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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
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Warner Bros. Discovery Inc., economic profit calculation

US$ in millions

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net operating profit after taxes (NOPAT)¹	1,066)	1,788)	2,393)	1,195)	(121)
Cost of capital²	11.15%	13.72%	10.77%	11.63%	9.63%
Invested capital³	30,724)	30,674)	30,994)	31,259)	21,151)

Economic profit⁴	(2,359)	(2,422)	(945)	(2,439)	(2,158)

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 – 11.15% × 30,724 = -2,359

The period under review demonstrates a volatile financial performance regarding economic profit. While net operating profit after taxes (NOPAT) and invested capital fluctuate, economic profit consistently remains negative throughout the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT): NOPAT experienced a significant turnaround from a loss of US$121 million in 2017 to a profit of US$1,195 million in 2018. This positive trend continued into 2019, reaching US$2,393 million, before declining to US$1,788 million in 2020 and further to US$1,066 million in 2021. The decline in NOPAT from 2019 to 2021 suggests increasing operational challenges or changing market conditions.
Cost of Capital: The cost of capital exhibited variability. It increased from 9.63% in 2017 to 11.63% in 2018, decreased to 10.77% in 2019, then rose substantially to 13.72% in 2020, before decreasing again to 11.15% in 2021. The peak in 2020 likely reflects increased risk perception or changes in the company’s capital structure.
Invested Capital: Invested capital increased considerably from US$21,151 million in 2017 to US$31,259 million in 2018. It remained relatively stable between US$30,674 million and US$31,259 million from 2018 through 2021, indicating a period of consistent capital deployment.
Economic Profit: Economic profit was negative for each year analyzed. The magnitude of the loss varied, ranging from a low of US$2,158 million in 2017 to a high of US$2,439 million in 2018. While NOPAT improved significantly in 2018 and 2019, it was insufficient to offset the cost of capital applied to the substantial invested capital base. The economic profit losses remained consistently above US$2.3 billion throughout the period, suggesting the company is not generating returns exceeding its cost of capital.

In summary, despite periods of increasing NOPAT, the company consistently failed to generate economic profit. The substantial invested capital base, coupled with a cost of capital that often exceeded operational profitability, contributed to this outcome. The fluctuations in NOPAT and cost of capital suggest a dynamic operating environment and potential challenges in maintaining profitability relative to capital employed.

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Warner Bros. Discovery Inc., NOPAT calculation

US$ in millions

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net income (loss) available to Discovery, Inc.	1,006)	1,219)	2,069)	594)	(337)
Deferred income tax expense (benefit)¹	(511)	(186)	(504)	(131)	(199)
Increase (decrease) in allowance for credit losses²	(5)	5)	8)	(9)	8)
Increase (decrease) in deferred revenues³	(76)	52)	228)	5)	79)
Increase (decrease) in restructuring and other liabilities⁴	(39)	40)	(90)	65)	4)
Increase (decrease) in equity equivalents⁵	(631)	(89)	(358)	(70)	(108)
Interest expense, net	633)	648)	677)	729)	475)
Interest expense, operating lease liability⁶	18)	22)	27)	26)	8)
Adjusted interest expense, net	651)	670)	704)	755)	483)
Tax benefit of interest expense, net⁷	(137)	(141)	(148)	(158)	(169)
Adjusted interest expense, net, after taxes⁸	515)	530)	556)	596)	314)
Interest income	(18)	(10)	(22)	(15)	(21)
Investment income, before taxes	(18)	(10)	(22)	(15)	(21)
Tax expense (benefit) of investment income⁹	4)	2)	5)	3)	7)
Investment income, after taxes¹⁰	(14)	(8)	(17)	(12)	(14)
Net income (loss) attributable to noncontrolling interest	191)	136)	144)	87)	24)
Net operating profit after taxes (NOPAT)	1,066)	1,788)	2,393)	1,195)	(121)

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.

Net Income (Loss) Available to Discovery, Inc.: The net income experienced significant fluctuations over the five-year period. In 2017, the company reported a net loss of 337 million USD. A substantial turnaround occurred in 2018, with net income improving sharply to 594 million USD. This positive trend continued through 2019, peaking at 2069 million USD, indicating a phase of strong profitability. However, subsequent years showed a decline, with net income falling to 1219 million USD in 2020 and further down to 1006 million USD in 2021. Despite this decline, net income remained positive and considerably higher than the 2017 loss, reflecting sustained profitability after the initial recovery.
Net Operating Profit After Taxes (NOPAT): NOPAT mirrored a similar trajectory to net income but on a different scale. The value was negative in 2017 at -121 million USD, indicating operational challenges. A sharp recovery took place in 2018 as NOPAT increased substantially to 1195 million USD. This improvement continued in 2019, reaching a high point of 2393 million USD, which suggests enhanced operational efficiency and profitability. However, the subsequent years showed a downward trend with NOPAT decreasing to 1788 million USD in 2020 and 1066 million USD in 2021. This decline suggests that while operations remained profitable, perhaps operational cost pressures or other factors impacted the efficiency or scale of profit generation.
Overall Trends and Insights: Both net income and NOPAT demonstrate a recovery from losses in 2017 to strong profitability in 2019. This trend indicates successful strategic or operational changes during these years. However, the decline in the last two years suggests emerging challenges or market conditions affecting profitability. Despite this decline, the company maintained positive earnings, indicating resilience. The gap between NOPAT and net income also suggests consistent tax impacts and possibly financing costs that moderated net income compared to operating profits.

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Warner Bros. Discovery Inc., cash operating taxes calculation

US$ in millions

12 months ended:	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Provision for income taxes	236)	373)	81)	341)	176)
Less: Deferred income tax expense (benefit)	(511)	(186)	(504)	(131)	(199)
Add: Tax savings from interest expense, net	137)	141)	148)	158)	169)
Less: Tax imposed on investment income	4)	2)	5)	3)	7)
Cash operating taxes	880)	698)	728)	627)	537)

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).

Provision for Income Taxes: The provision for income taxes fluctuated significantly over the analyzed period. Starting at 176 million US dollars in 2017, it increased sharply to 341 million in 2018. This was followed by a notable decline to 81 million in 2019. Subsequently, the provision rose again to 373 million in 2020 before decreasing to 236 million in 2021. These fluctuations indicate variability in the company’s taxable income or tax planning strategies over the years.
Cash Operating Taxes: Cash operating taxes demonstrated a generally increasing trend throughout the period. From 537 million US dollars in 2017, the amount increased steadily to 627 million in 2018 and further to 728 million in 2019. Although there was a slight decline to 698 million in 2020, the figure rebounded to reach a peak of 880 million in 2021. This overall upward trajectory may suggest growing taxable operations or changes in tax payment timing and cash flow management.

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Warner Bros. Discovery Inc., invested capital calculation (financing approach)

US$ in millions

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Finance lease liabilities, current	58)	57)	47)	—)	—)
Current portion of debt	339)	335)	609)	1,860)	30)
Noncurrent portion of debt	14,420)	15,069)	14,810)	15,185)	14,755)
Finance lease liabilities, noncurrent	197)	184)	203)	—)	—)
Operating lease liability¹	629)	663)	703)	736)	205)
Total reported debt & leases	15,643)	16,308)	16,372)	17,781)	14,990)
Total Discovery, Inc. stockholders’ equity	11,599)	10,464)	9,891)	8,386)	4,610)
Net deferred tax (assets) liabilities²	470)	937)	1,216)	1,730)	255)
Allowance for credit losses³	54)	59)	54)	46)	55)
Deferred revenues⁴	573)	649)	597)	369)	364)
Restructuring and other liabilities⁵	19)	58)	18)	108)	43)
Equity equivalents⁶	1,116)	1,703)	1,885)	2,253)	717)
Accumulated other comprehensive (income) loss, net of tax⁷	830)	651)	822)	785)	585)
Redeemable noncontrolling interests	363)	383)	442)	415)	413)
Noncontrolling interests	1,434)	1,536)	1,633)	1,716)	—)
Adjusted total Discovery, Inc. stockholders’ equity	15,342)	14,737)	14,673)	13,555)	6,325)
Assets under construction⁸	(141)	(285)	—)	—)	—)
Equity investments with readily determinable fair values⁹	(120)	(86)	(51)	(77)	(164)
Invested capital	30,724)	30,674)	30,994)	31,259)	21,151)

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 financial data reveals several notable trends over the five-year period ending December 31, 2021. The total reported debt and leases exhibited fluctuation rather than a consistent trajectory. Starting at approximately $14.99 billion in 2017, the debt increased notably to about $17.78 billion in 2018. Subsequently, it declined over the next three years, reaching approximately $15.64 billion in 2021. This suggests a period of increased borrowing followed by a gradual reduction or restructuring of debt obligations.

Stockholders’ equity showed a consistent and robust upward trend throughout the period. Beginning at $4.61 billion in 2017, equity rose sharply to approximately $8.39 billion in 2018 and continued to increase steadily year-over-year, reaching about $11.60 billion by 2021. This steady growth in equity indicates an improvement in the company’s net asset position and indicates potentially positive retained earnings or capital injections over time.

Invested capital peaked in 2018 at approximately $31.26 billion, having increased significantly from $21.15 billion in 2017. Following 2018, invested capital remained relatively stable through 2021, hovering around $30.7 billion without substantial increase or decrease. This stabilization after an initial sharp rise could imply a plateau in new investments or acquisitions during the latter part of the period under review.

Total Reported Debt & Leases: Increased from 2017 to 2018, then gradually decreased each subsequent year, ending lower in 2021 than its peak.
Total Stockholders’ Equity: Displayed continuous and steady growth across the entire period, indicating strengthening financial foundations.
Invested Capital: Experienced a significant rise from 2017 to 2018, followed by a plateau, remaining relatively unchanged from 2018 through 2021.

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Warner Bros. Discovery Inc., cost of capital calculations

Dec 31, 2021

	Capital (fair value)¹	Weights					Cost of capital
Equity²	14,038)	14,038)	÷	32,122)	=	0.44	0.44	×	21.35%	=	9.33%
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					11.15%

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 »

Dec 31, 2020

	Capital (fair value)¹	Weights					Cost of capital
Equity²	26,945)	26,945)	÷	46,549)	=	0.58	0.58	×	21.35%	=	12.36%
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					13.72%

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 »

Dec 31, 2019

	Capital (fair value)¹	Weights					Cost of capital
Equity²	12,851)	12,851)	÷	30,914)	=	0.42	0.42	×	21.35%	=	8.88%
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					10.77%

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 »

Dec 31, 2018

	Capital (fair value)¹	Weights					Cost of capital
Equity²	15,237)	15,237)	÷	32,772)	=	0.46	0.46	×	21.35%	=	9.93%
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					11.63%

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 »

Dec 31, 2017

	Capital (fair value)¹	Weights					Cost of capital
Equity²	9,288)	9,288)	÷	24,943)	=	0.37	0.37	×	21.35%	=	7.95%
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					9.63%

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 »

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	(2,359)	(2,422)	(945)	(2,439)	(2,158)
Invested capital²	30,724)	30,674)	30,994)	31,259)	21,151)
Performance Ratio
Economic spread ratio³	-7.68%	-7.90%	-3.05%	-7.80%	-10.20%
Benchmarks
Economic Spread Ratio, Competitors⁴
Alphabet Inc.	26.64%	—	—	—	—
Comcast Corp.	-2.56%	—	—	—	—
Meta Platforms Inc.	22.61%	—	—	—	—
Netflix Inc.	-6.44%	—	—	—	—
Trade Desk Inc.	-10.49%	—	—	—	—
Walt Disney Co.	-18.46%	-20.71%	—	—	—

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 × -2,359 ÷ 30,724 = -7.68%

⁴ Click competitor name to see calculations.

The period under review demonstrates a consistent pattern of negative economic profit, alongside relatively stable invested capital. This results in consistently negative economic spread ratios across the observed timeframe.

Economic Profit: Economic profit exhibits substantial negative values throughout the period. While the magnitude of the loss decreased from 2017 to 2019, it increased again in 2020 and remained relatively consistent in 2021. The values range from a low of -945 US$ million in 2019 to a high of -2,439 US$ million in 2018.
Invested Capital: Invested capital increased significantly from 2017 to 2018, rising from 21,151 US$ million to 31,259 US$ million. Following this increase, invested capital remained relatively stable, fluctuating within a narrow range between 30,674 US$ million and 31,259 US$ million from 2019 to 2021. This suggests a period of consolidation in capital allocation after the initial expansion.
Economic Spread Ratio: The economic spread ratio is negative for each year, indicating that the company’s return on invested capital is less than its cost of capital. The ratio improved from -10.20% in 2017 to -3.05% in 2019, suggesting a narrowing gap between returns and costs. However, the ratio worsened again in 2020 and 2021, settling at -7.90% and -7.68% respectively. This indicates a renewed widening of the gap between returns and the cost of capital in the latter part of the period.

Overall, the analysis suggests that while the company experienced a brief period of improvement in its economic spread, it has consistently failed to generate returns exceeding its cost of capital. The stable invested capital base, coupled with persistent negative economic profit, contributes to the ongoing negative economic spread ratio.

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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	(2,359)	(2,422)	(945)	(2,439)	(2,158)

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	-19.48%	-22.59%	-8.31%	-23.10%	-31.04%
Benchmarks
Economic Profit Margin, Competitors³
Alphabet Inc.	17.67%	—	—	—	—
Comcast Corp.	-5.05%	—	—	—	—
Meta Platforms Inc.	17.76%	—	—	—	—
Netflix Inc.	-7.52%	—	—	—	—
Trade Desk Inc.	-13.50%	—	—	—	—
Walt Disney Co.	-47.05%	-55.71%	—	—	—

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 × -2,359 ÷ 12,115 = -19.48%

³ Click competitor name to see calculations.

The period under review demonstrates a consistent pattern of negative economic profit, although with some fluctuation in magnitude. Adjusted revenues exhibit an overall upward trend, while the economic profit margin, though negative throughout, shows some variability.

Economic Profit: Economic profit is negative for each year presented, ranging from a low of -2,439 US$ millions in 2018 to a high of -945 US$ millions in 2019. The most recent two years, 2020 and 2021, show economic profit of -2,422 and -2,359 US$ millions respectively, indicating a recent stabilization around this level. The initial years, 2017 and 2018, experienced the largest negative economic profits.
Adjusted Revenues: Adjusted revenues increased from 6,952 US$ millions in 2017 to 12,115 US$ millions in 2021. Growth was particularly strong between 2017 and 2018, increasing by 52%. Revenue growth slowed in subsequent years, with a decrease observed between 2019 and 2020, followed by a resumption of growth in 2021. Despite the overall increase, revenue growth has not been sufficient to generate positive economic profit.
Economic Profit Margin: The economic profit margin is negative for all years, indicating that the company’s return on capital is less than its cost of capital. The margin improved from -31.04% in 2017 to -8.31% in 2019, coinciding with the lowest negative economic profit value. However, the margin deteriorated again in 2020 and 2021, reaching -22.59% and -19.48% respectively. This suggests a weakening in the relationship between revenue generation and economic profitability in the most recent period.

In summary, while adjusted revenues have generally increased, the company continues to destroy economic value, as evidenced by the consistently negative economic profit and economic profit margin. The improvement in 2019 was not sustained, and recent performance suggests a continued challenge in generating returns exceeding the cost of capital.

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Warner Bros. Discovery Inc. (NASDAQ:WBD)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Economic Spread Ratio

Economic Profit Margin