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 create 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$557 million and US$2,434 million respectively. However, negative economic profit is recorded in 2014, 2016, 2017, and 2018, with the largest negative value of US$-3,309 million occurring in 2014. The negative economic profit in 2018, at US$-3,232 million, represents a continuation of the downward trend observed in the latter part of the period.

NOPAT Performance

NOPAT experiences a substantial decline from US$7,896 million in 2013 to US$4,517 million in 2014. It then recovers significantly to US$9,417 million in 2015, before decreasing again to US$4,025 million in 2016. NOPAT remains relatively stable between 2016 and 2017, at US$4,273 million, and increases slightly to US$4,669 million in 2018. This volatility in NOPAT directly influences economic profit.

Cost of Capital Changes

The cost of capital decreases from 16.52% in 2013 to 14.69% in 2016, potentially indicating improved financial efficiency or lower risk perception. However, it rises to 16.71% in 2018, suggesting increased risk or a higher required rate of return. The increase in the cost of capital in 2018 contributes to the negative economic profit observed in that year.

Invested Capital Evolution

Invested capital generally increases over the period, moving from US$44,434 million in 2013 to US$47,272 million in 2018. There is a slight decrease from 2014 to 2015, but the overall trend is upward. The increasing invested capital base, coupled with fluctuating NOPAT and cost of capital, impacts the resulting economic profit.

In summary, the economic profit performance is sensitive to changes in NOPAT and cost of capital. While invested capital generally increases, it does not consistently translate into positive economic profit, particularly in years where NOPAT is lower or the cost of capital is higher.

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, culminating in the lowest observed ratio in 2018. This analysis details the observed trends in economic spread ratio, economic profit, and invested capital over the examined period.

Economic Spread Ratio

The economic spread ratio began at 1.25% in 2013, indicating a positive spread between the return on invested capital and the cost of capital. However, this shifted dramatically in 2014 to -6.86%, representing a substantial negative spread. A recovery was seen in 2015 with a ratio of 5.49%, but this proved short-lived. The ratio subsequently declined to -5.21% in 2016 and further to -5.41% in 2017. The lowest ratio of the period, -6.84%, was recorded in 2018. This consistent negative trend suggests a growing inability to generate returns exceeding the cost of capital.

Economic Profit

Economic profit mirrored the volatility seen in the economic spread ratio. A profit of US$557 million was reported in 2013, followed by a significant loss of US$3,309 million in 2014. Profitability returned in 2015 with a gain of US$2,434 million, but this was followed by losses of US$2,213 million in 2016, US$2,440 million in 2017, and US$3,232 million in 2018. The increasing magnitude of the losses from 2016 onwards aligns with the worsening 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. While there was a slight decrease between 2015 and 2016, the overall trend is upward. This increase in invested capital occurred concurrently with declining economic profitability, potentially exacerbating the negative economic spread.

In summary, the period under review demonstrates a clear deterioration in economic performance. Despite increasing invested capital, the entity struggled to generate returns that covered its cost of capital, as evidenced by the consistently negative and worsening economic spread ratio and the substantial economic losses reported in most years.

The economic profit margin exhibited considerable fluctuation between 2013 and 2018. Initial profitability, as measured by economic profit, transitioned to substantial losses before showing a recovery, followed by further declines. This analysis details the observed trends in economic profit and its relationship to adjusted revenues.

Economic Profit

Economic profit began at US$557 million in 2013, indicating value creation. However, a significant decline occurred in 2014, resulting in an economic loss of US$3,309 million. A recovery was observed in 2015, with economic profit reaching US$2,434 million. This positive trend was short-lived, as economic profit turned negative again in 2016 (US$ -2,213 million) and continued to decrease through 2017 (US$ -2,440 million) and 2018 (US$ -3,232 million). The magnitude of the losses increased over the latter period.

Adjusted Revenues

Adjusted revenues generally increased over the period. From US$27,472 million in 2013, revenues rose to US$31,880 million in 2014. A decrease was noted in 2015 (US$28,745 million), followed by a further decline in 2016 (US$27,383 million). Revenues recovered somewhat in 2017 (US$28,575 million) and continued to increase in 2018, reaching US$30,498 million. Despite the overall revenue growth, it did not consistently translate into positive economic profit.

Economic Profit Margin

The economic profit margin mirrored the fluctuations in economic profit. It started at 2.03% in 2013, then plummeted to -10.38% in 2014. A substantial improvement occurred in 2015, with the margin reaching 8.47%. However, the margin subsequently deteriorated, becoming -8.08% in 2016, -8.54% in 2017, and -10.60% in 2018. The negative trend in the economic profit margin from 2015 onwards suggests that, despite revenue increases in later years, the cost of capital or operational inefficiencies were increasing at a faster rate than revenue growth, eroding profitability.

In summary, while adjusted revenues demonstrated some growth over the analyzed period, the economic profit margin consistently declined after 2013, indicating a weakening ability to generate returns exceeding the cost of capital. The substantial volatility in economic profit suggests underlying business factors significantly impacting profitability.