30% | — | — | — | — | |
| Eaton Corp. plc | 32.28% | — | — | — | — | |
| GE Aerospace | 24.19% | — | — | — | — | |
| Honeywell International Inc. | 35.85% | — | — | — | — | |
| Lockheed Martin Corp. | 13.52% | — | — | — | — | |
| RTX Corp. | 19.40% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Gross profit margin = 100 × Gross profit ÷ Operating revenue
= 100 × 5,966 ÷ 14,455 = 41.27%
2 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a high degree of stability in profitability margins despite significant volatility in absolute revenue and profit figures. A notable contraction occurred in 2020, followed by a substantial recovery in 2021, returning the company to levels similar to those seen at the beginning of the analyzed period.
- Operating Revenue and Gross Profit Dynamics
- Operating revenue reached a peak of 14,768 million US$ in 2018, followed by a decline that culminated in a significant drop to 12,574 million US$ in 2020. Gross profit followed a mirrored trajectory, falling from 6,164 million US$ in 2018 to a period low of 5,199 million US$ in 2020. By the end of 2021, both metrics demonstrated a strong rebound, with operating revenue recovering to 14,455 million US$ and gross profit increasing to 5,966 million US$.
- Gross Profit Margin Stability and Trends
- The gross profit margin remained remarkably consistent over the five-year span, oscillating within a narrow range between 41.27% and 41.97%. A peak margin of 41.97% was recorded in 2019, followed by a slight downward trend over the next two years, ending at 41.27% in 2021. This stability indicates a consistent ability to manage the cost of goods sold relative to revenue, although the marginal decline in the final two years suggests a slight increase in production costs or a minor reduction in pricing power during the recovery phase.
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Operating Profit Margin
Illinois Tool Works Inc., operating profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Operating income | 3,477) | 2,882) | 3,402) | 3,584) | 3,494) | |
| Operating revenue | 14,455) | 12,574) | 14,109) | 14,768) | 14,314) | |
| Profitability Ratio | ||||||
| Operating profit margin1 | 24.05% | 22.92% | 24.11% | 24.27% | 24.41% | |
| Benchmarks | ||||||
| Operating Profit Margin, Competitors2 | ||||||
| Boeing Co. | -4.66% | — | — | — | — | |
| Caterpillar Inc. | 14.27% | — | — | — | — | |
| Eaton Corp. plc | 15.69% | — | — | — | — | |
| GE Aerospace | 8.58% | — | — | — | — | |
| Honeywell International Inc. | 18.03% | — | — | — | — | |
| Lockheed Martin Corp. | 13.61% | — | — | — | — | |
| RTX Corp. | 7.70% | — | — | — | — | |
| Operating Profit Margin, Sector | ||||||
| Capital Goods | 9.11% | — | — | — | — | |
| Operating Profit Margin, Industry | ||||||
| Industrials | 9.24% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Operating profit margin = 100 × Operating income ÷ Operating revenue
= 100 × 3,477 ÷ 14,455 = 24.05%
2 Click competitor name to see calculations.
The operating performance from 2017 to 2021 reflects a period of stability interrupted by a temporary contraction in 2020. Revenue and operating income trends are closely aligned, indicating a consistent relationship between top-line growth and operational profitability.
- Revenue and Income Volatility
- Operating revenue increased from US$ 14,314 million in 2017 to a peak of US$ 14,768 million in 2018, before experiencing a decline that culminated in a low of US$ 12,574 million in 2020. A subsequent recovery occurred in 2021, with revenue returning to US$ 14,455 million. Operating income followed a nearly identical trajectory, peaking at US$ 3,584 million in 2018 and falling to US$ 2,882 million in 2020 before rebounding to US$ 3,477 million in 2021.
- Operating Profit Margin Trends
- The operating profit margin remained stable for the majority of the period, starting at 24.41% in 2017 and experiencing a gradual decline to 24.11% by 2019. A more pronounced contraction was observed in 2020, where the margin fell to 22.92%. By 2021, the margin recovered to 24.05%, nearly returning to pre-2020 levels.
- Operational Efficiency and Resilience
- The consistency of the operating profit margin, which fluctuated by only 1.49 percentage points over five years, suggests a strong capacity for cost management. The recovery in 2021 indicates that operational efficiency was successfully restored following the downturn observed in the previous year.
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Net Profit Margin
Illinois Tool Works Inc., net profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,694) | 2,109) | 2,521) | 2,563) | 1,687) | |
| Operating revenue | 14,455) | 12,574) | 14,109) | 14,768) | 14,314) | |
| Profitability Ratio | ||||||
| Net profit margin1 | 18.64% | 16.77% | 17.87% | 17.36% | 11.79% | |
| Benchmarks | ||||||
| Net Profit Margin, Competitors2 | ||||||
| Boeing Co. | -6.75% | — | — | — | — | |
| Caterpillar Inc. | 13.47% | — | — | — | — | |
| Eaton Corp. plc | 10.92% | — | — | — | — | |
| GE Aerospace | -9.17% | — | — | — | — | |
| Honeywell International Inc. | 16.11% | — | — | — | — | |
| Lockheed Martin Corp. | 9.42% | — | — | — | — | |
| RTX Corp. | 6.00% | — | — | — | — | |
| Net Profit Margin, Sector | ||||||
| Capital Goods | 3.71% | — | — | — | — | |
| Net Profit Margin, Industry | ||||||
| Industrials | 5.85% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
Net profit margin = 100 × Net income ÷ Operating revenue
= 100 × 2,694 ÷ 14,455 = 18.64%
2 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a significant expansion in profitability and a strong recovery following a temporary downturn. The net profit margin exhibited a general upward trajectory, growing from 11.79% in 2017 to a peak of 18.64% in 2021.
- Net Profit Margin Evolution
- A substantial increase in the net profit margin is observed between 2017 and 2018, where the ratio rose from 11.79% to 17.36%. This growth remained relatively stable through 2019 at 17.87% before experiencing a marginal contraction to 16.77% in 2020. The period concluded with a record high margin of 18.64% in 2021, indicating enhanced bottom-line efficiency.
- Revenue and Income Correlation
- Between 2017 and 2018, net income grew at a rate significantly higher than operating revenue, suggesting a period of aggressive cost optimization or an improvement in product pricing power. In 2020, a decline in operating revenue to 12,574 million US$ coincided with a drop in net income to 2,109 million US$; however, the resilience of the net profit margin during this contraction highlights effective operational flexibility.
- Recovery and Peak Profitability
- The year 2021 marked a full recovery in operational scale, with operating revenue returning to 14,455 million US$. The simultaneous increase of net income to 2,694 million US$ resulted in the highest profit margin of the five-year period, reflecting a strengthened ability to convert sales into actual profit compared to the baseline established in 2017.
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Return on Equity (ROE)
Illinois Tool Works Inc., ROE calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,694) | 2,109) | 2,521) | 2,563) | 1,687) | |
| Stockholders’ equity attributable to ITW | 3,625) | 3,181) | 3,026) | 3,254) | 4,585) | |
| Profitability Ratio | ||||||
| ROE1 | 74.32% | 66.30% | 83.31% | 78.76% | 36.79% | |
| Benchmarks | ||||||
| ROE, Competitors2 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 39.37% | — | — | — | — | |
| Eaton Corp. plc | 13.06% | — | — | — | — | |
| GE Aerospace | -16.17% | — | — | — | — | |
| Honeywell International Inc. | 29.85% | — | — | — | — | |
| Lockheed Martin Corp. | 57.62% | — | — | — | — | |
| RTX Corp. | 5.29% | — | — | — | — | |
| ROE, Sector | ||||||
| Capital Goods | 8.48% | — | — | — | — | |
| ROE, Industry | ||||||
| Industrials | 15.38% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
ROE = 100 × Net income ÷ Stockholders’ equity attributable to ITW
= 100 × 2,694 ÷ 3,625 = 74.32%
2 Click competitor name to see calculations.
The financial performance between 2017 and 2021 is characterized by a significant expansion in profitability ratios, driven by a combination of rising net income and a strategic reduction in stockholders' equity.
- Net Income Trends
- Net income exhibited a general upward trajectory over the five-year period, rising from US$ 1,687 million in 2017 to a peak of US$ 2,694 million in 2021. A temporary contraction occurred in 2020, where earnings declined to US$ 2,109 million before recovering strongly in the subsequent year.
- Stockholders' Equity Evolution
- A notable reduction in stockholders' equity was observed between 2017 and 2019, dropping from US$ 4,585 million to US$ 3,026 million. Following this period of decline, equity began a gradual recovery, increasing to US$ 3,181 million in 2020 and reaching US$ 3,625 million by the end of 2021.
- Return on Equity (ROE) Analysis
- The ROE experienced a sharp increase from 36.79% in 2017 to a peak of 83.31% in 2019. This surge was primarily amplified by the concurrent decrease in the equity base. Although a decline to 66.30% was recorded in 2020, mirroring the dip in net income, the ratio rebounded to 74.32% in 2021. The consistently high ROE figures from 2018 onward indicate a high efficiency in generating profit relative to the shareholders' investment.
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Return on Assets (ROA)
Illinois Tool Works Inc., ROA calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income | 2,694) | 2,109) | 2,521) | 2,563) | 1,687) | |
| Total assets | 16,077) | 15,612) | 15,068) | 14,870) | 16,780) | |
| Profitability Ratio | ||||||
| ROA1 | 16.76% | 13.51% | 16.73% | 17.24% | 10.05% | |
| Benchmarks | ||||||
| ROA, Competitors2 | ||||||
| Boeing Co. | -3.03% | — | — | — | — | |
| Caterpillar Inc. | 7.84% | — | — | — | — | |
| Eaton Corp. plc | 6.30% | — | — | — | — | |
| GE Aerospace | -3.28% | — | — | — | — | |
| Honeywell International Inc. | 8.60% | — | — | — | — | |
| Lockheed Martin Corp. | 12.41% | — | — | — | — | |
| RTX Corp. | 2.39% | — | — | — | — | |
| ROA, Sector | ||||||
| Capital Goods | 1.86% | — | — | — | — | |
| ROA, Industry | ||||||
| Industrials | 3.40% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 2021 Calculation
ROA = 100 × Net income ÷ Total assets
= 100 × 2,694 ÷ 16,077 = 16.76%
2 Click competitor name to see calculations.
The financial performance from 2017 to 2021 demonstrates a general improvement in asset utilization and profitability. While net income and total assets experienced fluctuations, the return on assets remained significantly higher following 2017, indicating a positive shift in operational efficiency.
- Net Income Trends
- Net income grew substantially from US$ 1,687 million in 2017 to a peak of US$ 2,694 million in 2021. A notable contraction occurred in 2020, when net income decreased to US$ 2,109 million, before rebounding strongly in the following year.
- Asset Base Evolution
- Total assets decreased from US$ 16,780 million in 2017 to US$ 14,870 million in 2018. Following this reduction, the asset base grew steadily each year, reaching US$ 16,077 million by 2021, although it remained below the 2017 level throughout the analyzed period.
- Return on Assets (ROA) Performance
- A sharp increase in ROA is observed between 2017 and 2018, rising from 10.05% to 17.24%. This improvement was driven by the simultaneous increase in net income and the reduction of the asset base. The ratio experienced a moderate decline to 13.51% in 2020, correlating with the dip in net income, before recovering to 16.76% in 2021. This trajectory suggests that the company has maintained a higher level of efficiency in generating earnings from its assets compared to the 2017 baseline.
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