Time Warner Inc. (NYSE:TWX)

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 generally increased over the five-year period, contributing to the sustained negative economic profit.

NOPAT Trend

Net operating profit after taxes exhibited relative stability between 2013 and 2017, ranging from US$4,751 million to US$5,167 million. A slight decrease was observed from 2013 to 2015, followed by a recovery in 2016 and a further increase in 2017, though not reaching the 2013 level.

Cost of Capital Trend

The cost of capital remained relatively consistent throughout the period, fluctuating between 10.92% and 11.60%. A minor decrease occurred between 2014 and 2015, but it subsequently increased in 2016 before stabilizing in 2017. These fluctuations, while present, did not significantly alter the overall cost of capital.

Invested Capital Trend

Invested capital generally increased from US$52,455 million in 2014 to US$57,150 million in 2017. A decrease was noted between 2013 and 2014, but the subsequent years show a clear upward trend. This increase in invested capital, coupled with a cost of capital exceeding NOPAT, exacerbated the negative economic profit.

Economic Profit Trend

Economic profit remained negative throughout the entire period, ranging from -US$871 million to -US$1,565 million. A consistent downward trend is observed, with the economic loss increasing each year. The largest negative economic profit occurred in 2017, indicating a widening gap between the return generated from invested capital and the cost of that capital.

The consistent negative economic profit suggests that the company’s investments are not generating returns sufficient to satisfy investor expectations, given the prevailing cost of capital. The increasing invested capital, without a corresponding increase in NOPAT to offset the cost of capital, is a key driver of the worsening economic profit.

Net Income Attributable to Time Warner Inc. Shareholders

A consistent upward trend in net income is observable over the five-year period. Starting at $3,691 million in 2013, net income increased marginally each year, reaching $3,927 million in 2016. A notable rise occurred in 2017, with net income sharply increasing to $5,247 million, indicating a significant enhancement in profitability in that year.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a relatively stable but slightly fluctuating pattern. From $5,150 million in 2013, it increased slightly to $5,167 million in 2014, followed by a decline to $4,751 million in 2015. The figure then recovered somewhat in 2016 and 2017, reaching $5,040 million by the end of 2017. Overall, NOPAT remained within a narrow range, suggesting moderate operational profit stability with some variation over the years.

Comparative Observations

While net income demonstrated a robust growth trajectory, especially in the final year, NOPAT displayed greater stability but without a clear upward trend. The divergence between the increasing net income and relatively stable NOPAT in the last year might indicate changes in non-operating factors such as financing activities, tax adjustments, or other income components contributing positively to net income.

Current and Deferred Income Taxes on Income from Continuing Operations

The amount of current and deferred income taxes provided on income from continuing operations exhibited a fluctuating trend over the five-year period. In 2013, the value was 1,749 million US dollars, which decreased significantly to 785 million in 2014. It then increased again to 1,651 million in 2015, followed by a decline to 1,281 million in 2016. By the end of 2017, this measure further dropped to 701 million US dollars, marking the lowest point in the observed range. Overall, the data suggest variability with no clear upward or downward long-term trend, but a general reduction from the starting value.

Cash Operating Taxes

Cash operating taxes showed a more consistent upward trend compared to the income taxes provided on continuing operations. Starting at 1,442 million US dollars in 2013, there was a notable increase to 1,048 million in 2014, which appears to be a decline; however, the following years reversed this pattern with values rising to 1,757 million in 2015 and then slightly decreasing to 1,465 million in 2016. The amount surged substantially in 2017 to 2,078 million US dollars, representing the highest value within the period. This trend indicates growing cash tax liabilities over time, with some minor fluctuations in the middle years.

Comparison Insights

Comparing both tax-related measures reveals divergent patterns: while current and deferred income taxes showed a volatile yet generally declining trend, cash operating taxes tended to increase, especially markedly in the final year. This divergence may indicate changes in tax accounting, timing differences, or shifts in taxable income and cash tax payment obligations across the reporting years.

Total Reported Debt & Leases

The total reported debt and leases exhibited a generally increasing trend from 2013 to 2016, rising from $21,765 million to $25,355 million. However, in 2017, there was a slight decrease to $24,720 million. This indicates an overall growth in debt commitments over the period, with a minor reduction in the final year.

Total Time Warner Inc. Shareholders’ Equity

Shareholders’ equity showed a declining trend from 2013 through 2015, decreasing from $29,904 million to $23,619 million. In 2016, the equity slightly increased to $24,335 million and further rebounded more significantly in 2017 to $28,375 million. This pattern suggests a period of equity contraction followed by recovery toward the end of the analyzed timeframe.

Invested Capital

Invested capital declined from $56,262 million in 2013 to $52,455 million in 2014, followed by a modest increase in subsequent years, reaching $57,150 million in 2017. The leveling and eventual rise in invested capital imply a stabilization and renewed investment activities after an initial drop.

Overall Observations

Over the five-year period, the company’s financial structure demonstrated changes characterized by an initial increase in debt and decrease in equity and invested capital, followed by a stabilization and partial recovery. The reduction in shareholders’ equity between 2013 and 2015 could be indicative of challenges faced, while the subsequent increases in equity and invested capital suggest restored confidence and investment. The relatively stable debt levels near the end of the period highlight a controlled leverage approach.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern of negative economic profit over the five-year period from 2013 to 2017. Simultaneously, invested capital exhibits a generally increasing trend, though with a slight decrease between 2013 and 2014. The economic spread ratio, reflecting the relationship between economic profit and invested capital, reveals a worsening trend over the observed timeframe.

Economic Profit

Economic profit consistently registers as negative throughout the period, ranging from a loss of US$1,314 million in 2013 to a loss of US$1,565 million in 2017. The magnitude of the loss increases year-over-year, indicating a growing disparity between returns generated and the cost of capital. While the loss lessened slightly from 2013 to 2014, it has steadily increased since then.

Invested Capital

Invested capital decreased from US$56,262 million in 2013 to US$52,455 million in 2014. Following this decrease, invested capital generally increased each year, reaching US$57,150 million in 2017. This suggests a reinvestment strategy or capital acquisition, despite the concurrent negative economic profit.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, shows a consistent decline from -2.34% in 2013 to -2.74% in 2017. This indicates that the difference between the return on invested capital and the cost of capital is becoming increasingly negative. The ratio’s movement suggests that the company’s investments are generating returns that are progressively further below the required rate of return.

In summary, the observed trends suggest a growing challenge in generating returns sufficient to cover the cost of capital. Despite increases in invested capital, the company continues to experience negative economic profit, and the economic spread ratio indicates a widening gap between returns and the cost of capital. This pattern warrants further investigation into the underlying drivers of profitability and capital allocation efficiency.

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 2013 to 2017. While adjusted revenues exhibit some fluctuation, the economic profit margin steadily declines throughout the observed timeframe.

Economic Profit

Economic profit consistently registers as a negative value each year. The magnitude of the loss increases from US$1,314 million in 2013 to US$1,565 million in 2017. There is a slight improvement from 2013 to 2014, followed by a generally worsening trend in subsequent years.

Adjusted Revenues

Adjusted revenues decreased from US$29,738 million in 2013 to US$27,360 million in 2014, representing a decline. Revenues then experienced a moderate increase to US$28,192 million in 2015, followed by further growth to US$29,400 million in 2016. The highest revenue level is observed in 2017, reaching US$31,400 million. Despite revenue growth in the later years, it has not been sufficient to generate positive economic profit.

Economic Profit Margin

The economic profit margin is negative throughout the period, indicating that the company’s return on capital employed is less than its cost of capital. The margin worsens from -4.42% in 2013 to -4.98% in 2017. This consistent decline suggests a growing disparity between the returns generated and the cost of financing those returns. The most significant decrease in margin occurs between 2016 and 2017.

In summary, while adjusted revenues show a recovery and growth trend towards the end of the period, the company continues to destroy economic value, as evidenced by the consistently negative economic profit and the declining economic profit margin. The increasing magnitude of the economic loss, coupled with the worsening margin, suggests a need for strategic review to improve profitability and capital efficiency.