Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Warner Bros. Discovery Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,066 – 11.05% × 30,724 = -2,329
The analysis of economic value added from 2017 to 2021 reveals a consistent inability to generate positive economic profit, indicating that the returns on invested capital remained below the cost of capital throughout the entire period.
- Net Operating Profit After Taxes (NOPAT)
- A volatile trend is observed in NOPAT, which transitioned from a loss of 121 million US$ in 2017 to a peak of 2,393 million US$ in 2019. Following this peak, a steady decline occurred over the subsequent two years, with the 2021 figure falling to 1,066 million US$. This trajectory suggests a significant reduction in operational profitability after 2019.
- Invested Capital and Cost of Capital
- Invested capital experienced a sharp increase between 2017 and 2018, rising from 21,151 million US$ to 31,259 million US$. For the remainder of the period, the capital base remained relatively stagnant, fluctuating slightly around 30.7 billion US$. The cost of capital demonstrated variability, reaching a peak of 13.59% in 2020 before settling at 11.05% in 2021.
- Economic Profit Performance
- Economic profit remained negative across all reported years, signaling a persistent destruction of shareholder value. Although a temporary improvement occurred in 2019, when the deficit narrowed to 916 million US$ due to higher NOPAT, the economic profit returned to a deeper deficit of 2,329 million US$ by 2021. The data indicates that the operational earnings were insufficient to cover the capital charges associated with the expanded invested capital base.
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Net Operating Profit after Taxes (NOPAT)
Warner Bros. Discovery Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for credit losses.
3 Addition of increase (decrease) in deferred revenues.
4 Addition of increase (decrease) in restructuring and other liabilities.
5 Addition of increase (decrease) in equity equivalents to net income (loss) available to Discovery, Inc..
6 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 629 × 2.94% = 18
7 2021 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 651 × 21.00% = 137
8 Addition of after taxes interest expense to net income (loss) available to Discovery, Inc..
9 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 18 × 21.00% = 4
10 Elimination of after taxes investment income.
The financial performance between 2017 and 2021 is characterized by an initial period of rapid growth followed by a consistent decline in both operational and net profitability. A significant transition occurred between 2017 and 2018, where the entity moved from negative earnings to substantial profitability.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT experienced a sharp upward trajectory from a loss of 121 million US$ in 2017 to a peak of 2,393 million US$ in 2019. Following this peak, a downward trend is observed, with values receding to 1,788 million US$ in 2020 and further declining to 1,066 million US$ by the end of 2021. This represents a reduction of approximately 55% from the 2019 peak to the 2021 year-end figure.
- Net Income Performance
- Net income followed a similar pattern to NOPAT, starting at a deficit of 337 million US$ in 2017 and reaching a maximum of 2,069 million US$ in 2019. The subsequent decline mirrored the operational trend, with net income falling to 1,219 million US$ in 2020 and 1,006 million US$ in 2021.
- Operational vs. Net Profitability Gap
- A consistent positive variance between NOPAT and net income is evident from 2018 through 2021. This gap indicates that operating performance, when adjusted for financing costs and non-operating items, remained stronger than the final bottom-line net income. The divergence was most pronounced in 2019, where NOPAT exceeded net income by 324 million US$, suggesting a significant impact from non-operating expenses or financing costs during that period.
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Cash Operating Taxes
Warner Bros. Discovery Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
An analysis of the tax components reveals a distinct divergence between accounting-based tax provisions and actual cash outflows. While the provision for income taxes exhibits significant volatility over the five-year period, cash operating taxes demonstrate a consistent long-term upward trajectory, which directly impacts the calculation of after-tax cash flows for economic value added assessments.
- Cash Operating Tax Trends
- Actual cash tax payments grew steadily from 537 million USD in 2017 to 880 million USD by 2021. This represents a substantial overall increase, despite a marginal contraction observed in 2020, where payments dipped to 698 million USD before rebounding sharply in the following year.
- Provision for Income Taxes Volatility
- The accounting provision for income taxes shows a lack of linear progression, characterized by sharp fluctuations. The values peaked at 373 million USD in 2020 and reached a period low of 81 million USD in 2019, indicating significant variance in non-cash tax accounting charges compared to actual liquidity outflows.
- Variance Between Cash Taxes and Provisions
- A consistent gap is observed where cash operating taxes exceed the provision for income taxes in every reported year. This disparity suggests that the cash burden of taxes was consistently higher than the tax expense recognized on the income statement, a critical distinction for evaluating the real economic cost of capital and the resulting economic value added.
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Invested Capital
Warner Bros. Discovery Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of deferred revenues.
5 Addition of restructuring and other liabilities.
6 Addition of equity equivalents to total Discovery, Inc. stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of assets under construction.
9 Subtraction of equity investments with readily determinable fair values.
The analysis of invested capital reveals a period of significant expansion between 2017 and 2018, followed by a phase of relative stabilization through 2021. The initial surge in invested capital was driven by concurrent increases in both debt and equity, while subsequent years show a transition toward a more equity-heavy capital structure.
- Debt and Lease Trends
- Total reported debt and leases experienced an initial increase, rising from 14,990 million US$ in 2017 to a peak of 17,781 million US$ in 2018. Following this peak, a consistent downward trend is observed, with debt levels declining annually to reach 15,643 million US$ by December 31, 2021. This indicates a gradual deleveraging of the balance sheet over the final four years of the period.
- Equity Growth Patterns
- Stockholders' equity demonstrated strong and continuous growth throughout the entire period. Starting at 4,610 million US$ in 2017, equity expanded rapidly to 8,386 million US$ in 2018 and continued a steady upward climb to 11,599 million US$ by 2021. This represents a total increase of approximately 151%, suggesting a substantial strengthening of the company's internal funding base.
- Invested Capital Composition and Stability
- Invested capital saw a sharp increase of approximately 47.5% between 2017 and 2018, jumping from 21,151 million US$ to 31,259 million US$. From 2019 through 2021, the total invested capital remained remarkably stable, fluctuating within a narrow range between 30,674 million US$ and 30,994 million US$. The data indicates that the growth in stockholders' equity effectively offset the reduction in total debt, maintaining a consistent level of total capital employed in the business.
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Cost of Capital
Warner Bros. Discovery Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 14,038) | 14,038) | ÷ | 32,122) | = | 0.44 | 0.44 | × | 21.12% | = | 9.23% | ||
| Total debt and finance lease liabilities3 | 17,455) | 17,455) | ÷ | 32,122) | = | 0.54 | 0.54 | × | 4.13% × (1 – 21.00%) | = | 1.77% | ||
| Operating lease liability4 | 629) | 629) | ÷ | 32,122) | = | 0.02 | 0.02 | × | 2.94% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 32,122) | 1.00 | 11.05% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 26,945) | 26,945) | ÷ | 46,549) | = | 0.58 | 0.58 | × | 21.12% | = | 12.23% | ||
| Total debt and finance lease liabilities3 | 18,941) | 18,941) | ÷ | 46,549) | = | 0.41 | 0.41 | × | 4.12% × (1 – 21.00%) | = | 1.32% | ||
| Operating lease liability4 | 663) | 663) | ÷ | 46,549) | = | 0.01 | 0.01 | × | 3.37% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 46,549) | 1.00 | 13.59% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 12,851) | 12,851) | ÷ | 30,914) | = | 0.42 | 0.42 | × | 21.12% | = | 8.78% | ||
| Total debt and finance lease liabilities3 | 17,360) | 17,360) | ÷ | 30,914) | = | 0.56 | 0.56 | × | 4.12% × (1 – 21.00%) | = | 1.83% | ||
| Operating lease liability4 | 703) | 703) | ÷ | 30,914) | = | 0.02 | 0.02 | × | 3.77% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 30,914) | 1.00 | 10.68% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,237) | 15,237) | ÷ | 32,772) | = | 0.46 | 0.46 | × | 21.12% | = | 9.82% | ||
| Total debt and finance lease liabilities3 | 16,799) | 16,799) | ÷ | 32,772) | = | 0.51 | 0.51 | × | 4.04% × (1 – 21.00%) | = | 1.64% | ||
| Operating lease liability4 | 736) | 736) | ÷ | 32,772) | = | 0.02 | 0.02 | × | 3.48% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 32,772) | 1.00 | 11.52% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 9,288) | 9,288) | ÷ | 24,943) | = | 0.37 | 0.37 | × | 21.12% | = | 7.87% | ||
| Total debt and finance lease liabilities3 | 15,450) | 15,450) | ÷ | 24,943) | = | 0.62 | 0.62 | × | 4.12% × (1 – 35.00%) | = | 1.66% | ||
| Operating lease liability4 | 205) | 205) | ÷ | 24,943) | = | 0.01 | 0.01 | × | 3.89% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 24,943) | 1.00 | 9.55% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Warner Bros. Discovery Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,329) | (2,381) | (916) | (2,406) | (2,140) | |
| Invested capital2 | 30,724) | 30,674) | 30,994) | 31,259) | 21,151) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.58% | -7.76% | -2.96% | -7.70% | -10.12% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | 26.68% | — | — | — | — | |
| Comcast Corp. | -2.74% | — | — | — | — | |
| Meta Platforms Inc. | 22.81% | — | — | — | — | |
| Netflix Inc. | -5.88% | — | — | — | — | |
| Walt Disney Co. | -18.12% | -20.38% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -2,329 ÷ 30,724 = -7.58%
4 Click competitor name to see calculations.
Analysis of economic value added metrics indicates a persistent inability to generate returns exceeding the cost of capital between 2017 and 2021, as evidenced by consistently negative economic profit and economic spread ratios.
- Economic Profit Trends
- Economic profit remained negative throughout the five-year period. A significant narrowing of losses occurred in 2019, where economic profit reached -916 million USD, the highest point in the series. However, this improvement was transient, as losses widened again in 2020 and 2021, stabilizing at approximately -2.3 billion USD.
- Invested Capital Dynamics
- A substantial expansion in invested capital was observed between 2017 and 2018, increasing from 21,151 million USD to 31,259 million USD. Following this sharp increase, the capital base remained relatively stagnant, fluctuating minimally around the 30.7 billion USD to 31 billion USD range for the remainder of the period.
- Economic Spread Ratio Analysis
- The economic spread ratio remained in negative territory for all reported years, indicating a failure to create economic value. The ratio showed a positive trend toward zero from 2017 (-10.12%) to a peak in 2019 (-2.96%). This upward trajectory reversed in 2020, with the ratio falling back to -7.76%, and remaining largely flat at -7.58% in 2021.
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Economic Profit Margin
Warner Bros. Discovery Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,329) | (2,381) | (916) | (2,406) | (2,140) | |
| Revenues | 12,191) | 10,671) | 11,144) | 10,553) | 6,873) | |
| Add: Increase (decrease) in deferred revenues | (76) | 52) | 228) | 5) | 79) | |
| Adjusted revenues | 12,115) | 10,723) | 11,372) | 10,558) | 6,952) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -19.22% | -22.20% | -8.05% | -22.78% | -30.78% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | 17.70% | — | — | — | — | |
| Comcast Corp. | -5.40% | — | — | — | — | |
| Meta Platforms Inc. | 17.92% | — | — | — | — | |
| Netflix Inc. | -6.87% | — | — | — | — | |
| Walt Disney Co. | -46.18% | -54.80% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -2,329 ÷ 12,115 = -19.22%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a persistent failure to generate positive economic profit, indicating that the company's net operating profit after tax remained insufficient to cover its cost of capital during this period.
- Economic Profit Trends
- Economic profit remained negative throughout the analyzed five-year window. A decline was observed between 2017 and 2018, with losses increasing from -2,140 million USD to -2,406 million USD. A significant improvement occurred in 2019, where losses narrowed to -916 million USD. However, this trend reversed sharply in 2020, with economic profit falling to -2,381 million USD, and remaining largely stagnant at -2,329 million USD in 2021.
- Adjusted Revenue Growth
- Revenues demonstrated a general upward trajectory, rising from 6,952 million USD in 2017 to 12,115 million USD by 2021. While a slight contraction was noted in 2020, falling to 10,723 million USD, the overall increase in revenue did not correlate with a transition to positive economic profit, suggesting that the expansion of the business scale did not sufficiently optimize capital efficiency.
- Economic Profit Margin Analysis
- The economic profit margin remained negative across all reported years, confirming a continuous destruction of economic value. The margin showed an improving trend from -30.78% in 2017 to a period high of -8.05% in 2019. This progress was offset by a downturn in 2020, where the margin widened to -22.20%, followed by a modest recovery to -19.22% in 2021.
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