Charter Communications Inc. (NASDAQ:CHTR)

The financial performance, as measured by economic profit, indicates a consistent shortfall relative to the cost of capital over the five-year period. While net operating profit after taxes (NOPAT) demonstrates fluctuation, it has not been sufficient to generate a positive economic profit.

NOPAT Trend

Net operating profit after taxes increased from US$7,242 million in 2020 to US$9,333 million in 2021, representing a substantial gain. This was followed by a further increase to US$9,688 million in 2022. A slight decrease to US$9,377 million occurred in 2023, before recovering to US$9,837 million in 2024. Despite these fluctuations, NOPAT remained relatively stable overall.

Cost of Capital Trend

The cost of capital exhibited a consistent downward trend, decreasing from 12.21% in 2020 to 9.18% in 2023. A minor increase to 9.48% was observed in 2024. This suggests improving capital market conditions or changes in the company’s risk profile over the period.

Invested Capital Trend

Invested capital remained relatively stable between 2020 and 2022, fluctuating around US$131 million. A noticeable increase to US$134,069 million occurred in 2023, followed by a further increase to US$136,388 million in 2024. This indicates ongoing investment in the business.

Economic Profit Trend

Economic profit remained negative throughout the observed period, ranging from -US$9,012 million in 2020 to -US$2,934 million in 2023. While the negative economic profit decreased year-over-year from 2020 to 2023, it increased slightly to -US$3,089 million in 2024. This suggests that, despite improvements in NOPAT and a declining cost of capital, the returns generated are still insufficient to cover the cost of invested capital.

The narrowing of the economic loss from 2020 to 2023 is a positive sign, but the continued negative economic profit in 2024 indicates a need for further improvement in profitability or more efficient capital allocation to generate returns exceeding the cost of capital.

Net Income Attributable to Charter Shareholders

The net income attributable to Charter shareholders exhibited an overall upward trend from 2020 to 2024. Starting at 3,222 million USD in 2020, it increased significantly to 4,654 million USD in 2021, representing a marked improvement. The upward momentum continued into 2022, reaching 5,055 million USD, the highest observed within the period. However, in 2023, net income experienced a decline to 4,557 million USD, indicating a temporary setback or potential challenges faced during that year. This decline was followed by a recovery in 2024, with net income rising again to 5,083 million USD, surpassing the previous peak in 2022. The pattern reflects generally positive profitability with some short-term volatility.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes also demonstrated consistent growth over the analyzed period. NOPAT rose from 7,242 million USD in 2020 to 9,333 million USD in 2021, showing a strong operational improvement. This growth trend continued, albeit at a slower pace, reaching 9,688 million USD in 2022. In 2023, there was a slight decrease to 9,377 million USD, which mirrors the decline seen in net income for the same year, suggesting a possible operational impact affecting profitability. However, in 2024, NOPAT recovered to 9,837 million USD, the highest level in the period, indicating strengthened operational efficiency or profitability drivers.

Summary Insight

The data indicate robust and generally increasing profitability over the five-year span, with both net income and NOPAT peaking in 2024. The dip in both metrics in 2023 represents a point of concern, potentially due to external or internal factors affecting performance that year. The rebound in 2024 suggests effective management responses or favorable conditions restoring profitability. The consistent gap between NOPAT and net income reflects the differing nature of these metrics, with NOPAT generally showing higher figures due to its focus on operating profitability, excluding non-operating items and tax effects.

Income Tax Expense

The income tax expense shows a consistent upward trend over the five-year period. Starting at 626 million USD in 2020, it rises significantly to 1068 million USD in 2021. This increasing pattern continues, reaching 1613 million USD in 2022, with a slight stabilization around 1593 million USD in 2023, and again increasing to 1649 million USD in 2024. The overall growth in income tax expense indicates increasing taxable income or possible changes in tax rates or policies affecting the company.

Cash Operating Taxes

Cash operating taxes exhibit a marked increase over the period under review. The amount grows from 980 million USD in 2020 to 1100 million USD in 2021, displaying a moderate increase. However, a sharp rise is observed in 2022, with cash operating taxes more than doubling to 2493 million USD. This upward trajectory continues to 2776 million USD in 2023 and further to 2849 million USD in 2024. This pronounced growth suggests increased cash outflows for tax payments, potentially stemming from higher operating profits or changes in cash tax obligations.

Comparative Observations

Both income tax expense and cash operating taxes demonstrate a growing tax burden over the five years. Notably, cash operating taxes increase at a steeper rate compared to income tax expense, especially from 2021 onward. This divergence might imply timing differences between tax accruals and cash payments, or variations in tax planning strategies and deferred tax calculations. The steady rise in both indicators points to an expanding scale of operations or profitability, resulting in higher tax liabilities.

Total Reported Debt & Leases

The total reported debt and leases showed a steady increase from 84,097 million USD at the end of 2020 to a peak of 99,620 million USD at the end of 2023. In 2024, there was a slight decrease to 97,176 million USD. This pattern indicates an overall growth in leverage over the period, with a marginal reduction in the most recent year.

Total Charter Shareholders’ Equity

The shareholders’ equity declined sharply from 23,805 million USD at the end of 2020 to 9,119 million USD by the end of 2022, representing a significant erosion of equity value during this timeframe. However, in 2023 and 2024, equity showed signs of recovery, increasing to 11,086 million USD and then to 15,587 million USD respectively. This rebound suggests some stabilization and potential rebuilding of the equity base after a period of losses or distributions.

Invested Capital

The invested capital remained relatively stable over the five-year period, beginning at 133,151 million USD in 2020 and gradually increasing to 136,388 million USD by the end of 2024. The slight upward trend indicates steady investment levels or capital deployment, with no major fluctuations.

Summary of Financial Trends

The data reflects a company operating with high financial leverage, as evidenced by the substantial debt levels sustained throughout the period. The significant reduction in shareholders’ equity through 2022 may indicate challenges such as net losses, asset impairments, or substantial distributions during those years. The partial recovery of equity in the latter years points to improved financial performance or capital restructuring efforts. Meanwhile, the invested capital’s stability suggests consistent capital investment without significant expansion or contraction in asset base. The combination of these trends may imply a focus on managing leverage risks while attempting to restore shareholder value.

The economic spread ratio demonstrates a consistent, albeit decelerating, negative trend over the five-year period. While remaining negative throughout, the ratio exhibits improvement year-over-year from 2020 to 2022, followed by stabilization and a slight worsening in the most recent two years.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, began at -6.77 in 2020. It improved to -4.25 in 2021 and further to -2.80 in 2022, indicating a diminishing gap between the return on invested capital and the cost of that capital. However, this improvement plateaued, with the ratio reaching -2.19 in 2023 and slightly declining to -2.26 in 2024. This suggests that while the company is becoming more efficient at generating returns, those returns are still insufficient to cover the cost of capital.

Economic profit, the numerator in the economic spread ratio calculation, also shows a pattern of decreasing negative values. This aligns with the improving economic spread ratio from 2020 to 2022. The negative economic profit values, ranging from approximately -9 billion to -3 billion US dollars, indicate that the company’s returns are not exceeding its cost of capital in any of the observed years.

Invested Capital

Invested capital remained relatively stable throughout the period, fluctuating between 130.9 billion and 136.4 billion US dollars. The modest increase in invested capital from 2021 to 2024, coupled with the stabilization of the economic spread ratio in the latter years, suggests that incremental investments are not significantly improving the company’s ability to generate returns above its cost of capital.

The convergence of these trends suggests a consistent underlying challenge in generating sufficient returns on invested capital. While the company has made progress in reducing its economic loss, it has not yet achieved a position where it generates economic profit.

The economic profit margin exhibited a consistent, though decelerating, improvement from 2020 to 2023, followed by a slight deterioration in 2024. While remaining negative throughout the observed period, the magnitude of the loss decreased before stabilizing. This suggests a trend toward improved capital efficiency, but continued underperformance relative to the cost of capital.

Economic Profit Margin

The economic profit margin demonstrated a clear upward trend from -18.75% in 2020 to -5.37% in 2023. This indicates that the company’s profitability, relative to its capital costs, improved significantly over these years. However, in 2024, the margin slightly worsened to -5.61%, suggesting a potential pause or reversal in this positive trend. The rate of improvement slowed considerably between 2022 and 2023, and the 2024 result indicates a possible stabilization of the margin at a negative level.

Adjusted revenues increased steadily throughout the period, from US$48,074 million in 2020 to US$55,032 million in 2024. This revenue growth occurred concurrently with the improvement in the economic profit margin, suggesting that increased sales contributed to the enhanced, though still negative, economic profitability. However, the slight decline in economic profit margin in 2024, despite continued revenue growth, implies that the cost of capital may be increasing or that operational efficiencies did not keep pace with revenue expansion.

Economic Profit

Economic profit, while consistently negative, showed a decreasing absolute value from -US$9,012 million in 2020 to -US$2,934 million in 2023. This mirrors the improvement in the economic profit margin. The increase to -US$3,089 million in 2024 suggests that the gains made in prior years were partially offset, and the company’s absolute economic loss increased slightly.

In summary, the period reveals a trajectory of improving economic profitability, but the company continues to destroy economic value. The stabilization of the economic profit margin at a negative level in 2024 warrants further investigation to determine the underlying causes and potential strategies for achieving positive economic profit.