Twenty-First Century Fox Inc. (NASDAQ:FOX)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibits volatility, while the cost of capital generally decreases before increasing again in the final year. Invested capital shows a generally increasing trend, though not consistently. These factors combine to produce a pattern of alternating positive and negative economic profit values.

Economic Profit Trend

Economic profit is positive in fiscal year 2013 and 2015, reaching US$547 million and US$2,425 million respectively. However, it is negative in 2014, 2016, 2017, and 2018, with the largest negative value of US$-3,320 million occurring in 2014. The negative economic profit in 2018, at US$-3,243 million, represents a continuation of the downward trend observed in the latter part of the period.

NOPAT Performance

NOPAT peaked in 2015 at US$9,417 million, a substantial increase from the prior year. However, it experienced significant declines in 2014 and 2016, falling to US$4,517 million and US$4,025 million respectively. While NOPAT recovered somewhat in 2017 and 2018, it did not return to the levels seen in 2013 or 2015.

Cost of Capital Changes

The cost of capital decreased from 16.54% in 2013 to 14.71% in 2016, suggesting improving financing conditions or reduced risk perception. However, it increased to 16.74% in 2018, potentially reflecting rising interest rates or increased perceived risk. This increase in the cost of capital coincides with continued negative economic profit.

Invested Capital Evolution

Invested capital generally increased over the period, rising from US$44,434 million in 2013 to US$47,272 million in 2018. The largest increase occurred between 2013 and 2014. A slight decrease is observed between 2015 and 2016. The increasing invested capital base, coupled with fluctuating NOPAT and a rising cost of capital, contributes to the observed economic profit pattern.

The interplay between NOPAT, cost of capital, and invested capital suggests that while the company has been increasing its investment base, it has struggled to generate returns exceeding its cost of capital in most years. The increasing cost of capital in the final year further exacerbates this issue, leading to a continued decline in economic profit.

Net Income Attributable to Stockholders

The net income showed notable fluctuations over the analyzed periods. It started at 7,097 million USD in 2013, then declined significantly to 4,514 million USD in 2014. In 2015, there was a strong rebound with net income increasing to 8,306 million USD, marking the highest value in the timeframe. Afterward, net income dropped sharply to 2,755 million USD in 2016 and remained relatively low in 2017, with a slight increase to 2,952 million USD. In 2018, net income rose again to 4,464 million USD, indicating partial recovery but still below the earlier peak.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes demonstrated a pattern similar to net income but with somewhat less pronounced variation. Starting at 7,896 million USD in 2013, it decreased substantially to 4,517 million USD in 2014. NOPAT peaked at 9,417 million USD in 2015, exceeding the initial period's value. Following this peak, it declined sharply to 4,025 million USD in 2016. The next two years showed moderate growth, with NOPAT increasing to 4,273 million USD in 2017 and 4,669 million USD in 2018.

Overall Trend Analysis

Both net income and NOPAT experienced significant volatility throughout the six years. The years 2014 and 2016 are characterized by marked downturns in profitability metrics. The year 2015 stands out as a peak period for both measures, reflecting a temporary strong financial performance. After 2016, there is evidence of gradual operational improvement through 2018, though neither net income nor NOPAT returned to their earlier peak levels by the end of the period. The data suggests a cycle of recovery following considerable profit contractions, warranting further examination of underlying causes during downturn years.

Provision for income taxes from continuing operations

The provision for income taxes generally declined from 2013 to 2016, starting at 1,690 million US dollars in 2013 and decreasing steadily to 1,130 million in 2016. In 2017, there was a notable increase to 1,419 million, followed by a significant drop to a negative figure of -364 million in 2018, which may indicate a tax benefit or a reversal of previous tax provisions.

Cash operating taxes

Cash operating taxes fluctuated over the period. Beginning at 1,612 million US dollars in 2013, the figure increased to 1,707 million in 2014, then decreased to 1,504 million in 2015. A more marked decline occurred in 2016 with taxes dropping to 1,095 million. Subsequently, there was a sharp rise to 1,781 million in 2017 before falling significantly to 904 million in 2018. The fluctuations suggest variability in cash tax payments potentially linked to changing profitability or tax planning strategies.

Total reported debt & leases

The total reported debt and leases displayed fluctuations over the six-year period. Starting at $19,912 million in 2013, the debt increased to a peak of $22,748 million in 2014. Following this peak, there was a general decline in debt, descending to $20,609 million in 2015 and remaining relatively stable through 2016 and 2017, with slight increases and decreases respectively. By 2018, the debt had further decreased to $21,076 million. Overall, the debt levels demonstrate initial growth followed by a slight reduction and stabilization trend.

Total Twenty-First Century Fox, Inc. stockholders’ equity

Stockholders' equity showed an overall increasing trend despite some variability. Beginning at $16,998 million in 2013, there was a moderate increase to $17,418 million in 2014, followed by a small decrease to $17,220 million in 2015. A notable decline occurred in 2016, when equity dropped sharply to $13,661 million. After this decline, equity rebounded, increasing to $15,722 million in 2017 and further to $19,564 million in 2018, marking the highest equity value in the period.

Invested capital

Invested capital demonstrated a fluctuating but generally downward trend in the earlier years, followed by recovery in later years. It began at $44,434 million in 2013, increased to $48,265 million in 2014, then decreased significantly to $44,315 million in 2015 and further declined to $42,462 million in 2016. From 2016 onwards, invested capital increased, reaching $45,055 million in 2017 and $47,272 million in 2018, though it did not quite return to the previous peak observed in 2014.

The economic spread ratio exhibited considerable fluctuation between 2013 and 2018. Initial positive performance gave way to a period of sustained negative spreads, indicating diminishing returns on invested capital. Economic profit mirrored this trend, transitioning from positive values to consistent losses over the observed timeframe.

Economic Spread Ratio

In 2013, the economic spread ratio stood at 1.23%, suggesting that the company generated a return on invested capital exceeding its cost of capital. However, this positive spread reversed sharply in 2014, declining to -6.88%. The ratio experienced a recovery in 2015, reaching 5.47%, but subsequently returned to negative territory in 2016 (-5.23%) and remained negative through 2017 (-5.43%) and 2018 (-6.86%). This consistent negative spread from 2016 onwards indicates that the company’s returns were consistently below its cost of capital.

Economic Profit

Economic profit began at US$547 million in 2013, aligning with the positive economic spread. A substantial loss of US$3,320 million was recorded in 2014, coinciding with the initial negative spread. While economic profit recovered to US$2,425 million in 2015, it subsequently declined to a loss of US$2,221 million in 2016. Losses continued in 2017 (US$2,448 million) and further deteriorated to US$3,243 million in 2018. The trend in economic profit directly reflects the performance indicated by the economic spread ratio.

Invested Capital

Invested capital generally increased over the period, rising from US$44,434 million in 2013 to US$47,272 million in 2018. However, the increase in invested capital did not translate into improved economic performance, as evidenced by the declining economic spread and consistently negative economic profit from 2016 onward. A slight decrease in invested capital was observed between 2015 and 2016.

The observed trends suggest a growing disconnect between capital deployment and value creation. Despite increases in invested capital, the company struggled to generate returns exceeding its cost of capital, resulting in sustained economic losses in the later years of the period.

The economic profit margin exhibited significant fluctuation between 2013 and 2018. Initial profitability, as measured by economic profit, transitioned to substantial losses before showing a recovery, followed by a return to increasing losses. This pattern is reflected in the economic profit margin, which demonstrates a volatile performance over the analyzed period.

Economic Profit Margin Trend

In 2013, the economic profit margin stood at 1.99%. This positive margin decreased dramatically in 2014, resulting in a negative margin of -10.41%. A substantial recovery occurred in 2015, with the margin increasing to 8.44%. However, this improvement was short-lived, as the margin declined to -8.11% in 2016 and further to -8.57% in 2017. The most recent year, 2018, saw the economic profit margin reach its lowest point during the period, at -10.63%.

Relationship between Economic Profit and Margin

The economic profit margin directly correlates with the economic profit. Positive economic profit in 2013 and 2015 corresponds with positive margins, while negative economic profit in 2014, 2016, 2017, and 2018 aligns with negative margins. The magnitude of the margin reflects the relative size of the economic profit (or loss) compared to adjusted revenues.

Adjusted Revenues Impact

Adjusted revenues generally increased over the period, moving from US$27,472 million in 2013 to US$30,498 million in 2018. Despite this revenue growth, the economic profit margin remained negative for the majority of the years, indicating that revenue increases were insufficient to offset declines in economic profit. The largest revenue figure in 2018 did not translate into improved profitability as measured by the economic profit margin.

Overall, the analysis reveals a concerning trend of declining economic profitability, despite increasing revenues. The significant volatility in the economic profit margin suggests underlying operational or financial challenges impacting the company’s ability to generate returns exceeding its cost of capital.