Fidelity National Information Services Inc. (NYSE:FIS)

The financial performance, as measured by economic profit, demonstrates a consistent decline over the observed period. Net operating profit after taxes (NOPAT) and invested capital exhibit fluctuating patterns, while the cost of capital generally decreases. However, these movements collectively result in increasingly negative economic profit figures.

NOPAT Trend

Net operating profit after taxes began at US$889 million in 2018, decreased significantly to US$578 million in 2019, and continued to decline to US$325 million in 2020. A modest recovery to US$524 million occurred in 2021, but this was followed by a substantial loss of US$17,009 million in 2022. This represents a dramatic shift from profitability to a significant net loss.

Cost of Capital Trend

The cost of capital started at 12.19% in 2018, increased slightly to 12.37% in 2019, and then decreased to 12.00% in 2020. Further reductions were observed in 2021 (10.95%) and 2022 (10.64%). Despite this decreasing trend, the cost of capital did not offset the decline in NOPAT.

Invested Capital Trend

Invested capital increased substantially from US$22,222 million in 2018 to US$75,448 million in 2019. It remained relatively stable at US$75,049 million in 2020 and US$73,331 million in 2021 before decreasing to US$52,862 million in 2022. The large increase in invested capital in 2019, coupled with the decline in NOPAT, likely contributed to the negative economic profit observed in subsequent years.

Economic Profit Trend

Economic profit was negative throughout the entire period. Beginning at a loss of US$1,819 million in 2018, it worsened to a loss of US$8,752 million in 2019 and US$8,681 million in 2020. The loss continued to US$7,504 million in 2021, culminating in a substantial loss of US$22,633 million in 2022. The magnitude of the loss in 2022 is significantly larger than in previous years, indicating a substantial erosion of shareholder value.

The consistent negative economic profit suggests that the company is not generating returns exceeding its cost of capital. The dramatic decline in NOPAT in 2022, combined with a still substantial invested capital base, is the primary driver of the significantly increased economic loss in that year.

Net earnings (loss) attributable to common stockholders

From 2018 through 2021, net earnings displayed a significant downward trend. Beginning at 846 million USD in 2018, earnings decreased sharply to 298 million USD in 2019 and further to 158 million USD in 2020. A partial recovery occurred in 2021, with net earnings increasing to 417 million USD. However, 2022 saw a dramatic reversal, with net earnings recording a substantial loss amounting to -16,720 million USD, indicating a severe deterioration in profitability during that year.

Net operating profit after taxes (NOPAT)

NOPAT followed a pattern similar to net earnings over the same period. Starting at 889 million USD in 2018, NOPAT declined to 578 million USD in 2019 and further to 325 million USD in 2020. An improvement occurred in 2021, with NOPAT rising to 524 million USD. In 2022, NOPAT experienced a significant negative swing, registering a loss of -17,009 million USD, closely mirroring the net earnings loss and highlighting operational challenges impacting the company drastically in that year.

Overall insights

The data reveal a weakening profitability trend from 2018 to 2020, followed by some operational recovery in 2021. The extreme losses recorded in 2022 suggest extraordinary events or impairments that severely affected financial performance. Both net earnings and NOPAT demonstrate a high correlation in their trajectory, underscoring consistent operational and financial difficulties particularly in the final year observed.

Provision for income taxes

The provision for income taxes exhibited a notable fluctuation over the analyzed years. Initially, there was a significant decline from 208 million US dollars in 2018 to 100 million in 2019, followed by a slight decrease to 96 million in 2020. However, from 2020 onwards, the provision increased sharply to 371 million in 2021 and slightly further to 377 million in 2022. This pattern indicates a period of reduced tax obligations or accounting adjustments in the middle years, followed by a substantial rise in tax provisions in the most recent years.

Cash operating taxes

Cash operating taxes demonstrated a variable upward trend with some fluctuations. The amount decreased from 389 million in 2018 to 290 million in 2019, then rebounded to 381 million in 2020. After 2020, there was a significant increase to 508 million in 2021, and this upward trajectory accelerated sharply to 962 million in 2022. This progression suggests increasing cash tax outflows in recent years, which may reflect growing taxable income or changes in tax payment schedules.

Over the observed period, the total reported debt and leases displayed a significant increase from 2018 to 2019, rising from approximately 9.4 billion to 20.8 billion US dollars. This level remained relatively stable through to 2022, fluctuating slightly but staying near the 20.5 billion mark.

The total stockholders’ equity exhibited a sharp growth from 2018 to 2019, more than quadrupling from just over 10.2 billion to nearly 49.4 billion US dollars. However, this equity value began to decline gradually after 2019, decreasing to approximately 47.3 billion in 2021, before falling more substantially to around 27.2 billion by the end of 2022.

Invested capital followed a somewhat similar trend as the debt figures, showing a substantial rise from 22.2 billion in 2018 to a peak of 75.4 billion in 2019. Following that peak, invested capital remained relatively steady around 73.3 to 75.0 billion through 2020 and 2021 but then saw a marked decrease to approximately 52.8 billion in 2022.

Overall, the data suggest a period of significant capital expansion and leverage increase around 2019, followed by a phase of declining equity and invested capital starting in 2021 and continuing through 2022. This pattern may indicate strategic changes in capital structure or operational adjustments during the latter years of the period analyzed.

The period under review demonstrates a consistently negative economic profit, alongside fluctuating invested capital, resulting in a declining economic spread ratio. A clear trend of diminishing financial performance is evident when considering these metrics collectively.

Economic Profit

Economic profit exhibits a negative value throughout the observed timeframe. While initially at -US$1,819 million in 2018, it significantly decreased to -US$22,633 million by 2022. This represents a substantial and accelerating decline in value creation above the cost of capital.

Invested Capital

Invested capital increased considerably from US$22,222 million in 2018 to US$75,448 million in 2019. It remained relatively stable between 2019 and 2021, fluctuating around US$75 million. However, a notable decrease to US$52,862 million occurred in 2022. This suggests potential shifts in capital allocation or divestitures towards the end of the period.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, consistently registers negative values, indicating that the company’s return on invested capital is less than its cost of capital. The ratio moved from -8.19% in 2018 to -11.60% in 2019 and remained relatively stable around -11% through 2021. A dramatic decline to -42.82% in 2022 signifies a substantial worsening in the relationship between returns and capital costs. This sharp deterioration coincides with the significant decrease in economic profit and the reduction in invested capital.

The combined effect of decreasing economic profit and the fluctuating invested capital has resulted in a progressively worsening economic spread ratio. The substantial decline in the economic spread ratio in 2022 warrants further investigation to understand the underlying drivers and potential implications for future performance.

The economic profit margin demonstrates a consistently negative trend over the five-year period. Economic profit itself is negative throughout the observed timeframe, indicating the company’s returns are insufficient to cover its cost of capital.

Economic Profit

Economic profit exhibits increasing negative values from 2018 to 2022. Starting at negative $1,819 million in 2018, it declines to negative $22,633 million in 2022. This represents a substantial deterioration in the company’s ability to generate returns exceeding its cost of capital.

Adjusted Revenue

Adjusted revenue shows a generally positive trend, increasing from $8,347 million in 2018 to $14,527 million in 2022. However, the growth in revenue has not been sufficient to offset the increasing negative economic profit.

Economic Profit Margin

The economic profit margin, calculated as economic profit divided by adjusted revenue, consistently registers as a negative percentage. The margin worsens significantly from -21.79% in 2018 to -155.80% in 2022. This indicates a growing disparity between revenue generation and the cost of capital employed to generate that revenue. The substantial decline in the margin from 2021 (-54.02%) to 2022 (-155.80%) is particularly noteworthy, suggesting a significant shift in profitability relative to capital employed during that period.

In summary, while adjusted revenue has increased, the company’s economic profit has deteriorated substantially, resulting in a significantly worsening economic profit margin. This suggests that the cost of capital is increasing at a faster rate than the returns generated from revenue, or that capital is being deployed less efficiently.