Charter Communications Inc. (NASDAQ:CHTR)

The financial performance, as measured by economic profit, indicates a consistent shortfall relative to the cost of capital over the five-year period. While net operating profit after taxes (NOPAT) demonstrates fluctuation, it has not been sufficient to generate a positive economic profit.

NOPAT Trend

Net operating profit after taxes increased from US$7,242 million in 2020 to US$9,333 million in 2021, representing a substantial gain. This was followed by a further increase to US$9,688 million in 2022. A slight decrease to US$9,377 million occurred in 2023, before recovering to US$9,837 million in 2024. Despite these fluctuations, NOPAT remained relatively stable overall.

Cost of Capital Trend

The cost of capital exhibited a declining trend from 10.83% in 2020 to 8.33% in 2023. This decrease suggests improving capital market conditions or reduced risk perception associated with the company. However, the cost of capital increased slightly to 8.56% in 2024.

Invested Capital Trend

Invested capital remained relatively consistent between 2020 and 2022, fluctuating around US$131 million. A noticeable increase to US$134,069 million occurred in 2023, and continued to US$136,388 million in 2024, indicating ongoing investment in the business.

Economic Profit Trend

Economic profit remained negative throughout the period, ranging from -US$7,174 million in 2020 to -US$1,787 million in 2023. The magnitude of the economic loss decreased each year, indicating improving, but still insufficient, profitability relative to the cost of capital. The decline in economic loss slowed in 2024, with a reported loss of -US$1,844 million, a slight increase from the prior year.

The consistent negative economic profit suggests that, despite generating substantial NOPAT, the returns generated are not exceeding the cost of funding the invested capital. While the trend shows improvement in reducing the economic loss, the company has yet to achieve a positive economic profit.

Net Income Attributable to Charter Shareholders

The net income attributable to Charter shareholders exhibited an overall upward trend from 2020 to 2024. Starting at 3,222 million USD in 2020, it increased significantly to 4,654 million USD in 2021, representing a marked improvement. The upward momentum continued into 2022, reaching 5,055 million USD, the highest observed within the period. However, in 2023, net income experienced a decline to 4,557 million USD, indicating a temporary setback or potential challenges faced during that year. This decline was followed by a recovery in 2024, with net income rising again to 5,083 million USD, surpassing the previous peak in 2022. The pattern reflects generally positive profitability with some short-term volatility.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes also demonstrated consistent growth over the analyzed period. NOPAT rose from 7,242 million USD in 2020 to 9,333 million USD in 2021, showing a strong operational improvement. This growth trend continued, albeit at a slower pace, reaching 9,688 million USD in 2022. In 2023, there was a slight decrease to 9,377 million USD, which mirrors the decline seen in net income for the same year, suggesting a possible operational impact affecting profitability. However, in 2024, NOPAT recovered to 9,837 million USD, the highest level in the period, indicating strengthened operational efficiency or profitability drivers.

Summary Insight

The data indicate robust and generally increasing profitability over the five-year span, with both net income and NOPAT peaking in 2024. The dip in both metrics in 2023 represents a point of concern, potentially due to external or internal factors affecting performance that year. The rebound in 2024 suggests effective management responses or favorable conditions restoring profitability. The consistent gap between NOPAT and net income reflects the differing nature of these metrics, with NOPAT generally showing higher figures due to its focus on operating profitability, excluding non-operating items and tax effects.

Income Tax Expense

The income tax expense shows a consistent upward trend over the five-year period. Starting at 626 million USD in 2020, it rises significantly to 1068 million USD in 2021. This increasing pattern continues, reaching 1613 million USD in 2022, with a slight stabilization around 1593 million USD in 2023, and again increasing to 1649 million USD in 2024. The overall growth in income tax expense indicates increasing taxable income or possible changes in tax rates or policies affecting the company.

Cash Operating Taxes

Cash operating taxes exhibit a marked increase over the period under review. The amount grows from 980 million USD in 2020 to 1100 million USD in 2021, displaying a moderate increase. However, a sharp rise is observed in 2022, with cash operating taxes more than doubling to 2493 million USD. This upward trajectory continues to 2776 million USD in 2023 and further to 2849 million USD in 2024. This pronounced growth suggests increased cash outflows for tax payments, potentially stemming from higher operating profits or changes in cash tax obligations.

Comparative Observations

Both income tax expense and cash operating taxes demonstrate a growing tax burden over the five years. Notably, cash operating taxes increase at a steeper rate compared to income tax expense, especially from 2021 onward. This divergence might imply timing differences between tax accruals and cash payments, or variations in tax planning strategies and deferred tax calculations. The steady rise in both indicators points to an expanding scale of operations or profitability, resulting in higher tax liabilities.

Total Reported Debt & Leases

The total reported debt and leases showed a steady increase from 84,097 million USD at the end of 2020 to a peak of 99,620 million USD at the end of 2023. In 2024, there was a slight decrease to 97,176 million USD. This pattern indicates an overall growth in leverage over the period, with a marginal reduction in the most recent year.

Total Charter Shareholders’ Equity

The shareholders’ equity declined sharply from 23,805 million USD at the end of 2020 to 9,119 million USD by the end of 2022, representing a significant erosion of equity value during this timeframe. However, in 2023 and 2024, equity showed signs of recovery, increasing to 11,086 million USD and then to 15,587 million USD respectively. This rebound suggests some stabilization and potential rebuilding of the equity base after a period of losses or distributions.

Invested Capital

The invested capital remained relatively stable over the five-year period, beginning at 133,151 million USD in 2020 and gradually increasing to 136,388 million USD by the end of 2024. The slight upward trend indicates steady investment levels or capital deployment, with no major fluctuations.

Summary of Financial Trends

The data reflects a company operating with high financial leverage, as evidenced by the substantial debt levels sustained throughout the period. The significant reduction in shareholders’ equity through 2022 may indicate challenges such as net losses, asset impairments, or substantial distributions during those years. The partial recovery of equity in the latter years points to improved financial performance or capital restructuring efforts. Meanwhile, the invested capital’s stability suggests consistent capital investment without significant expansion or contraction in asset base. The combination of these trends may imply a focus on managing leverage risks while attempting to restore shareholder value.

The economic spread ratio demonstrates a consistent, albeit decelerating, negative trend over the five-year period. While remaining negative throughout, the ratio exhibits a diminishing magnitude of underperformance, suggesting an improvement in value creation relative to invested capital, though still resulting in an economic loss.

Economic Spread Ratio

The economic spread ratio decreased in absolute value from -5.39% in 2020 to -1.35% in 2024. This indicates a narrowing gap between the return on invested capital and the weighted average cost of capital. The largest improvement occurred between 2020 and 2021, with a decrease of 2.40 percentage points. Subsequent improvements were more modest, with decreases of 1.23, 0.43, and 0.02 percentage points between 2021-2022, 2022-2023, and 2023-2024 respectively.

Economic profit, while consistently negative, also shows a pattern of diminishing losses. This aligns with the trend observed in the economic spread ratio. The reduction in economic loss is not directly proportional to the change in the economic spread ratio, indicating that changes in invested capital also play a role.

Invested Capital

Invested capital remained relatively stable between 2020 and 2022, fluctuating within a narrow range. A noticeable increase in invested capital occurred in 2023 and 2024, rising to US$134,069 million and US$136,388 million respectively. This increase in capital employed, coupled with continued negative economic profit, likely contributed to the slower rate of improvement in the economic spread ratio in the later years.

In summary, the organization experienced consistent economic losses during the analyzed period. However, the rate at which value was destroyed decreased over time, as evidenced by the improving economic spread ratio. The increasing invested capital base in the latter years of the period partially offset the gains made in operational efficiency or profitability, resulting in a slower convergence towards positive economic profit.

The economic profit margin exhibited a consistent, albeit gradual, improvement over the five-year period. While remaining negative throughout, the magnitude of the loss decreased year-over-year. This trend is directly correlated with the movement of economic profit and adjusted revenues.

Economic Profit Margin

The economic profit margin began at -14.92% in 2020 and progressively improved to -3.35% by 2024. This indicates a diminishing loss in economic profit relative to adjusted revenues. The rate of improvement slowed between 2022 and 2024, suggesting potential limitations to further gains based on the current financial structure.

Economic profit itself also demonstrated improvement, moving from a loss of US$7,174 million in 2020 to a loss of US$1,844 million in 2024. This reduction in the absolute value of the loss is the primary driver of the improved economic profit margin.

Adjusted Revenues

Adjusted revenues increased steadily from US$48,074 million in 2020 to US$55,032 million in 2024. While revenue growth contributed to the improved margin, the more significant factor was the reduction in economic loss. The growth rate of revenues appears to be relatively consistent across the period, with incremental increases each year.

The consistent negative economic profit margin suggests that the company’s cost of capital consistently exceeded the returns generated from its operations. However, the narrowing margin indicates that the gap between cost of capital and returns is decreasing, potentially signaling improved operational efficiency or a more favorable capital structure.