Paramount Global (NASDAQ:PARA)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes exhibited an initial increase, followed by a substantial decline. Invested capital generally increased over the period, though with a slight decrease in the most recent year. The cost of capital remained relatively stable, with some variation. These factors combined to produce a volatile pattern in economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$2,342 million in 2018 to US$3,590 million in 2019, representing a substantial gain. It continued to rise modestly to US$3,726 million in 2020. A significant increase was then observed in 2021, reaching US$5,241 million. However, NOPAT experienced a dramatic decrease in 2022, falling to US$1,431 million. This represents the largest single-year decline in the observed period.

Cost of Capital

The cost of capital began at 14.26% in 2018, decreased to 11.02% in 2019, and then rose to 14.03% in 2020. It subsequently decreased to 12.18% in 2021 and remained constant at 12.18% in 2022. The fluctuations suggest some sensitivity to market conditions, but overall remained within a relatively narrow range.

Invested Capital

Invested capital increased significantly from US$15,419 million in 2018 to US$37,244 million in 2019. Further increases were observed in 2020 (US$41,069 million) and 2021 (US$45,938 million). In 2022, invested capital decreased slightly to US$44,287 million, indicating a potential stabilization or minor reduction in capital deployment.

Economic Profit

Economic profit was positive in 2018 at US$144 million. However, it turned negative in 2019, reaching -US$515 million. The negative trend continued, with economic profit declining to -US$2,037 million in 2020. While improving slightly to -US$354 million in 2021, economic profit experienced a substantial deterioration in 2022, reaching -US$3,963 million. This indicates a growing disparity between returns generated and the cost of capital employed.

The decline in economic profit, particularly in 2022, appears to be driven primarily by the significant reduction in NOPAT, despite a relatively stable cost of capital and only a slight decrease in invested capital. The earlier increases in invested capital did not translate into commensurate increases in profitability, contributing to the negative economic profit observed in several years.

Net Earnings Attributable to Paramount

The net earnings displayed fluctuations over the observed period. Starting at 1,960 million US$ in 2018, the earnings increased significantly to 3,308 million US$ in 2019. In 2020, there was a decline to 2,422 million US$, followed by a marked recovery in 2021 reaching 4,543 million US$. However, by the end of 2022, net earnings experienced a sharp decrease to 1,104 million US$.

Net Operating Profit After Taxes (NOPAT)

The NOPAT trend showed consistent growth from 2018 through 2021. Beginning at 2,342 million US$ in 2018, it rose steadily to 3,590 million US$ in 2019 and 3,726 million US$ in 2020, before peaking at 5,241 million US$ in 2021. In 2022, NOPAT declined significantly to 1,431 million US$.

Overall Financial Performance Trend

Both net earnings and NOPAT illustrate overall growth periods until 2021, suggesting improved operational efficiency and profitability. The substantial decrease in both indicators in 2022 could reflect adverse conditions impacting profitability, warranting further investigation into underlying causes during this period.

Provision (benefit) for income taxes

The provision for income taxes exhibited significant volatility over the observed period. In 2018, the provision was a positive amount of 273 million USD, which then notably shifted to a benefit (negative provision) of 9 million USD in 2019. This reversal indicates that the company likely recorded a tax credit or adjustment during that year. Subsequently, in 2020, the provision sharply increased to 535 million USD, followed by a further increase to 646 million USD in 2021. However, in 2022, the provision decreased substantially to 227 million USD, yet remained positive. These fluctuations suggest variations in taxable income, tax strategies, or changes in tax regulations impacting the company’s effective tax expense year over year.

Cash operating taxes

Cash operating taxes showed a rising trend from 2018 to 2019, increasing markedly from 322 million USD to 967 million USD, which reflects a substantial increase in cash taxes paid or payable. In 2020, this figure declined significantly to 633 million USD and then rose again to 766 million USD in 2021. The amount decreased once more in 2022 to 519 million USD. Despite the fluctuations, cash operating taxes remained considerably higher than the 2018 level throughout the remaining years, indicating sustained elevated tax payments on an operational cash basis despite some volatility.

Overall Tax Trends

The disparity between the provision for income taxes and cash operating taxes suggests possible timing differences, tax deferrals, or differences between book and taxable income recognition. The volatility in the provision for income taxes compared to the somewhat elevated but fluctuating cash operating taxes indicates complex tax positions and possibly varying tax credits or adjustments over the years. The data reflects an environment of changing tax expenses and cash outflows related to taxes, which should be monitored further for underlying causes such as changes in profitability, tax law, or tax planning initiatives.

The financial data reveals significant shifts in the company's capital structure and financial position over the five-year period ending December 31, 2022.

Total Reported Debt & Leases

The total reported debt and leases initially increased sharply from $11,083 million in 2018 to a peak of $21,622 million in 2020. After this peak, a downward trend is evident, as the figure declined to $19,632 million in 2021 and further to $17,566 million in 2022. This suggests a partial deleveraging strategy following a period of increasing debt levels.

Total Paramount Stockholders’ Equity

Stockholders' equity exhibited a marked rise throughout the timeframe. It grew substantially from $2,804 million in 2018 to $13,207 million in 2019, followed by a steady increase each year, reaching $23,036 million by 2022. This consistent equity growth indicates strengthening capitalization and possibly improved retained earnings or equity infusions over the period.

Invested Capital

Invested capital expanded dramatically from $15,419 million in 2018 to $41,069 million in 2020, continuing upward to a peak of $45,938 million in 2021 before slightly decreasing to $44,287 million in 2022. The general upward trend reflects substantial investment in assets or operational scaling, with a minor contraction in the final year.

In summary, the company significantly increased its equity base and invested capital over the five years, alongside an initial expansion and subsequent reduction in debt levels. The reduction in debt combined with rising equity suggests improved financial stability and potentially enhanced capacity for future investment or debt management.

The economic spread ratio demonstrates a consistently declining trend over the observed period. Initially positive, the ratio transitions to negative values and exhibits increasing negativity through the end of the period. This suggests a worsening trend in the company’s ability to generate returns exceeding its cost of capital.

Economic Spread Ratio

In 2018, the economic spread ratio stood at 0.93%, indicating that the company generated returns exceeding its cost of capital. However, this positive spread diminished significantly in 2019, becoming negative at -1.38%.

The decline continued into 2020, with the ratio reaching -4.96%, representing a substantial deterioration in performance relative to the cost of capital. A slight improvement was noted in 2021, with the ratio moving to -0.77%, though it remained negative.

The most significant decline occurred in 2022, where the economic spread ratio plummeted to -8.95%. This represents the largest negative spread observed during the period, indicating a considerable shortfall in returns compared to the cost of invested capital.

Economic profit mirrors the trend in the economic spread ratio. Starting with a profit of US$144 million in 2018, it quickly became negative, reaching -US$2,037 million in 2020. While the negative economic profit lessened in 2021 to -US$354 million, it worsened considerably in 2022 to -US$3,963 million.

Invested Capital

Invested capital increased substantially from US$15,419 million in 2018 to US$37,244 million in 2019, and continued to grow to US$41,069 million in 2020 and US$45,938 million in 2021. A slight decrease was observed in 2022, with invested capital falling to US$44,287 million. The increasing invested capital, coupled with declining economic profit, likely contributed to the worsening economic spread ratio.

The consistent decline in the economic spread ratio, alongside the increasing negative economic profit, suggests a growing divergence between the returns generated by the company and the cost of its invested capital. The increase in invested capital without a corresponding improvement in economic profit further exacerbates this trend.

The economic profit margin demonstrates a consistently declining trend over the observed five-year period. Initially positive, the margin transitioned to negative values and experienced increasing negativity throughout the timeframe.

Economic Profit Margin

In 2018, the economic profit margin stood at 0.99%. This indicates that for every dollar of revenue, the company generated approximately nine-tenths of a cent in economic profit. However, this margin decreased substantially to -1.84% in 2019, signifying a shift to economic loss.

The decline continued into 2020, with the economic profit margin reaching -7.99%, representing a significant deterioration in profitability. A slight improvement was noted in 2021, with the margin moderating to -1.23%, though remaining negative.

The most substantial decrease occurred between 2021 and 2022, as the economic profit margin plummeted to -13.20%. This represents a considerable economic loss, with the company losing approximately 13.2 cents for every dollar of revenue generated.

The movement in economic profit directly correlates with the economic profit margin. Positive economic profit in 2018 supported the positive margin, while subsequent negative economic profit values drove the margin into negative territory and exacerbated its decline. Adjusted revenues show fluctuation but do not offset the negative economic profit trend.

The consistently worsening economic profit margin suggests a growing disparity between the company’s cost of capital and the returns generated from its operations. The increasing magnitude of the negative margin indicates that the company is progressively destroying economic value.