Warner Bros. Discovery Inc. (NASDAQ:WBD)

The analysis of the financial ratios over the examined quarters reveals several key trends and changes in the company's financial position and risk profile.

Debt to Equity Ratio

The debt to equity ratio displays a general downward trend from early 2017 through late 2022. Initially, this ratio increased sharply from 1.52 in March 2017 to a peak of 3.21 by December 2017, indicating a significant rise in financial leverage relative to equity during that period. Following this peak, there is a consistent decline reaching approximately 1.03 by September 2022. This trend suggests a progressive reduction in reliance on debt relative to shareholder equity over the analyzed period, reflecting improving equity strength or debt reduction efforts.

Debt to Capital Ratio

The debt to capital ratio follows a somewhat similar trend, with an initial rise to 0.76 at the end of 2017, then a gradual decline from 0.71 in March 2018 to 0.51 by September 2022. This indicates a moderate decrease in the proportion of debt within the total capital structure, implying enhanced capitalization and a potential strengthening of the balance sheet.

Debt to Assets Ratio

This ratio increased from 0.51 in March 2017 to 0.66 in December 2017, indicating a growing proportion of assets financed by debt. Thereafter, a steady decline is noted, reaching 0.37 by the third quarter of 2022. This downward movement reflects an improvement in asset financing balance, with a reduced dependency on debt funding and possibly increased asset base or debt repayment.

Financial Leverage Ratio

The financial leverage ratio rose significantly from around 2.97 in March 2017 to a peak of 4.89 at the end of 2017, consistent with the debt ratio trends. After this peak, the ratio shows a downward trend, declining to approximately 2.8 by September 2022. This trend suggests a substantial decrease in overall leverage, indicating less reliance on borrowed funds to finance assets and possibly a reduction in financial risk.

Interest Coverage Ratio

Data for interest coverage begins from September 2017, initially very low at 0.71, and further declining to a nadir around 0.20 in mid-2018, signaling weak earnings relative to interest expenses during that period. Subsequently, the ratio improves markedly, rising steadily and exceeding 4.0 by the end of 2019, indicating a substantial enhancement in the company's ability to meet interest obligations from operating earnings. This improvement sustains through most of 2021, with ratios mostly above 3. However, a sharp reversal is observed in the first three quarters of 2022, when the ratio turns negative (-2.23 and -3.54), which may indicate earnings deficits relative to interest expenses and potential financial stress during these recent quarters.

Overall, the data indicate that the company underwent a period of increasing leverage through 2017, reaching peaks in multiple debt-related ratios, followed by a concerted reduction in debt levels relative to equity, capital, and assets through to late 2022. Financial leverage similarly decreased after 2017. The interest coverage ratio improvement from very low to comfortably above 3.0 suggests a strengthening ability to cover interest costs, but the abrupt negative values in 2022 warrant close attention as they may reflect operational challenges or increased financial strain. These trends depict a company that initially increased its financial risk, then managed a gradual deleveraging and improved coverage capacity, before encountering possible headwinds in the most recent periods.

The analysis of the provided quarterly financial data reveals several notable trends related to the company’s leverage and equity position over the examined periods.

Total debt

Total debt exhibited a fluctuating pattern from March 2017 through the end of 2022. Initially, debt increased significantly from approximately $8.1 billion at the beginning of 2017 to a peak near $19.4 billion by the first quarter of 2018. Subsequently, debt gradually declined, reaching a low point around $14.4 billion by the first quarter of 2022. However, there was a sharp and substantial increase in the June 2022 period, surging to about $52.5 billion, before decreasing slightly to $49.9 billion by the end of September 2022. This abrupt rise likely signals a major financing event or acquisition.

Total stockholders' equity

Stockholders' equity showed a general upward trajectory from the start of 2017 to early 2022. The equity rose from just over $5.3 billion at the start of 2017 to nearly $12 billion by the first quarter of 2022, reflecting steady growth with some minor fluctuations. There was a pronounced increase in equity corresponding with the period of rising debt in mid-2022, with equity reaching approximately $51.4 billion in June 2022, then slightly declining to $48.5 billion by September 2022. This suggests that the equity accounts adjusted in relation to the significant debt change, possibly reflecting new share issuances or revaluations associated with strategic financial activities.

Debt to equity ratio

The debt to equity ratio experienced significant variation throughout the periods. In early 2017, the ratio was around 1.5, then it spiked sharply to over 3.2 by the end of 2017, indicating a high leverage state. Following this peak, the ratio showed a consistent decline, reaching approximately 1.2 in early 2022, indicative of reduced leverage or improved equity position. However, in mid-2022, the ratio decreased to near 1.0, reflecting a substantial change corresponding with the sharp changes in both debt and equity balances. The ratio remained near 1.0 by the end of the third quarter 2022, suggesting a more balanced leverage position after the significant financial events.

Overall, the data indicates an initial phase of rising leverage followed by deleveraging and strengthening equity until early 2022. The mid-2022 period reflects a major financial restructuring or transaction, marked by a pronounced increase in both debt and equity balances, resulting in a normalized debt to equity ratio close to 1. This pattern implies strategic repositioning that significantly altered the company's capital structure within the examined timeframe.

The data reveals several key trends in the company's financial leverage and capital structure over the analyzed quarters.

Total debt (US$ in millions)

Total debt exhibits a notable increase from March 31, 2017, when it stood at approximately $8.1 billion, reaching a peak of about $19.4 billion by March 31, 2018. Following this peak, total debt demonstrates a gradual declining trajectory, with some minor fluctuations, decreasing steadily through 2019 and 2020, and significantly dropping from March 31, 2022, onwards. By the end of the period considered (September 30, 2022), total debt is recorded at approximately $49.9 billion, representing a large step up compared to prior years, indicating a substantial increase in liabilities during that latter period.

Total capital (US$ in millions)

Total capital follows a pattern that broadly mirrors total debt, increasing from about $13.4 billion in March 2017 to over $27 billion by March 2018. Subsequently, it stabilizes around the $25 billion to $26 billion range for the years 2019 through 2021. A marked increase is evident in 2022, with total capital reaching approximately $103.9 billion at June 30, 2022, followed by a slight decrease to about $98.4 billion by September 30, 2022. This sharp rise in total capital corresponds with the surge in total debt, suggesting significant changes in the company's financial base during this period.

Debt to capital ratio

The debt to capital ratio begins at 0.6 in early 2017, climbs to a high near 0.76 by December 2017, reflecting heightened reliance on debt financing. From 2018 onwards, the ratio declines steadily, reaching 0.51 by September 2022. This downward trend indicates a gradual reduction in the proportion of debt financing relative to the company's total capital, denoting an improvement in the capital structure's balance with greater equity capitalization or increased total capital outpacing debt growth over time.

Overall, the company experienced a period of increased total debt and capital up through early 2018, followed by relative stabilization and moderate deleveraging until early 2022. The dramatic increase in both total debt and total capital in 2022, accompanied by a decrease in the debt to capital ratio, suggests an expansion financed by a substantial growth in the overall capital base, possibly due to strategic transactions or capital raises. The decreasing debt to capital ratio post-peak indicates a move towards a more balanced or less leveraged capital structure.

Total Debt

The total debt shows an initial increase from 8,102 million USD in March 2017 to a peak of 19,367 million USD in March 2018. Subsequently, the debt declines steadily through to March 2022, where a notable jump occurs reaching 52,485 million USD, followed by a slight reduction to 49,869 million USD in September 2022. This indicates a significant debt acquisition or restructuring in 2022 after a period of gradual deleveraging.

Total Assets

Total assets increased markedly from about 15,862 million USD in March 2017 to over 34,600 million USD by March 2018, demonstrating considerable asset growth within one year. The asset base remains relatively stable with slight fluctuations, maintaining around 33,000 to 34,500 million USD through the end of 2021. However, in 2022, total assets surge sharply to approximately 142,240 million USD in June before marginally decreasing to 136,049 million USD in September. This substantial increase aligns with the spike in total debt observed in 2022, suggesting a major acquisition or asset infusion.

Debt to Assets Ratio

The debt to assets ratio fluctuates between 0.43 and 0.66 from March 2017 to December 2021, displaying a general decline from a high of 0.66 in December 2017 to a more stable range around 0.43 to 0.45 thereafter, indicating improved leverage and possibly more efficient capital management over time. In mid-2022, the ratio declines further to 0.37 and remains steady through September 2022, reflecting a relatively lower proportion of debt compared to assets despite the large increase in both figures. This suggests the recent debt increase is proportionate to asset growth, maintaining financial leverage at a moderate level.

Total Assets

Over the analyzed period, total assets demonstrated significant volatility. Initially, total assets increased from approximately $15.9 billion in March 2017 to a peak of around $23.1 billion by September 2017. Following this, a decline occurred through late 2017 and most of 2018, stabilizing near $32.5 billion by the end of 2018. The asset base then showed moderate fluctuations around the $32 to $34 billion range through 2019 and 2020. Notably, there was a substantial jump in total assets to over $142 billion by June 2022, which represents a significant increase compared to prior periods. This suggests the occurrence of a major acquisition, asset revaluation, or business combination during 2021 or early 2022.

Stockholders’ Equity

Equity followed a steady upward trend from Q1 2017 through Q4 2019, increasing from approximately $5.3 billion to roughly $9.9 billion. From 2020 to early 2022, equity maintained a relatively consistent growth trajectory, reaching near $12 billion by March 2022. Similar to total assets, there was a pronounced jump in equity to about $51.4 billion by mid-2022. This aligns with the sharp increase in total assets and indicates a significant capital event, such as the issuance of new shares, substantial retained earnings, or a revaluation of equity attributable to corporate restructuring.

Financial Leverage Ratio

The financial leverage ratio displayed a notable pattern of fluctuation and gradual decline over the analyzed periods. Starting at approximately 2.97 in early 2017, leverage rose sharply reaching a peak of nearly 4.89 by December 2017, indicating increased reliance on debt or liabilities relative to equity during this period. Thereafter, the ratio progressively declined through 2018 and into 2021, falling to roughly 2.82 by March 2022. This decrease suggests a deleveraging trend or improved equity base relative to total assets/liabilities. The financial leverage ratio remained relatively stable around the 3.0 mark from mid-2021 until the large asset and equity increase, after which it adjusted slightly to about 2.8 in the most recent period.

Overall Insights

The data indicates periods of increasing asset accumulation and equity growth, punctuated by sharp movements associated with corporate events around 2021 and 2022. The substantial escalation in total assets and equity in mid-2022 strongly suggests a transformative transaction affecting the balance sheet composition. The financial leverage ratio's peak in late 2017 and consistent decline thereafter could be indicative of deliberate balance sheet management aimed at reducing risk and strengthening equity positioning. The relative stability in leverage in recent quarters, despite large changes in absolute asset and equity values, points to a proportional adjustment of liabilities and equity following the major balance sheet change.

Earnings Before Interest and Tax (EBIT)

The EBIT figures demonstrate significant volatility over the analyzed periods. Initial values from March 2017 through September 2017 show positive earnings with a peak of 564 million in June 2017 followed by a sharp decline to 300 million in September 2017. A notable downturn occurred in December 2017 with a negative EBIT of -893 million, suggesting a substantial operational challenge or exceptional expense during that quarter. Following this low point, EBIT recovered to positive territory and generally exhibited improvement up to December 2019, reaching highs above 700 million multiple times. In 2020, EBIT started strong but gradually decreased, and by the first quarter of 2022 there was a steep fall into negative values again, with -3,733 million reported in March 2022 and -2,296 million in June 2022. This sharp decline at the end of the sample period indicates significant operational or non-recurring issues causing substantial losses.

Interest Expense, Net

The interest expense shows a generally stable but slightly increasing trend over the entire time horizon. Beginning at 91 million in the first quarter of 2017, interest expenses rose steadily, peaking at 196 million in the second quarter of 2018. Thereafter, the expense remained fairly consistent, fluctuating mostly between approximately 150 and 170 million up to early 2021. A notable increase is observed at the end of the available data with figures reaching 511 million and 555 million in the first and second quarters of 2022 respectively, reflecting possibly increased borrowing costs, higher debt levels, or refinancing activities.

Interest Coverage Ratio

Interest coverage ratios were unavailable for the earlier quarters but become available from December 2017 onwards. The ratio initially registered very low levels, starting at 0.71 and declining to as low as 0.20 in the following quarters, indicating difficulties in covering interest obligations from EBIT. From June 2018 through early 2021, the interest coverage ratio improved consistently, fluctuating between around 2.4 and a high of approximately 4.43, suggesting healthier operational earnings relative to interest expense. However, at the end of the data series in 2022, the ratio sharply reverses to negative values (-2.23 and -3.54), corresponding to large negative EBIT figures during these periods. This signifies a loss-making position insufficient to cover interest costs, indicating heightened financial stress or operational difficulties.