Stock Analysis on Net

Time Warner Inc. (NYSE:TWX)

This company has been moved to the archive! The financial data has not been updated since April 26, 2018.

Economic Value Added (EVA)

Microsoft Excel

EVA is registered trademark of Stern Stewart.

Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.


Economic Profit

Time Warner Inc., economic profit calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net operating profit after taxes (NOPAT)1 5,040 4,943 4,751 5,167 5,150
Cost of capital2 10.60% 10.65% 10.06% 10.59% 10.57%
Invested capital3 57,150 54,961 53,163 52,455 56,262
 
Economic profit4 (1,015) (909) (597) (386) (799)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

4 2017 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 5,04010.60% × 57,150 = -1,015

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. Time Warner Inc. economic profit decreased from 2015 to 2016 and from 2016 to 2017.

Net Operating Profit after Taxes (NOPAT)

Time Warner Inc., NOPAT calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income attributable to Time Warner Inc. shareholders 5,247 3,926 3,833 3,827 3,691
Deferred income tax expense (benefit)1 (1,010) 236 328 166 759
Increase (decrease) in allowance for doubtful accounts2 (31) 13 28 (39) (23)
Increase (decrease) in deferred revenue3 129 82 74 1 (57)
Increase (decrease) in accrued restructuring and severance costs4 26 (82) (281) 348 78
Increase (decrease) in equity equivalents5 (886) 249 149 476 757
Interest expense 1,214 1,388 1,382 1,353 1,283
Interest expense, operating lease liability6 40 40 59 68 93
Adjusted interest expense 1,254 1,428 1,441 1,421 1,376
Tax benefit of interest expense7 (439) (500) (504) (497) (482)
Adjusted interest expense, after taxes8 815 928 937 924 895
(Gain) loss on marketable securities 4 19 (10) 7
Interest income (209) (227) (219) (184) (93)
Investment income, before taxes (205) (227) (200) (194) (86)
Tax expense (benefit) of investment income9 72 79 70 68 30
Investment income, after taxes10 (133) (148) (130) (126) (56)
(Income) loss from discontinued operations, net of tax11 (11) (37) 67 (137)
Net income (loss) attributable to noncontrolling interest (3) (1) (1)
Net operating profit after taxes (NOPAT) 5,040 4,943 4,751 5,167 5,150

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in allowance for doubtful accounts.

3 Addition of increase (decrease) in deferred revenue.

4 Addition of increase (decrease) in accrued restructuring and severance costs.

5 Addition of increase (decrease) in equity equivalents to net income attributable to Time Warner Inc. shareholders.

6 2017 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 976 × 4.10% = 40

7 2017 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 1,254 × 35.00% = 439

8 Addition of after taxes interest expense to net income attributable to Time Warner Inc. shareholders.

9 2017 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 205 × 35.00% = 72

10 Elimination of after taxes investment income.

11 Elimination of discontinued operations.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. Time Warner Inc. NOPAT increased from 2015 to 2016 and from 2016 to 2017.

Cash Operating Taxes

Time Warner Inc., cash operating taxes calculation

US$ in millions

Microsoft Excel
12 months ended: Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current and deferred income taxes provided on Income from continuing operations 701 1,281 1,651 785 1,749
Less: Deferred income tax expense (benefit) (1,010) 236 328 166 759
Add: Tax savings from interest expense 439 500 504 497 482
Less: Tax imposed on investment income 72 79 70 68 30
Cash operating taxes 2,078 1,465 1,757 1,048 1,442

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. Time Warner Inc. cash operating taxes decreased from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

Invested Capital

Time Warner Inc., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Debt due within one year 5,450 1,947 198 1,118 66
Long-term debt, excluding due within one year 18,294 22,392 23,594 21,376 20,099
Operating lease liability1 976 1,016 1,083 1,262 1,600
Total reported debt & leases 24,720 25,355 24,875 23,756 21,765
Total Time Warner Inc. shareholders’ equity 28,375 24,335 23,619 24,476 29,904
Net deferred tax (assets) liabilities2 1,473 2,553 2,320 2,020 2,195
Allowance for doubtful accounts3 162 193 180 152 261
Deferred revenue4 1,179 1,050 968 894 1,477
Accrued restructuring and severance costs5 197 171 253 534 244
Equity equivalents6 3,011 3,967 3,721 3,600 4,177
Accumulated other comprehensive (income) loss, net of tax7 1,437 1,510 1,446 1,164 852
Redeemable noncontrolling interest 35 29 29
Noncontrolling interest 1 2
Adjusted total Time Warner Inc. shareholders’ equity 32,859 29,843 28,815 29,240 34,933
Construction in progress8 (380) (183) (174) (223) (339)
Marketable securities9 (49) (54) (353) (318) (97)
Invested capital 57,150 54,961 53,163 52,455 56,262

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

1 Addition of capitalized operating leases.

2 Elimination of deferred taxes from assets and liabilities. See details »

3 Addition of allowance for doubtful accounts receivable.

4 Addition of deferred revenue.

5 Addition of accrued restructuring and severance costs.

6 Addition of equity equivalents to total Time Warner Inc. shareholders’ equity.

7 Removal of accumulated other comprehensive income.

8 Subtraction of construction in progress.

9 Subtraction of marketable securities.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Time Warner Inc. invested capital increased from 2015 to 2016 and from 2016 to 2017.

Cost of Capital

Time Warner Inc., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 73,595 73,595 ÷ 99,897 = 0.74 0.74 × 13.38% = 9.86%
Debt3 25,327 25,327 ÷ 99,897 = 0.25 0.25 × 4.32% × (1 – 35.00%) = 0.71%
Operating lease liability4 976 976 ÷ 99,897 = 0.01 0.01 × 4.10% × (1 – 35.00%) = 0.03%
Total: 99,897 1.00 10.60%

Based on: 10-K (reporting date: 2017-12-31).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 75,157 75,157 ÷ 102,750 = 0.73 0.73 × 13.38% = 9.79%
Debt3 26,577 26,577 ÷ 102,750 = 0.26 0.26 × 4.97% × (1 – 35.00%) = 0.84%
Operating lease liability4 1,016 1,016 ÷ 102,750 = 0.01 0.01 × 3.91% × (1 – 35.00%) = 0.03%
Total: 102,750 1.00 10.65%

Based on: 10-K (reporting date: 2016-12-31).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 52,672 52,672 ÷ 80,037 = 0.66 0.66 × 13.38% = 8.81%
Debt3 26,282 26,282 ÷ 80,037 = 0.33 0.33 × 5.65% × (1 – 35.00%) = 1.21%
Operating lease liability4 1,083 1,083 ÷ 80,037 = 0.01 0.01 × 5.45% × (1 – 35.00%) = 0.05%
Total: 80,037 1.00 10.06%

Based on: 10-K (reporting date: 2015-12-31).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 68,452 68,452 ÷ 96,458 = 0.71 0.71 × 13.38% = 9.50%
Debt3 26,745 26,745 ÷ 96,458 = 0.28 0.28 × 5.80% × (1 – 35.00%) = 1.05%
Operating lease liability4 1,262 1,262 ÷ 96,458 = 0.01 0.01 × 5.38% × (1 – 35.00%) = 0.05%
Total: 96,458 1.00 10.59%

Based on: 10-K (reporting date: 2014-12-31).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 57,746 57,746 ÷ 82,265 = 0.70 0.70 × 13.38% = 9.39%
Debt3 22,919 22,919 ÷ 82,265 = 0.28 0.28 × 6.11% × (1 – 35.00%) = 1.11%
Operating lease liability4 1,600 1,600 ÷ 82,265 = 0.02 0.02 × 5.83% × (1 – 35.00%) = 0.07%
Total: 82,265 1.00 10.57%

Based on: 10-K (reporting date: 2013-12-31).

1 US$ in millions

2 Equity. See details »

3 Debt. See details »

4 Operating lease liability. See details »


Economic Spread Ratio

Time Warner Inc., economic spread ratio calculation, comparison to benchmarks

Microsoft Excel
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (US$ in millions)
Economic profit1 (1,015) (909) (597) (386) (799)
Invested capital2 57,150 54,961 53,163 52,455 56,262
Performance Ratio
Economic spread ratio3 -1.78% -1.65% -1.12% -0.73% -1.42%
Benchmarks
Economic Spread Ratio, Competitors4
Alphabet Inc.
Comcast Corp.
Meta Platforms Inc.
Netflix Inc.
Walt Disney Co.

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

1 Economic profit. See details »

2 Invested capital. See details »

3 2017 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -1,015 ÷ 57,150 = -1.78%

4 Click competitor name to see calculations.

Performance ratio Description The company
Economic spread ratio The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Time Warner Inc. economic spread ratio deteriorated from 2015 to 2016 and from 2016 to 2017.

Economic Profit Margin

Time Warner Inc., economic profit margin calculation, comparison to benchmarks

Microsoft Excel
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (US$ in millions)
Economic profit1 (1,015) (909) (597) (386) (799)
 
Revenues 31,271 29,318 28,118 27,359 29,795
Add: Increase (decrease) in deferred revenue 129 82 74 1 (57)
Adjusted revenues 31,400 29,400 28,192 27,360 29,738
Performance Ratio
Economic profit margin2 -3.23% -3.09% -2.12% -1.41% -2.69%
Benchmarks
Economic Profit Margin, Competitors3
Alphabet Inc.
Comcast Corp.
Meta Platforms Inc.
Netflix Inc.
Walt Disney Co.

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

1 Economic profit. See details »

2 2017 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenues
= 100 × -1,015 ÷ 31,400 = -3.23%

3 Click competitor name to see calculations.

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. Time Warner Inc. economic profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.