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.
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Warner Bros. Discovery Inc. pages available for free this week:
- Income Statement
- Cash Flow Statement
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2008
- Debt to Equity since 2008
- Total Asset Turnover since 2008
- Price to Sales (P/S) since 2008
- Aggregate Accruals
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Economic Profit
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 | ||||||
| Cost of capital2 | ||||||
| Invested capital3 | ||||||
| Economic profit4 | ||||||
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
= – × =
The period under review demonstrates a volatile financial performance regarding economic profit. While net operating profit after taxes (NOPAT) experienced significant fluctuations, invested capital remained relatively stable. The cost of capital also exhibited variability, impacting the overall economic profit calculation.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT began at a negative value in 2017, then increased substantially in both 2018 and 2019. A decline was observed in 2020, followed by a further decrease in 2021, though remaining positive. This suggests improving operational efficiency and profitability initially, followed by a weakening trend.
- Cost of Capital
- The cost of capital increased from 2017 to 2018, then decreased in 2019. A notable rise occurred in 2020, peaking at 13.69%, before decreasing again in 2021. These fluctuations likely reflect changes in market conditions, risk perception, and the company’s capital structure.
- Invested Capital
- Invested capital increased significantly from 2017 to 2018, and then remained relatively consistent across the subsequent years, with only minor variations. This indicates a period of substantial investment followed by a stabilization of capital deployment.
- Economic Profit
- Economic profit was negative throughout the entire period. The magnitude of the negative economic profit decreased from 2017 to 2019, but then increased substantially in 2020 and remained high in 2021. This consistently negative economic profit suggests that the company’s returns on invested capital have not been sufficient to cover its cost of capital, indicating value destruction during this timeframe. The increasing negative trend in recent years is a cause for concern.
In summary, despite improvements in NOPAT at times, the consistently negative economic profit, coupled with a rising trend in recent years, suggests that the company has not been generating returns exceeding its cost of capital. The stable invested capital base indicates that capital allocation strategies may need to be re-evaluated in light of these results.
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
= × =
7 2021 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= × 21.00% =
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
= × 21.00% =
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.
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).
- 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.
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 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 $30.7 billion without substantial increase or decrease. This stabilization after an initial sharp rise could imply a plateau in new investments or acquisitions during the latter part of the period under review.
- Total Reported Debt & Leases
- Increased from 2017 to 2018, then gradually decreased each subsequent year, ending lower in 2021 than its peak.
- Total Stockholders’ Equity
- Displayed continuous and steady growth across the entire period, indicating strengthening financial foundations.
- Invested Capital
- Experienced a significant rise from 2017 to 2018, followed by a plateau, remaining relatively unchanged from 2018 through 2021.
Cost of Capital
Warner Bros. Discovery Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | ÷ | = | × | = | |||||||||
| Total debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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 | ÷ | = | × | = | |||||||||
| Total debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Total debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Total debt and finance lease liabilities3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ÷ | = | × | = | |||||||||
| Total debt and finance lease liabilities3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
| Total: | |||||||||||||
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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| Economic spread ratio3 | ||||||
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Trade Desk Inc. | ||||||
| Walt Disney Co. | ||||||
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 × ÷ =
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 -938 US$ million in 2019 to a high of -2,430 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 -10.18% in 2017 to -3.03% in 2019, suggesting a narrowing gap between returns and costs. However, the ratio worsened again in subsequent years, reaching -7.65% in 2021. This indicates a renewed decline in the company’s ability to generate returns exceeding its cost of capital. The overall trend suggests a struggle to create shareholder value during the analyzed period.
The consistent negative economic profit, coupled with the negative economic spread ratio, suggests the company has not been generating sufficient returns on its invested capital to cover its cost of capital. While invested capital remained relatively stable after an initial increase, the inability to translate this capital into positive economic profit is a key observation.
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 | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenues | ||||||
| Adjusted revenues | ||||||
| Performance Ratio | ||||||
| Economic profit margin2 | ||||||
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Trade Desk Inc. | ||||||
| Walt Disney Co. | ||||||
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 × ÷ =
3 Click competitor name to see calculations.
The period under review demonstrates a consistent pattern of negative economic profit, although the magnitude of the loss fluctuates year to year. Adjusted revenues exhibit an overall upward trend, but this has not translated into positive economic profit during the analyzed timeframe.
- Economic Profit
- Economic profit consistently registers as a negative value across all reported years. The largest loss occurred in 2018, at US$2,430 million. While the loss decreased in 2019 to US$938 million, it increased again in 2020 and 2021, remaining above US$2.3 billion in both years. This indicates a persistent inability to generate returns exceeding the cost of capital.
- Adjusted Revenues
- Adjusted revenues show an increasing trend over the five-year period. From US$6,952 million in 2017, revenues rose to US$12,115 million in 2021. However, the growth was not linear; a slight decrease was observed between 2019 and 2020. Despite this revenue growth, the company has not achieved positive economic profit.
- Economic Profit Margin
- The economic profit margin is negative for each year, reflecting the negative economic profit. The margin improved from -30.97% in 2017 to -8.25% in 2019, coinciding with the reduction in economic loss. However, the margin deteriorated again in subsequent years, reaching -19.41% in 2021. This suggests that while revenue increased, the cost of capital relative to those revenues also increased, or the efficiency of revenue generation declined. The margin’s volatility indicates a sensitivity to changes in either revenue or the cost of capital.
In summary, the company experienced revenue growth during the period, but this growth was insufficient to offset the cost of capital, resulting in consistent negative economic profit and a fluctuating, but generally worsening, economic profit margin.