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, while the cost of capital generally increases.

NOPAT Trend

Net operating profit after taxes begins at US$3,328 million in 2011, increases to US$3,807 million in 2012, then declines to US$3,388 million in 2013. A subsequent rise to US$3,745 million occurs in 2014, followed by a decrease to US$3,391 million in 2015. This indicates volatility in operational profitability.

Cost of Capital Trend

The cost of capital shows an initial decrease from 9.98% in 2011 to 9.52% in 2012. However, it then rises steadily, reaching 11.65% in 2013, 11.45% in 2014, and peaking at 12.69% in 2015. This increasing cost of capital contributes to the consistently negative economic profit.

Invested Capital Trend

Invested capital experiences a slight increase from US$44,961 million in 2011 to US$46,124 million in 2012. It then decreases to US$44,327 million in 2013, before stabilizing around US$44,929 million in 2014 and increasing slightly to US$45,332 million in 2015. The relative stability suggests consistent capital allocation strategies.

Economic Profit Trend

Economic profit is negative throughout the entire period. It begins at -US$1,158 million in 2011, improves to -US$583 million in 2012, but then deteriorates to -US$1,777 million in 2013. Further declines are observed in 2014 (-US$1,399 million) and 2015 (-US$2,360 million). The increasing magnitude of the negative economic profit suggests a widening gap between returns generated and the cost of capital.

The combined effect of fluctuating NOPAT, a rising cost of capital, and relatively stable invested capital results in a consistently negative economic profit. The trend indicates a diminishing ability to generate returns exceeding the cost of funding the business.

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. 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 -2,360 US$ millions in 2015 to a high of -583 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 showed minimal fluctuation across the five years. It began at 44,961 US$ millions in 2011, peaked at 46,124 US$ millions in 2012, and concluded at 45,332 US$ millions in 2015. This relative stability suggests that capital allocation decisions did not significantly alter the company’s investment base during this period.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, consistently displayed negative values, indicating that the company’s return on invested capital was less than its cost of capital. A pronounced downward trend is evident, moving from -2.57% in 2011 to -5.21% in 2015. This deterioration suggests an increasing disparity between the returns generated and the cost of funding those returns. The most substantial decline in the economic spread ratio occurred between 2013 and 2015.

The combined trends suggest that while the company maintained a consistent level of investment, its ability to generate returns exceeding its cost of capital diminished over the five-year period. This resulted in increasingly negative economic profit and a widening negative economic spread.

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$1,158 million in 2011 to negative US$2,360 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 demonstrates a steady upward trend, increasing from US$19,681 million in 2011 to US$23,723 million in 2015. This growth suggests an expansion in sales or pricing power. However, this revenue growth has not been enough to offset the costs associated with generating that revenue, relative to the company’s cost of capital.

Economic Profit Margin

The economic profit margin mirrors the trend in economic profit, remaining negative throughout the period. The margin deteriorates progressively, moving from -5.88% in 2011 to -9.95% in 2015. This signifies that the proportion of revenue that fails to cover the cost of capital is increasing year over year. The most significant decline in margin occurs between 2013 and 2015, indicating a potentially worsening trend in profitability relative to capital employed.

In summary, the company experiences consistent revenue growth, but this growth is overshadowed by increasing economic losses. The declining economic profit margin suggests that the company’s operational performance is not adequately covering its cost of capital, and the situation is worsening over time.