Time Warner Cable Inc. (NYSE:TWC)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) fluctuates, it does not generate sufficient returns to cover the cost of capital employed. Invested capital remains relatively stable throughout the period, with modest increases observed in some years.

Economic Profit Trend

Economic profit exhibits a clear downward trend, moving from a loss of US$1,155 million in 2011 to a loss of US$2,356 million in 2015. The magnitude of the loss increases each year, indicating a widening gap between returns generated and the cost of financing those returns.

NOPAT Performance

Net operating profit after taxes shows some variability. It increased from US$3,328 million in 2011 to US$3,807 million in 2012, then decreased to US$3,388 million in 2013. A subsequent rise to US$3,745 million in 2014 was followed by a decline to US$3,391 million in 2015. Despite these fluctuations, NOPAT levels are consistently insufficient to produce a positive economic profit.

Cost of Capital

The cost of capital generally increased over the period, rising from 9.97% in 2011 to 12.68% in 2015. This increase in the cost of capital contributes to the growing negative economic profit, as a larger return is required on the invested capital to achieve profitability. The cost of capital experienced a slight decrease in 2012, but then resumed its upward trajectory.

Invested Capital

Invested capital remained relatively stable, ranging between US$44,327 million and US$46,124 million. While there are minor year-to-year changes, no significant trend of increasing or decreasing capital deployment is apparent. The consistent level of invested capital, coupled with rising cost of capital and fluctuating NOPAT, reinforces the negative economic profit trend.

In summary, the analysis reveals a consistent inability to generate economic profit. The increasing cost of capital, combined with relatively stable invested capital and fluctuating NOPAT, results in a widening economic loss over the observed 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.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern of negative economic profit over the five-year period. Simultaneously, invested capital remained relatively stable, while the economic spread ratio exhibited a clear downward trend.

Economic Profit

Economic profit consistently registered as negative values throughout the observed period, ranging from a low of -2,356 US$ millions in 2015 to a high of -580 US$ millions in 2012. The magnitude of the negative economic profit increased over time, suggesting a widening gap between the company’s cost of capital and the returns generated from its investments. The largest decrease in economic profit occurred between 2014 and 2015.

Invested Capital

Invested capital remained relatively consistent across the five years, fluctuating between 44,327 and 46,124 US$ millions. A slight upward trend is observable in the earlier years (2011-2012), followed by a minor decline and stabilization. This suggests that the company did not significantly alter its capital base during this period.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, consistently showed negative values, indicating that the company’s return on invested capital was less than its cost of capital. The ratio exhibited a pronounced downward trend, moving from -2.57% in 2011 to -5.20% in 2015. This deterioration suggests an increasing disparity between the returns generated and the cost of funding those returns, further contributing to the negative economic profit.

In summary, the observed trends suggest a weakening financial performance characterized by consistently negative economic profit and a declining economic spread ratio, despite a stable level of invested capital. The increasing negative economic profit and the worsening economic spread ratio indicate a growing challenge in generating returns sufficient to cover the cost of capital.

The financial performance, as indicated by economic profit and its margin, demonstrates a consistent pattern of negative economic profit over the five-year period from 2011 to 2015. While adjusted revenue exhibits growth, it has not been sufficient to translate into positive economic profit.

Economic Profit

Economic profit consistently registers as a negative value throughout the observed period. The magnitude of the loss increases over time, moving from negative US$1,155 million in 2011 to negative US$2,356 million in 2015. This indicates a widening gap between the company’s cost of capital and the returns generated from its operations.

Adjusted Revenue

Adjusted revenue shows a steady upward trend, increasing from US$19,681 million in 2011 to US$23,723 million in 2015. This represents a cumulative growth of approximately 20.5% over the five-year period. However, this revenue growth has not been enough to offset the increasing economic losses.

Economic Profit Margin

The economic profit margin mirrors the trend in economic profit, remaining negative throughout the period and becoming increasingly negative. Starting at -5.87% in 2011, the margin declines to -9.93% in 2015. This signifies that for every dollar of adjusted revenue, the company is destroying more economic value over time. The most significant decline in margin occurs between 2013 and 2015, suggesting a potential acceleration of underlying issues impacting profitability relative to capital employed.

In summary, the company experiences consistent revenue growth, but this growth is overshadowed by increasing economic losses and a deteriorating economic profit margin. The trend suggests that the cost of capital exceeds the returns generated by the company’s operations, and the gap is widening.