W.W. Grainger, Inc. is an industrial distributor of maintenance, repair and operating supplies that presents as a long-term compounding business with strong profitability and conservative balance sheet metrics (five-year EPS CAGR 14.54%, ROE 23.5%, current ratio 2.37, debt-to-equity 0.00).
The company’s clear strengths are sustained earnings and cash generation: diluted EPS recovered from $13.31 at 2020 year-end to $19.98 at 2021 year-end and $22.43 as of 2022-03-31, reflecting a five-year EPS CAGR of 14.54% and a three-year EPS CAGR of 5.87%. Shareholder equity per share is also compounding (book-value-per-share CAGR 19.77%). Operating cash flow has historically exceeded net income by a wide margin (operating cash / net income ratio 1.80x) and the most recent operating cash flow observations show $1.06B (period end 2017-12-31), supporting a strong interest coverage ratio of 10.04x and a net margin that has remained at 8.0%.
Notable areas of concern include margin compression and short-term earnings volatility. Gross margin has declined materially from 43.3% in 2014 to 36.2% in 2021 (a 7.1 percentage-point reduction) and operating margin has slipped to 11.9%, which narrows the company’s room for error on cost inflation. Quarterly net income also shows short-term swings — an $805M quarter at 2021-12-31 fell to $366M at 2022-03-31 — even as trailing twelve-month net income rose to $1.17B as of 2022-03-31. Financing cash flows jumped to much larger outflows in 2021, peaking at -$2.05B (2021-06-30) and sitting at -$1.37B (2021-09-30), a meaningful change from earlier years when financing outflows were typically -$600M to -$900M.
Recent P/E Ratio: 23.0x, down from 30.7x a year earlier.
The foundation of business quality and long-term value creation
W.W. GRAINGER, INC. demonstrates a multi-year upward trajectory in revenue, with quarterly totals moving from sub-$2.0B in 2010 to multi-billion dollar quarters in 2014 and even larger totals in 2021. Recent quarterly revenue figures include $3.08B (2021-03-31), $3.37B (2021-09-30), and a notable peak at $6.57B (2021-12-31), indicating a clear inflection point in the latest reported figures.
Net income has shown more variability but with higher absolute peaks in recent years. Earlier years typically saw quarterly net income around the low hundreds of millions, whereas later figures include $849.0M (2019-12-31), $695.0M (2020-12-31), and $805.0M (2021-12-31). The most recent reported net income was $366.0M at 2022-03-31.
Why Growth Matters
Consistent revenue and earnings growth are the lifeblood of successful long-term investments. Companies that can grow their top line (revenue) and bottom line (net income) over many years demonstrate they have products or services customers value and are willing to pay for repeatedly.
Revenue Growth shows whether the company is expanding its market reach, gaining market share, or successfully launching new products.Net Income Growth demonstrates the company can convert that revenue into actual profits while managing costs effectively.
Look for steady, sustainable growth rather than erratic spikes. The best businesses compound earnings year after year, creating tremendous value for shareholders over time. Companies that can grow earnings faster than revenue are improving their profitability—a sign of operational excellence and competitive strength.
Year-over-year growth rates for revenue and earnings per share
Reading the Growth Rate Chart
This chart converts the absolute per-share figures into year-over-year percentage changes, making it easy to see whether growth is accelerating, decelerating, or reverting to trend — regardless of the company's absolute size.
Revenue per Share Growth (1-year, split-adjusted) measures how quickly the top line is expanding on a per-share basis. Sustained positive growth signals that the company continues to win customers and grow its addressable market.EPS Diluted Growth (1-year, split-adjusted) measures how quickly earnings are compounding for each shareholder. When EPS growth consistently outpaces revenue growth, operating leverage and margin expansion are at work.
Look for consistency, not just magnitude. A company that reliably grows EPS 10–15% per year is far more valuable than one that alternates between 50% spikes and deep contractions. Negative EPS growth during a period of positive revenue growth is a red flag — costs are rising faster than sales. Quarters where both lines converge near zero or go negative deserve close scrutiny.
How revenue converts to net income for the most recent annual period
Over the period Jan 2021 to Dec 2021, Ww Grainger Inc converts approximately 36¢ of every revenue dollar into gross profit (gross margin: 36.2%).After accounting for operating expenses and taxes and expenses, the company retains 8.0% as net profit margin, resulting in $1.04B in net earnings.
Period Information
Report Type: Annual (10-K)
Period: Jan 2021 to Dec 2021
Analyzing long-term margin stability and competitive positioning
For the trailing twelve months ending 2021-12-31, W.W. GRAINGER, INC.’s profit margins show a notable contraction in gross margin and more modest movement in operating margin, while net margin is stable. Gross margin declined materially versus the earlier 2014 period; operating margin is modestly lower year-over-year; net profit margin remains at the same level as in 2014. The most recent data points therefore indicate reduced margin retention at the gross level with operating efficiency and final profitability showing smaller changes.
Comparing the two periods shown, gross margin fell from 43.3% (2014) to 36.2% (2021), a decline of 7.1 percentage points; operating margin moved from 13.5% to 11.9%, down 1.6 percentage points; net profit margin stayed at 8.0% in both periods. The latest observed values are: gross margin 36.2%, operating margin 11.9%, and net profit margin 8.0%.
Understanding Profit Margins
Between Jan 2021 and Dec 2021, Ww Grainger Inc converts every dollar of revenue through the following stages:
Sustainable competitive advantages reveal themselves through consistently superior profit margins over extended periods. Companies with durable economic moats maintain pricing power and operational efficiency that competitors struggle to match.
A sign of durable competitive advantage is earning sustained higher margins than competitors.Look for margins that remain stable or improve over time, especially during economic downturns. Declining margins may signal increasing competition, pricing pressure, or deteriorating business fundamentals.
Comparing reported earnings to actual cash generation
W.W. GRAINGER, INC.'s trailing twelve-month net income shows a clear upward move in the most recent quarters in the dataset, rising from $695.0M at period end 2020-12-31 to $1.04B at 2021-12-31 and then to $1.17B at 2022-03-31. Earlier TTM net income observations in the dataset include $585.7M at 2017-12-31 and amounts around $800M in 2014–2015, indicating the recent values are higher than several prior years contained here.
Operating cash flow (TTM) observations provided in the dataset are older than the most recent net income points; the latest operating cash flow entry shown is $1.06B at 2017-12-31, with prior entries of $1.00B at 2016-12-31 and $510.9M at 2010-12-31. The most recent Net Income (TTM) in the dataset is $1.17B (period end 2022-03-31). The most recent Operating Cash Flow (TTM) in the dataset is $1.06B (period end 2017-12-31).
The Earnings vs. Cash Flow Gap
Reported earnings (Net Income) doesn't always reflect actual cash generation. Companies use accrual accounting, which recognizes revenue when earned and expenses when incurred—not when cash actually changes hands. This creates timing differences and opportunities for accounting discretion that can mask underlying business health.
Net Income (the "earnings" number) can be influenced by non-cash items like depreciation, stock-based compensation, and changes in accounting estimates.Operating Cash Flow, however, shows the actual cash the business generates from its core operations—a harder number to manipulate.
Trailing Twelve Months
What to Look For
Key Insight: Companies with durable competitive advantages typically show operating cash flow that meets or exceeds net income over time, demonstrating they convert accounting profits into actual cash that can be returned to shareholders or reinvested in the business.
Measuring management's efficiency at generating profits from shareholder capital
W.W. GRAINGER, INC.'s trailing twelve-month return on equity rose to 23.5% for the period ending 2021-12-31, improving from 16.5% at the 2020 year-end. This recent increase moves ROE back toward the mid-to-high 20% range and closer to levels seen in the 2014–2017 period, when ROE generally ranged from about 25% to 34.7%.
The most recent quarterly ROE was 23.5%.
The Gold Standard of Profitability
Return on Equity (ROE) is a powerful measure of how effectively a company's management is using the money shareholders have invested. Calculated by dividing Net Income by Shareholders' Equity, it reveals how much profit is generated for every dollar of equity capital.
A consistently high ROE (typically above 15-20%) is often the signature of a "quality" business with a durable competitive advantage. It indicates that the company can generate high returns on its own capital, which it can then reinvest at these high rates to compound value over time.
What to Look For:
How the company generates and deploys its cash
W.W. GRAINGER, INC.'s financing cash flow (TTM) moved markedly more negative through early 2021, widening from -$726.0M at 2020-12-31 to -$1.93B at 2021-03-31 and peaking at -$2.05B at 2021-06-30, before partially retracing to -$1.37B by 2021-09-30. Earlier years in the dataset show financing outflows generally between roughly -$600M and -$900M, so the first half of 2021 represents a notable inflection toward larger financing outflows followed by a reduction in the latest quarter shown.
Investing cash flow (TTM) in the dataset is consistently negative and modest in magnitude relative to operating cash—ranging from about -$146M to -$262M in the mid/late 2010s, with the most recent investing TTM value recorded at -$179.0M (period end 2020-12-31).
Operating cash flow (TTM) entries in the provided data are limited to earlier years, showing $1.00B at 2016-12-31 and $1.06B at 2017-12-31. The most recent trailing twelve-month values in this dataset are: Operating Cash Flow TTM $1.06B (period end 2017-12-31); Investing Cash Flow TTM -$179.0M (period end 2020-12-31); Financing Cash Flow TTM -$1.37B (period end 2021-09-30).
Understanding Company Strategy
Capital allocation refers to how management decides to spend and invest the company's cash. Analyzing the three primary categories of cash flow reveals a company's true operational strategy:
What to look for: Is the company bootstrapping (funding growth solely from operating cash)? Are they borrowing to fund aggressive expansion or dividends? Or are they capital raising by issuing new shares, potentially diluting your ownership? A healthy, mature company typically generates strong operating cash, moderately invests in growth, and returns the surplus to shareholders through financing activities.
Trailing Twelve Months
Net assets attributable to each share — the accounting floor of intrinsic value
Why Book Value per Share Matters
Book value per share is the net worth of the company — total assets minus total liabilities — divided by shares outstanding (split-adjusted). It represents the theoretical liquidation value per share if every asset were sold and every liability repaid at balance-sheet carrying values. It is the accounting foundation upon which much of equity valuation is built.
A steadily rising book value per share is one of the most reliable signals of compounding wealth creation. It means the company is retaining earnings and building net worth faster than it is returning capital or eroding it. Warren Buffett famously tracked Berkshire Hathaway's book value per share for decades as his primary measure of intrinsic value growth.
Context is essential. Asset-heavy businesses (banks, manufacturers, utilities) should be judged by book value more directly than asset-light businesses (software, consumer brands), where intangible assets like intellectual property and customer loyalty may far exceed their balance-sheet carrying values. A company trading at a large premium to book value is not necessarily overvalued — it may simply possess competitive advantages that accounting rules do not capture. Conversely, a declining book value per share — especially over multiple years — is a serious warning sign of capital destruction.
How much of the company is financed by debt versus shareholders' equity
Reading the Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio compares total financial debt to shareholders' equity. A ratio of 1.0 means the company has borrowed one dollar for every dollar of equity; a ratio of 2.0 means it has borrowed twice as much as it owns. Financial leverage amplifies both returns and risk: in good times, debt turbocharges equity returns; in bad times, it accelerates losses and can threaten solvency.
Trends matter more than a single number. A rising D/E ratio can mean the company is taking on debt to fund growth — potentially value-creating if returns exceed the cost of capital. But it can also mean equity is being eroded through losses or that the business is borrowing simply to sustain operations. A falling D/E ratio generally reflects strengthening financial health: earnings are being retained, debt maturities are being paid down, or both.
Industry norms vary enormously. Capital-intensive sectors (utilities, real estate, financials) routinely carry high D/E ratios that would be alarming in, say, a technology company. Always compare against sector peers. As a rough rule of thumb, a D/E above 2× in a cyclical business warrants careful scrutiny of interest coverage and refinancing risk.
Short-term liquidity — can the company cover its near-term obligations?
Liquidity: Can the Business Pay Its Bills?
The current ratio is calculated as current assets divided by current liabilities. A ratio of 1.5 means the company has $1.50 of short-term assets — cash, receivables, inventory — for every $1.00 of obligations due within the next twelve months. It is the most direct measure of near-term financial resilience: can the business meet its obligations without needing to raise new capital or sell long-term assets at a discount?
A ratio above 1.0 is generally healthy, meaning current assets exceed current liabilities. A ratio consistently above 2.0 may indicate the company is holding excess cash or inventory that could be deployed more productively. A ratio below 1.0 is a warning sign — the company is relying on future cash generation or external financing to cover its near-term obligations, which is manageable in normal conditions but dangerous during a downturn.
Trends and context matter.A declining current ratio isn't always alarming — highly efficient businesses (e.g., large retailers with reliable daily cash flows) often run leaner balance sheets intentionally. Conversely, a rapidly rising current ratio can signal slowing sales causing inventory to build, or customers taking longer to pay. Always compare the trend against industry peers and cross-reference with the cash flow statement to assess whether the business is genuinely liquid or just holding non-cash current assets.
How much the market is paying for each dollar of company earnings
Over the most recent quarters W.W. GRAINGER, INC.'s trailing twelve-month P/E has contracted from a peak of 30.7x at 2020-12-31 to 25.9x at 2021-12-31 and further to 23.0x at 2022-03-31, indicating a downward movement in the company’s market valuation multiple in the past year. The decline since the 2020 high is the dominant near-term trend visible in the data.
Historically the P/E sat in a roughly 20–21x band across 2016–2019, with earlier readings lower (16x range in 2014–2015 and 14.1x in 2010). Notable inflection points are the elevated 30.7x reading at 2020-12-31 and the subsequent step-down through 2021 into early 2022. The most recent reported P/E ratio was 23.0x as of period end 2022-03-31.
What Is the PE Ratio?
The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics in investing. It divides the current stock price by the company's earnings per share (EPS), revealing how much investors are willing to pay for each dollar of earnings. A high PE can signal that the market expects strong future growth, while a low PE may suggest undervaluation—or reflect genuine concerns about the company's prospects.
Context matters:PE ratios vary significantly across industries. High-growth technology companies routinely trade at PE ratios above 30x or 40x, while mature, low-growth sectors like utilities or financials often trade closer to 10–15x. Always compare a company's PE to its own history and its industry peers, not just an absolute number.
What to Look For:
Key Insight:The PE ratio is a snapshot of market sentiment and expectations. Tracking it over time alongside earnings trends reveals whether the market's valuation has expanded or contracted—and whether that change is justified by fundamentals.