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

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) and cost of capital exhibit varying trends, impacting the overall economic profit generated. Invested capital generally increased over the observed timeframe, though not consistently.

Economic Profit Trend

Economic profit experienced considerable volatility. A positive value of US$533 million was recorded in 2013, followed by a substantial negative value of US$3,334 million in 2014. A recovery to a positive US$2,412 million occurred in 2015, but this was short-lived, with subsequent negative economic profits of US$2,232 million, US$2,461 million, and US$3,258 million in 2016, 2017, and 2018 respectively. This indicates a consistent inability to generate returns exceeding the cost of capital in the later years of the period.

NOPAT Analysis

Net operating profit after taxes showed a decline from US$7,896 million in 2013 to US$4,517 million in 2014. A significant increase to US$9,417 million was observed in 2015, but NOPAT then decreased to US$4,025 million in 2016. Subsequent years saw modest increases, reaching US$4,669 million in 2018, but remained below the 2013 and 2015 levels.

Cost of Capital Analysis

The cost of capital generally decreased from 16.57% in 2013 to 14.73% in 2016. However, it increased again in 2017 to 14.94% and further to 16.77% in 2018. This increase in the cost of capital in the latter years likely contributed to the negative economic profit observed during those periods.

Invested Capital Analysis

Invested capital increased from US$44,434 million in 2013 to US$48,265 million in 2014. It then decreased to US$44,315 million in 2015 and further to US$42,462 million in 2016. A subsequent increase was observed, reaching US$47,272 million in 2018. The fluctuations in invested capital, while not directly correlated with economic profit, represent changes in the company’s asset base.

The consistent negative economic profit from 2014 onwards, despite increases in NOPAT in later years, suggests that the cost of capital consistently outpaced the returns generated from invested capital. The increasing cost of capital in 2017 and 2018 exacerbated this issue, leading to larger negative economic profit values.

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 period under review demonstrates significant fluctuations in economic performance. Economic profit exhibits considerable volatility, shifting from positive values to substantial negative figures over the six-year span. Invested capital generally trends upward, although with some intermediate declines. The economic spread ratio, a key indicator of value creation, mirrors the instability observed in economic profit.

Economic Profit

Economic profit begins at US$533 million in 2013, indicating value creation. However, it experiences a dramatic decline in 2014, resulting in a loss of US$3,334 million. A recovery is seen in 2015 with a profit of US$2,412 million, but this is followed by consecutive losses in 2016, 2017, and 2018, reaching US$3,258 million in the final year. This pattern suggests inconsistent ability to generate returns exceeding the cost of capital.

Invested Capital

Invested capital increases from US$44,434 million in 2013 to US$48,265 million in 2014. A decrease is then observed in 2015 to US$44,315 million, followed by a further reduction to US$42,462 million in 2016. The trend reverses in subsequent years, with increases to US$45,055 million in 2017 and US$47,272 million in 2018. The overall trend is upward, but the intermediate fluctuations suggest potential shifts in capital allocation strategies or asset base.

Economic Spread Ratio

The economic spread ratio begins at 1.20% in 2013, indicating a positive spread between return on invested capital and the cost of capital. A substantial decline occurs in 2014, resulting in a negative spread of -6.91%. The ratio recovers to 5.44% in 2015, but then consistently declines through 2017 (-5.46%) and 2018 (-6.89%). This consistent deterioration suggests a weakening ability to generate returns that exceed the cost of capital, despite the increasing invested capital.

The negative economic profit and declining economic spread ratio in the later years of the period are particularly noteworthy. These trends suggest a potential erosion of shareholder value and warrant further investigation into the underlying drivers of profitability and capital efficiency.

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 1.94%. This positive margin decreased dramatically in 2014, becoming negative at -10.46%. A substantial recovery occurred in 2015, with the margin rising to 8.39%. However, this improvement was short-lived, as the margin declined to -8.15% in 2016 and further to -8.61% in 2017. The most recent year, 2018, saw the economic profit margin reach its lowest point during the period, at -10.68%.

The economic profit itself mirrors the margin’s trend. A profit of US$533 million in 2013 was followed by a significant loss of US$3,334 million in 2014. While a profit of US$2,412 million was recorded in 2015, subsequent years showed losses of US$2,232 million, US$2,461 million, and US$3,258 million in 2016, 2017, and 2018, respectively. This indicates a consistent struggle to generate returns exceeding the cost of capital in the later years of the period.

Relationship between Revenue and Economic Profit Margin

Adjusted revenues generally increased over the period, moving from US$27,472 million in 2013 to US$30,498 million in 2018. However, revenue growth did not translate into improved economic profitability. Despite revenue increases in 2014, 2017, and 2018, the economic profit margin remained negative, and even worsened in 2018. This suggests that increases in revenue were offset by increases in costs or a higher cost of capital, or both.

The consistent negative economic profit margin from 2014 onwards, coupled with the increasing magnitude of the losses, suggests a potential issue with the company’s ability to effectively deploy capital and generate returns that cover its cost of capital. Further investigation into the underlying drivers of these trends would be warranted.