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 initially registers a positive value in 2013, at US$1,488 million, before declining sharply into a substantial loss of US$2,321 million in 2014. A recovery is then observed in 2015, with economic profit reaching US$3,308 million. However, this positive performance is not sustained, as economic profit falls back into negative territory in 2016 and 2017, reporting losses of US$1,450 million and US$1,612 million respectively. The final year observed, 2018, shows a further deterioration, with economic profit reaching a loss of US$2,228 million.

NOPAT Analysis

Net operating profit after taxes demonstrates considerable volatility. It begins at US$7,896 million in 2013, then decreases substantially to US$4,517 million in 2014. A significant increase is seen in 2015, reaching US$9,417 million, but this is followed by a decline to US$4,025 million in 2016. NOPAT remains relatively stable between 2016 and 2017, at US$4,273 million, before increasing slightly to US$4,669 million in 2018.

Cost of Capital Analysis

The cost of capital fluctuates throughout the period. It starts at 14.42% in 2013, decreasing to 14.17% in 2014 and continuing to decline to 13.79% in 2015. A further decrease is observed in 2016, reaching 12.89%, the lowest value in the observed period. The cost of capital then increases to 13.06% in 2017, before rising again to 14.59% in 2018, the highest value observed.

Invested Capital Analysis

Invested capital generally trends upward, although with some variation. It 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 decrease to US$42,462 million in 2016. Invested capital then increases to US$45,055 million in 2017 and continues to rise to US$47,272 million in 2018.

The negative economic profit observed in several years suggests that, despite generating substantial NOPAT in some periods, the returns generated are not consistently exceeding the cost of capital employed. The increasing invested capital, coupled with fluctuating NOPAT and cost of capital, contributes to the observed volatility 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 over the observed period. Initially positive, it transitioned to negative values and remained so for the majority of the years analyzed. A review of the economic profit and invested capital figures reveals the underlying drivers of this trend.

Economic Spread Ratio

The economic spread ratio began at 3.35% in 2013, indicating a positive spread between returns generated and the cost of capital. However, this shifted dramatically in 2014 to -4.81%, representing a substantial decline. A recovery was observed in 2015, with the ratio reaching 7.47%, the highest value in the period. This positive performance was short-lived, as the ratio fell to -3.41% in 2016 and further to -3.58% in 2017. The ratio concluded the period at -4.71% in 2018, demonstrating a continued negative spread.

The economic spread ratio’s movement closely mirrors the fluctuations in economic profit. The negative ratios in 2014, 2016, 2017, and 2018 directly correspond with periods of negative economic profit. While invested capital generally increased over the period, the inability to consistently generate positive economic profit resulted in the observed negative economic spread ratios.

Relationship to Economic Profit and Invested Capital

The economic spread ratio is calculated as economic profit divided by invested capital. The significant swings in the ratio are largely attributable to the volatility of economic profit. Despite increases in invested capital in several years, the corresponding economic profit was insufficient to maintain a positive spread. The largest negative spread occurred in 2014, coinciding with the largest negative economic profit.

The trend suggests a growing challenge in generating returns exceeding the cost of capital. Continued monitoring of both economic profit and invested capital is warranted to understand the underlying causes of these fluctuations and to assess the company’s ability to improve its economic spread ratio.

The economic profit margin exhibited considerable fluctuation between 2013 and 2018. Initial profitability, as measured by economic profit, transitioned to periods of economic loss, followed by recovery and subsequent decline. This analysis details these trends and their implications.

Economic Profit Margin Trend

In 2013, the economic profit margin stood at 5.42%. This represents a positive return on revenues exceeding the cost of capital. However, the following year, 2014, witnessed a substantial shift, with the margin declining to -7.28%, indicating an economic loss. A significant recovery occurred in 2015, with the margin rising to 11.51%, the highest value observed during the analyzed period. This positive trend was short-lived, as the margin decreased to -5.30% in 2016 and further to -5.64% in 2017. The final year under review, 2018, saw a continued decline, reaching -7.31%, marking the lowest economic profit margin within the timeframe.

Relationship to Adjusted Revenues

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 did not consistently benefit. The negative margins in 2014, 2016, 2017, and 2018 suggest that increases in the cost of capital, or declines in operational efficiency, outpaced revenue gains. The peak in revenue in 2014 did not translate to economic profit, and the revenue increase in 2018 was accompanied by the lowest margin of the period.

Economic Profit Volatility

The economic profit itself demonstrated significant volatility. A profit of US$1,488 million in 2013 was followed by a loss of US$2,321 million in 2014. The return to profit in 2015 (US$3,308 million) was then reversed, with losses of US$1,450 million, US$1,612 million, and US$2,228 million in 2016, 2017, and 2018 respectively. This pattern indicates an inconsistency in the company’s ability to generate returns exceeding its cost of capital.

In summary, while adjusted revenues showed an overall upward trend, the economic profit margin experienced substantial fluctuations, ultimately ending the period with a negative margin. This suggests that revenue growth alone was insufficient to drive economic profitability, and factors related to cost of capital or operational performance played a significant role in the observed results.