Waste Management Inc. (NYSE:WM)

The financial performance over the observed periods reveals notable trends in operational profitability, capital investment, and economic profit metrics. The net operating profit after taxes (NOPAT) demonstrated growth from 2017 through 2018, increasing from $1,952 million to $2,286 million, followed by a decline in subsequent years. Specifically, NOPAT decreased to $2,119 million in 2019, then further reduced to $2,018 million in 2020 before a slight increase to $2,064 million in 2021. This pattern indicates a peak in operational efficiency or market conditions in 2018, followed by a period of diminishing net operational returns.

The cost of capital exhibited minor fluctuations during the analysis period, beginning at 10.76% in 2017 and rising to 11.11% in 2018. It then slightly declined to 10.85% in 2019 and 10.35% in 2020 before increasing again to 10.9% in 2021. These variations could reflect changes in market risk perception, interest rates, or company-specific risk factors influencing the required return on invested capital.

Invested capital showed a general upward trajectory from 2017 through 2020, growing from $17,686 million to $23,729 million. However, a slight contraction was observed in 2021 where invested capital decreased marginally to $22,932 million. This increasing trend until 2020 indicates ongoing capital deployment into the company’s operations or assets, supporting business activities and growth, with a potential strategic adjustment or divestment occurring in 2021.

Economic profit, measuring value creation over and above the cost of capital, initially improved significantly from $49 million in 2017 to $237 million in 2018. Despite this improvement, economic profit turned negative in 2019, registering -$337 million, and further declined to -$438 million in 2020, with a slight improvement to -$436 million in 2021. This shift into negative economic profit territory signals that the company’s operating returns, when adjusted for the cost of capital, were insufficient to generate shareholder value during these later years. The negative values suggest that the returns on the invested capital did not exceed the capital charge, indicating potential inefficiencies or challenges in operational performance or capital allocation.*

In summary, the company experienced peak net operating profitability in 2018, followed by a decline in operational performance through 2021. The steady increase in invested capital until 2020 reflects continued capital investment, while fluctuations in cost of capital suggest changing risk and market conditions. The transition from positive to negative economic profit underscores challenges in creating value over and above the cost of capital in recent years, highlighting areas requiring closer strategic focus to restore economic profitability.

Net Operating Profit After Taxes (NOPAT)

Peaked in 2018; subsequent decline with a mild recovery in 2021.

Cost of Capital

Fluctuated moderately, peaking in 2018 and nearly reverting to initial levels by 2021.

Invested Capital

Increased steadily from 2017 to 2020; slight decrease noted in 2021.

Economic Profit

Positive but minimal in 2017, improved significantly in 2018, then deteriorated into negative territory from 2019 onward.

The financial data indicates fluctuations and trends in the profitability measures of the entity over the five-year period ending December 31, 2021.

Net Income Attributable to the Company

The net income shows a declining trend from 2017 through 2020, starting at 1,949 million US dollars in 2017, slightly decreasing to 1,925 million in 2018, followed by a more pronounced decrease to 1,670 million in 2019 and further down to 1,496 million in 2020. However, there is a rebound in 2021, with net income rising to 1,816 million, indicating a recovery after the decline in prior years.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures reveal a different pattern. Starting at 1,952 million US dollars in 2017, NOPAT increased substantially in 2018 to 2,286 million, peaking in that year. Afterward, it declined over the next two years to 2,119 million in 2019 and 2,018 million in 2020. By 2021, NOPAT experienced a slight increase to 2,064 million, indicating some stabilization or modest recovery in operating profitability after taxes.

In summary, while both net income and NOPAT exhibit declines starting around 2018 or 2019, net income shows a more significant decrease and a notable rebound by 2021, whereas NOPAT peaked earlier in 2018, followed by declines with a slight recovery by 2021. These patterns may reflect variations in non-operating income, expenses, taxes, or other adjustments impacting net income differently compared to operating profit.

The financial data over the five-year period ending December 31, 2021, shows distinct trends in both income tax expense and cash operating taxes.

Income Tax Expense

Income tax expense experienced a general increase from 2017 to 2021, with fluctuations during the intermediate years. The value rose significantly from $242 million in 2017 to $453 million in 2018. It then slightly decreased to $434 million in 2019 and further declined to $397 million in 2020. However, in 2021, there was a notable increase to $532 million, marking the highest expense in the period analyzed.

Cash Operating Taxes

Cash operating taxes demonstrated a downward trend from 2017 through 2020, followed by a sharp rise in 2021. Specifically, cash operating taxes decreased from $626 million in 2017 to $511 million in 2018 and further to $424 million in 2019. This downward trajectory continued with a reduction to $324 million in 2020. In 2021, this trend reversed dramatically as cash operating taxes surged to $689 million, surpassing all previous years in the data set.

Overall, while the income tax expense shows variability with an eventual upward movement to reach its peak in 2021, cash operating taxes reveal a more pronounced downward trend until 2020, followed by a significant increase in the last year. The contrasting movements in these two tax-related financial items in 2021 may indicate changes in tax policy application, operational performance, or other tax-related accounting factors impacting the company’s tax obligations.

The financial data reveals distinct trends in key balance sheet components over the five-year period ending December 31, 2021.

Total Reported Debt & Leases

The total reported debt and leases exhibit an overall upward trend from 2017 through 2020, increasing from approximately $9,976 million in 2017 to a peak near $14,326 million in 2020. This represents a significant increase of roughly 43% over three years. In 2021, a slight decline to $13,928 million is noted, indicating a minor reduction in indebtedness or lease obligations after reaching the high point the prior year.

Total Stockholders’ Equity

Stockholders' equity also shows a general increase over the reviewed period, rising from about $6,019 million in 2017 to a maximum of $7,452 million in 2020. This growth suggests accumulated retained earnings and possible capital contributions enhancing the company’s net asset base. However, equity decreases slightly in 2021 to $7,124 million, indicating some erosion following the peak, which could be due to net losses, dividends, or other equity-reducing activities.

Invested Capital

Invested capital follows a similar pattern to total debt and equity, with steady growth from $17,686 million in 2017 to $23,729 million in 2020. This growth, amounting to approximately 34%, reflects increased deployment of financial resources into the company's operations, likely contributing to expansion or asset acquisition. The figure slightly contracts to $22,932 million in 2021, aligning with the modest declines in both debt and equity components.

Overall, the data depicts growth in the company’s financial size and capital structure through 2020, with a slight retrenchment in debt, equity, and invested capital during 2021. This trend suggests a period of expansion followed by cautious tightening or normalization of the balance sheet in the most recent year.

The financial data reveals a noticeable shift in performance for the company over the five-year period. Economic profit demonstrates considerable volatility, with a strong positive figure initially, followed by a sharp decline into negative territory that persists through the last three years. Specifically, after achieving an economic profit of 49 million US dollars at the end of 2017 and a significantly higher profit of 237 million US dollars at the end of 2018, the company experiences consecutive economic losses in 2019, 2020, and 2021, with the losses deepening slightly each year.

Invested capital consistently increased from 2017 through 2020, rising from approximately 17.7 billion US dollars to nearly 23.7 billion US dollars. However, in 2021, there is a slight reduction in invested capital, dropping to about 22.9 billion US dollars, suggesting a possible divestment or reduced investment activity during that year.

The economic spread ratio, which reflects the difference between return on invested capital and the cost of capital expressed as a percentage, mirrors the trend seen in economic profit. It starts positive but modestly so in 2017, improves substantially in 2018, and then turns negative from 2019 onward. The negative values intensify over the subsequent years, indicating that the returns generated on the invested capital fall increasingly below the cost of that capital. The progressive deterioration in this ratio signals declining efficiency in capital utilization, adversely impacting shareholder value creation.

Combining these observations, the data indicates that while the company expanded its invested capital base through 2020, it struggled to generate adequate returns on that investment from 2019 onwards. The sustained negative economic spread and economic profit suggest operational or market challenges impacting profitability and capital cost management. The slight decline in invested capital in the final year may be a strategic response to these difficulties, possibly reflecting efforts to optimize capital allocation or restructure the business portfolio.

Adjusted Operating Revenues

There is a generally positive trend in adjusted operating revenues over the five-year period. Revenues increased slightly from 14,495 million US dollars in 2017 to 15,467 million in 2019, followed by a minor dip in 2020 to 15,223 million. In 2021, revenues rose significantly to 17,963 million US dollars, indicating a strong recovery and growth phase after the slight decline in 2020.

Economic Profit

Economic profit displays considerable volatility with an initially positive value of 49 million US dollars in 2017. This figure increased significantly to 237 million in 2018. However, from 2019 onwards, economic profit turned negative, showing losses of 337 million in 2019, which further worsened to 438 million in 2020 and remained substantially negative at 436 million in 2021. This trend suggests deteriorating profitability despite the increase in operating revenues.

Economic Profit Margin

The economic profit margin follows a similar pattern to economic profit, starting positive at 0.34% in 2017 and rising to 1.59% in 2018. It then decreases sharply into negative territory from 2019 onwards, reaching -2.18% in 2019 and further declining to -2.88% in 2020. In 2021, there is a slight improvement to -2.43%, but the margin remains significantly negative. This negative margin highlights a situation where the economic costs are exceeding returns, reflecting inefficiencies or unfavorable economic conditions impacting the company.

Overall Analysis

While adjusted operating revenues exhibit a steady upward trend with a notable increase in the final year, economic profit and its margin reveal a concerning decline into negative territory beginning in 2019. The divergence between increasing revenue and deteriorating economic profit metrics could indicate rising costs, increasing capital charges, or operational challenges negatively affecting overall economic profitability. The slight margin improvement in 2021 suggests some stabilization, but the persistent negative values call for a thorough review of cost management and capital efficiency strategies to restore positive economic outcomes.