Monsanto Co. (NYSE:MON)

The analysis of economic profit from 2012 to 2017 reveals a consistent failure to generate value above the cost of capital. Economic profit remained negative throughout the entire six-year period, indicating that the net operating profit after taxes was insufficient to cover the imputed cost of the capital employed in the business.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited significant volatility over the analyzed period. An initial increase from 2,247 million USD in 2012 to a peak of 2,743 million USD in 2013 was followed by a gradual decline, reaching a period low of 1,816 million USD in 2016. A notable recovery occurred in 2017, with NOPAT rising to 2,582 million USD.

Invested Capital and Capital Efficiency

Invested capital showed a general upward trajectory for the first four years, growing from 14,553 million USD in 2012 to a peak of 18,327 million USD in 2015. A contraction occurred in 2016, where invested capital fell to 15,963 million USD, before stabilizing at 16,366 million USD in 2017. The increase in capital investment between 2012 and 2015 did not yield a proportional increase in NOPAT, contributing to the degradation of economic profit.

Cost of Capital Trends

The cost of capital remained relatively stable, fluctuating within a narrow range between 16.55% and 18.93%. A gradual decrease was observed from 2012 to 2015, reaching a minimum of 16.55%. However, this downward trend reversed slightly in 2016 and 2017, ending at 17.24%. Despite these slight reductions in the cost of capital, the threshold for achieving positive economic profit remained high.

Economic Profit Performance

Economic profit remained in negative territory for all reported years, signifying continuous value destruction. The deficit fluctuated, improving from -486 million USD in 2012 to -186 million USD in 2014. However, performance deteriorated sharply in 2015 and 2016, with the loss peaking at -833 million USD in 2016. This decline coincided with the period of highest invested capital and lowest NOPAT. A partial recovery was noted in 2017, with economic profit improving to -240 million USD.

The financial data reveals certain trends in profitability for the analyzed company over a six-year period ending August 31, 2017.

Net Income Attributable to the Company

Net income shows an overall fluctuating pattern across the years. It increased steadily from 2045 million US dollars in 2012 to a peak of 2740 million in 2014. Subsequently, it experienced a decline to 2314 million in 2015 and a more pronounced decrease to 1336 million in 2016, indicating a significant setback in profitability during that year. However, the net income rebounded sharply to 2260 million in 2017, signaling recovery but not reaching the earlier peak levels.

Net Operating Profit After Taxes (NOPAT)

NOPAT similarly experienced variations over the examined period. It rose from 2247 million USD in 2012 to 2743 million in 2013, before slightly declining to 2633 million in 2014. The value then decreased further to 2361 million in 2015 and took a more substantial fall to 1816 million in 2016. In 2017, NOPAT saw a notable recovery to 2582 million. This suggests operational efficiency or profitability challenges during 2015 and 2016 with improvement thereafter.

Overall, both net income and NOPAT indicate a peak generally around 2013-2014, followed by declines in 2015 and notably in 2016. The recovery in 2017 reflects a positive turnaround. The inconsistency observed in both metrics suggests volatility in profitability and operational performance during these years, highlighting a period of financial challenges mid-cycle with subsequent recovery efforts yielding results by the final year reported.

Income Tax Provision from Continuing Operations

The income tax provision from continuing operations exhibited a fluctuating trend over the six-year period. Starting at 901 million USD in 2012, a slight increase to 915 million USD was observed in 2013. This upward movement continued more notably in 2014, reaching a peak of 1,078 million USD. However, the subsequent years showed a declining pattern: it decreased to 864 million USD in 2015, further dropped to 695 million USD in 2016, and reached its lowest point at 626 million USD in 2017. Overall, despite an initial rise until 2014, the income tax provision has generally declined in the latter part of the timeframe.

Cash Operating Taxes

Cash operating taxes demonstrated more volatility relative to the income tax provision. Beginning at 708 million USD in 2012, there was a steady increase to 821 million USD in 2013, followed by a substantial spike to 1,179 million USD in 2014. The upward trend continued into 2015, peaking at 1,272 million USD. However, unlike income tax provision, cash operating taxes experienced a sharp decrease in 2016, falling to 801 million USD, and then a further decline to 719 million USD by 2017. Despite the fluctuations, the values at the end of the period remained higher than the initial 2012 figures.

Comparative Observations

Both income tax provision and cash operating taxes display a pattern of increasing values through the early years, reaching peaks around 2014 or 2015, followed by a notable decline in the last two years. The cash operating taxes showed more pronounced increases and decreases compared to the income tax provision, suggesting greater variability in actual tax cash outflows relative to the accounting provisions. The consistent decline in both items after 2015 might indicate changes in tax strategy, operational performance, or tax regulations affecting the company's tax liabilities.

The financial data reveals several important trends and shifts over the six-year period ending August 31, 2017.

Total reported debt & leases

This metric shows a notable increase from 2012 through 2015, rising sharply from approximately $2.4 billion to $9.5 billion. The peak occurs in 2015 with a slight decline thereafter, dropping to $8.6 billion by 2017. This suggests a significant increase in leverage or borrowing activities during the mid-period, followed by some reduction in debt levels.

Total Monsanto Company shareowners’ equity

Shareowners’ equity exhibits a declining trend over the years. Starting at about $11.8 billion in 2012, equity increases slightly in 2013 but then declines steadily to a low of $4.5 billion in 2016. A partial recovery to $6.4 billion in 2017 is observed. This decreasing equity position alongside rising debt levels in the earlier years indicates possible financial restructuring or share buybacks impacting the equity base.

Invested capital

Invested capital shows a general upward trend from 2012 through 2015, rising from approximately $14.6 billion to $18.3 billion before declining to around $16.0 billion in 2016. A slight increase to $16.4 billion in 2017 occurs. The growth in invested capital up to 2015 parallels the increases in both debt and equity during that period, suggesting expansion or acquisition initiatives. The subsequent decrease and stabilization may reflect a period of consolidation or reevaluation of capital investment.

Overall, the data suggest that the company experienced increased leverage with a peak in debt around 2015, accompanied by declining shareholders’ equity after 2013. Despite fluctuations, invested capital remained relatively high, implying continued commitment to the company's operational base or growth efforts. The partial recovery in equity and reduction in debt post-2015 could indicate a strategic shift towards strengthening the balance sheet and deleveraging.

The financial performance from 2012 to 2017 is characterized by a consistent inability to generate economic value, as evidenced by negative economic profits and a negative economic spread ratio throughout the entire period. This indicates that the return on invested capital remained below the company's cost of capital for six consecutive years.

Economic Profit Trends

Economic profit remained negative for the duration of the analyzed period. A moderate recovery was observed between 2012 and 2014, with losses narrowing from -486 million USD to -186 million USD. However, this trend reversed sharply in 2015 and 2016, reaching a peak deficit of -833 million USD in 2016. A significant recovery occurred in 2017, with the economic profit improving to -240 million USD.

Invested Capital Dynamics

Invested capital exhibited a general growth trend from 2012 to 2015, increasing from 14,553 million USD to a peak of 18,327 million USD. A notable reduction occurred in 2016, where capital decreased to 15,963 million USD, followed by a slight increase to 16,366 million USD in 2017. The expansion of the capital base up to 2015 did not correlate with an increase in economic profit, suggesting inefficient capital deployment during that phase.

Economic Spread Ratio Analysis

The economic spread ratio remained negative throughout the period, confirming persistent value destruction. The ratio showed initial improvement from -3.34% in 2012 to -1.14% in 2014. A severe deterioration followed, with the ratio dropping to -3.67% in 2015 and reaching its lowest point of -5.22% in 2016. By 2017, the ratio recovered to -1.47%, aligning with the improvement seen in the overall economic profit.

The correlation between the economic spread ratio and economic profit is absolute, with both metrics reaching their most unfavorable levels in 2016. The data suggests a volatile period of value erosion, where attempts to increase invested capital between 2012 and 2015 failed to translate into positive economic spreads.

The financial performance between August 31, 2012, and August 31, 2017, is characterized by a consistent failure to generate positive economic value. Throughout the entire six-year period, economic profit remained negative, indicating that the company's net operating profit after tax was insufficient to cover its cost of capital.

Economic Profit Trends

A period of initial improvement was observed from 2012 to 2014, as economic profit moved from -486 million USD to -186 million USD. However, this trend reversed sharply in 2015 and 2016, with losses widening to -672 million USD and -833 million USD, respectively. A significant recovery occurred by August 31, 2017, with economic profit returning to -240 million USD.

Economic Profit Margin Volatility

The economic profit margin mirrored the trajectory of the absolute economic profit. The margin improved from -3.62% in 2012 to a period peak of -1.18% in 2014. A severe deterioration followed, reaching a nadir of -6.08% in 2016, before rebounding to -1.61% in 2017.

Relationship Between Sales and Economic Value

Adjusted net sales exhibited fluctuations without a direct linear correlation to economic profit improvements. While sales reached a peak of 15,685 million USD in 2014—coinciding with the strongest economic profit margin—the subsequent decline in sales to 13,688 million USD in 2016 aligned with the most significant erosion of economic value. The recovery in 2017 was supported by an increase in adjusted net sales to 14,878 million USD.