Time Warner Cable Inc. (NYSE:TWC)

The analysis of the annual financial data reveals several important trends related to profitability, cost of capital, invested capital, and economic profit over the five-year period considered.

Net Operating Profit After Taxes (NOPAT)

NOPAT showed variability across the years, with an initial increase from 3,328 million USD in 2011 to a peak of 3,807 million USD in 2012. This was followed by a decline to 3,388 million USD in 2013, a rebound to 3,745 million USD in 2014, and then another decrease to 3,391 million USD by 2015. Overall, despite fluctuations, NOPAT remained relatively stable around the 3,300–3,800 million USD range.

Cost of Capital

The cost of capital demonstrated an upward trend over the period analyzed. It started at 8.78% in 2011, slightly decreased to 8.4% in 2012, then increased significantly to 10.12% in 2013. After a small dip to 9.96% in 2014, it rose again to the highest level of 10.96% in 2015. This increase implies a rising hurdle rate for investment returns, which could have implications for capital budgeting and valuation.

Invested Capital

Invested capital remained relatively stable with minor fluctuations. It increased slightly from 44,961 million USD in 2011 to 46,124 million USD in 2012, then declined to 44,327 million USD in 2013. The figure rose again marginally to 44,929 million USD in 2014 and 45,332 million USD in 2015. This relative stability suggests modest changes in the company's investment base over these years.

Economic Profit

The economic profit was negative throughout the entire period, indicating that the company's profit after capital charges was insufficient to cover the cost of capital. The loss narrowed significantly from -620 million USD in 2011 to -68 million USD in 2012, reflecting an improved value creation situation. However, economic profit worsened to -1,097 million USD in 2013, improved somewhat to -729 million USD in 2014, and then deteriorated substantially to -1,578 million USD in 2015. This pattern suggests ongoing challenges in generating returns above the company’s cost of capital, particularly deteriorating performance in the final year analyzed.

In summary, while net operating profit after taxes showed some volatility but no clear trend, the rising cost of capital combined with relatively stable invested capital led to persistent negative economic profit, with notable deterioration in 2013 and again in 2015. These patterns highlight potential concerns regarding the company's ability to generate value above its capital costs during the period.

Net income attributable to TWC shareholders

The net income showed an upward trend from 2011 to 2012, increasing from $1665 million to $2155 million. However, in 2013 a decline occurred to $1954 million, followed by a slight recovery in 2014 to $2031 million. The year 2015 saw another decrease to $1844 million, indicating a general volatility with a peak in 2012 and subsequent fluctuations.

Net operating profit after taxes (NOPAT)

NOPAT increased from $3328 million in 2011 to $3807 million in 2012, mirroring the peak found in net income for the same year. In 2013, NOPAT declined to $3388 million but rose again in 2014 to $3745 million, approaching the 2012 level. By 2015, NOPAT decreased to $3391 million, showing the same fluctuating pattern observed in net income, with 2012 and 2014 as relatively stronger years.

Overall financial performance trends

Both net income and NOPAT exhibited similar cyclical patterns over the five-year period. The highest values were observed in the early part of the timeframe (specifically 2012), followed by periods of decline and partial recovery. This suggests fluctuations in profitability and operating efficiency, potentially reflecting changes in operational effectiveness, market conditions, or other external factors influencing financial outcomes.

The financial data indicates fluctuations in the income tax provision and cash operating taxes of the company over the five-year period ending December 31, 2015.

Income Tax Provision

The income tax provision demonstrates an overall upward trend from 2011 through 2014, increasing from 795 million US dollars in 2011 to a peak of 1,217 million in 2014. However, in 2015, there is a slight decline to 1,144 million US dollars. This suggests rising taxable earnings or adjustments in tax liabilities during the initial years followed by a moderate reduction in the last year.

Cash Operating Taxes

Cash operating taxes present a more variable pattern. Beginning at 705 million US dollars in 2011, the amount rises sharply to 1,194 million in 2012 and continues to increase to 1,281 million in 2013. Subsequently, it decreases to 973 million in 2014 before partially rebounding to 1,057 million in 2015. This fluctuation may reflect changes in the company's actual cash outflows for taxes, potentially influenced by alterations in tax payment timing, tax credits, or tax planning strategies.

Overall, while the income tax provision generally increased over the period with a minor decline at the end, the cash operating taxes followed a less consistent path, showing considerable volatility. The divergence between the income tax provision and cash operating taxes in certain years may indicate differences between accounting for tax expenses and actual cash paid, affecting cash flow management and tax planning effectiveness.

Total reported debt & leases

The reported debt and leases demonstrate a consistent declining trend over the observed period. Starting at 27,138 million USD at the end of 2011, the debt slightly increased to 27,378 million USD in 2012, then steadily decreased each year thereafter, reaching 23,183 million USD by the end of 2015. This indicates a reduction in the company's leverage or obligations related to debt and lease commitments over five years.

Total shareholders’ equity

Shareholders’ equity shows some fluctuations but a general upward trend across the period. Initially, the equity value decreased from 7,530 million USD in 2011 to 6,943 million USD in 2013. Afterward, the equity figures improved significantly, increasing to 8,013 million USD in 2014 and further to 8,995 million USD by the end of 2015. This growth suggests strengthening of the company's net asset position or profitability retention over time.

Invested capital

Invested capital remained relatively stable throughout the period, with minor fluctuations. It started at 44,961 million USD in 2011, peaked at 46,124 million USD in 2012, then decreased to 44,327 million USD in 2013. It showed slight increases in subsequent years, ending at 45,332 million USD in 2015. This stability reflects consistency in the company's overall capital base employed in operations.

Economic Profit

The economic profit exhibits a generally negative trend throughout the period analyzed. In 2011, the economic profit was significantly negative at -620 million US dollars. It showed improvement in 2012, reducing the negative value to -68 million US dollars, but this positive shift was short-lived. A substantial decline occurred in 2013, with economic profit plummeting to -1097 million US dollars, followed by a slight recovery in 2014 to -729 million US dollars. In 2015, economic profit deteriorated further to -1578 million US dollars, marking the most severe loss in the observed timeframe.

Invested Capital

Invested capital remained relatively stable over the five years, fluctuating within a narrow range. Starting at 44,961 million US dollars in 2011, it increased modestly to 46,124 million US dollars in 2012, then declined slightly to 44,327 million US dollars in 2013. The subsequent years saw incremental increases, reaching 44,929 million US dollars in 2014 and 45,332 million US dollars in 2015. This indicates a steady level of invested resources without significant expansion or contraction during the period.

Economic Spread Ratio

The economic spread ratio consistently remained negative throughout the period, illustrating ongoing challenges in generating returns above the cost of capital. It started at -1.38% in 2011 and improved somewhat to -0.15% in 2012, indicating a near breakeven performance. However, the ratio worsened significantly to -2.47% in 2013, reflecting increased economic inefficiency. Minor recovery was observed in 2014 with a ratio of -1.62%, yet the ratio declined again to its lowest point of -3.48% in 2015. This pattern underscores persistent and growing underperformance relative to capital costs.

Overall Analysis

The data reveals a pattern of economic underperformance augmented by sustained negative economic profit and economic spreads over the assessed years. Despite stable invested capital, the company's returns have not been sufficient to generate positive economic profit. The fluctuations in economic profit and economic spread indicate volatility in profitability, but the general direction points toward increasing economic losses, especially marked by the sharp declines in 2013 and 2015. This suggests that the firm faced growing challenges in delivering value over the cost of capital during this period.

Adjusted Revenue

The adjusted revenue of the company demonstrates a consistent upward trend over the five-year period. Starting at approximately $19.7 billion in 2011, it increased steadily each year, reaching nearly $23.7 billion by the end of 2015. This indicates sustained growth in the company’s revenue streams during the period under review.

Economic Profit

Economic profit shows considerable volatility and remains negative throughout the period, indicating that the company did not generate economic profits in any of these years. In 2011, the economic loss was $620 million, which significantly improved to a much smaller loss of $68 million in 2012. However, this improvement was short-lived, as economic profit sharply declined to a loss of $1,097 million by 2013. The company somewhat reduced its losses in 2014 to $729 million, but the economic loss deepened considerably again in 2015 to $1,578 million. The fluctuations imply challenges in achieving profitability after accounting for the cost of capital.

Economic Profit Margin

The economic profit margin, expressed as a percentage, parallels the trends observed in economic profit and remains negative throughout. Starting at -3.15% in 2011, it improved markedly to -0.32% in 2012, reflecting a reduction in economic losses relative to revenue. Nonetheless, the margin deteriorated substantially in 2013 to -4.96%, improved slightly in 2014 to -3.19%, and then worsened again in 2015 to -6.65%. The widening negative margin toward the end of the period suggests increasing difficulty in generating returns above the cost of capital despite growing revenue.

Insights

Although the company experienced steady revenue growth, this did not translate into positive economic profits or improved profitability margins. The inconsistent performance in economic profit and the persistent negative economic profit margin indicate ongoing challenges in cost management or capital efficiency. The substantial dips in economic profit in 2013 and 2015, despite growth in revenue, raise concerns about rising costs or investments that have not yet yielded sufficient returns. Overall, the financial data reflect a need for strategic initiatives to improve economic profitability despite favorable top-line growth.