Paramount Global (NASDAQ:PARA)

Over the analyzed period, the net operating profit after taxes (NOPAT) displayed fluctuations with noticeable volatility. Starting at 2,342 million USD in 2018, NOPAT rose substantially to 3,590 million USD in 2019 and continued a moderate increase to 3,726 million USD in 2020. A significant peak occurred in 2021 with NOPAT reaching 5,241 million USD, followed by a sharp decline to 1,431 million USD in 2022.

The cost of capital fluctuated moderately throughout the same timeframe. It started at 14.05% in 2018, dropped to a low of 10.88% in 2019, and then rose again to 13.83% in 2020. The cost of capital stabilized at around 12.02% for the years 2021 and 2022.

Invested capital experienced a dramatic increase from 15,419 million USD in 2018 to 37,244 million USD in 2019, marking a significant expansion. This upward trend continued, albeit at a slower pace, reaching 41,069 million USD in 2020 and 45,938 million USD in 2021. In 2022, invested capital decreased slightly to 44,287 million USD.

Analysis of economic profit reveals persistent negative performance for most years, except for a minor positive figure in 2018. Economic profit was 175 million USD in 2018 but turned negative in 2019 at -462 million USD, deepening further to -1,955 million USD in 2020. Although there was a slight improvement to -279 million USD in 2021, the economic profit declined sharply again to -3,892 million USD in 2022.

Key Observations:

The overall trend suggests that while NOPAT showed growth until 2021 followed by a steep decline in 2022, the company considerably increased its invested capital, especially between 2018 and 2019. However, the persistent negative economic profit in most years indicates the returns did not sufficiently exceed the cost of capital, pointing toward value erosion. The cost of capital showed some volatility but tended to stabilize in the latter years. The sharp drop in economic profit in 2022 despite substantial NOPAT underlines concerns regarding efficiency in capital deployment and possible increased capital costs or diminished profitability.

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.

Economic Profit

The economic profit exhibits significant volatility and an overall declining trend over the analyzed period. Starting positively at 175 million US dollars in 2018, it turned negative in 2019 at -462 million and worsened considerably to -1955 million in 2020. Although there was a relative improvement in 2021 with a loss reduced to -279 million, the economic profit sharply deteriorated again in 2022, reaching a substantial deficit of -3892 million. This pattern suggests deteriorating profitability and value destruction in the more recent years.

Invested Capital

Invested capital shows a consistent upward trend from 2018 to 2021, rising from 15,419 million US dollars to 45,938 million US dollars. However, in 2022 there is a slight decrease to 44,287 million US dollars. The substantial increase in invested capital over the first four years indicates significant asset growth or reinvestment. The marginal reduction in 2022 might point to divestitures, asset impairments, or reevaluation of capital requirements.

Economic Spread Ratio

The economic spread ratio, representing the difference between return on invested capital and cost of capital, shows a declining and mostly negative trend. It started at a positive 1.14% in 2018 but fell to -1.24% in 2019 and further plummeted to -4.76% in 2020. Although there was some recovery in 2021 (-0.61%), the economic spread ratio declined sharply to -8.79% in 2022. Negative values over multiple years indicate that the company was earning returns below its cost of capital, implying value erosion and inefficiency in capital utilization.

Overall Analysis

The financial data reveal a downward trajectory in economic profitability and economic spread ratio despite growth in invested capital until 2021. The trend of increasing invested capital accompanied by negative economic profits and spreads suggests that incremental investments have not generated sufficient returns to cover the cost of capital. The significant negative economic profit and spread in 2022 particularly underscore challenges in value creation and operational effectiveness. These trends warrant close examination of capital allocation strategies, operational performance, and potential external impacts affecting profitability.

Adjusted Revenues Trend

The adjusted revenues have generally increased over the reported period, starting from $14,504 million at the end of 2018 and nearly doubling to $27,977 million by the end of 2019. However, a decline was observed in 2020, dropping to $25,497 million, likely reflecting an adverse external impact during that year. Subsequently, the revenues recovered and grew steadily in 2021 and 2022, reaching $30,014 million, the highest value in the series.

Economic Profit Trend

The economic profit shows a significant deterioration over the analyzed years. In 2018, it was positive at $175 million but turned negative in 2019, registering a loss of $462 million. This negative trend worsened substantially in 2020, with a deeper loss of $1,955 million. Although there was an improvement in 2021 with the loss narrowing to $279 million, the economic profit decreased again sharply in 2022, recording the largest negative value of $3,892 million during the period.

Economic Profit Margin Trend

The economic profit margin closely follows the pattern of economic profit, starting positive at 1.21% in 2018 and turning negative in 2019 with a margin of -1.65%. This negative margin further deteriorated in 2020, reaching -7.67%. A partial recovery occurred in 2021, improving the margin to -0.97%. Despite the recovery, 2022 saw a substantial decline in margin results, dropping to -12.97%, indicative of growing inefficiencies or rising costs against revenues.

Overall Observations

While adjusted revenues display a generally increasing trajectory, economic profit and its associated margin depict a contrasting declining profitability trend. The company has faced increasing economic losses since 2019, suggesting challenges in managing costs, operational efficiencies, or other financial factors that have negatively affected profitability despite revenue growth. The substantial negative economic profit and margin in 2022 highlight increased financial strain that may require strategic attention to reverse the downward performance in profitability.