Diamondback Energy Inc. (NASDAQ:FANG)

The financial data reflects significant fluctuations in key performance indicators over the observed period. The analysis focuses on net operating profit after taxes (NOPAT), cost of capital, invested capital, and economic profit to provide an overview of the company's financial performance and efficiency.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated volatility, starting at $521 million in 2017 and increasing sharply to $1,175 million in 2018. However, it declined markedly to $495 million in 2019, followed by a severe downturn into negative territory at -$5,563 million in 2020. The figure recovered substantially to $3,031 million in 2021, indicating a strong rebound after a challenging year.

Cost of Capital

The cost of capital showed a gradual downward trend from 27.45% in 2017 to a low of 20.3% in 2019, before slightly increasing to 20.57% in 2020 and further to 23.84% in 2021. This variation suggests fluctuating capital market conditions and changes in the company's risk profile or capital structure.

Invested Capital

Invested capital rose significantly from $7,167 million in 2017 to $20,304 million in 2018, and further to $22,002 million in 2019, before declining sharply to $16,329 million in 2020. It then increased again to $21,230 million in 2021. These movements reflect variations in asset base and capital expenditure activities over the period.

Economic Profit

The economic profit remained negative throughout the period, indicating that the company consistently failed to generate returns above its cost of capital. The loss deepened from -$1,446 million in 2017 to a peak negative of -$3,973 million in 2019, further deteriorating to -$8,921 million in 2020, before improving to -$2,031 million in 2021. Despite the improvement in 2021, the company still struggled to create economic value.

Overall, the data reveals a challenging environment characterized by fluctuating profitability and capital efficiency. The negative economic profit across all years signals an ongoing issue with generating sufficient returns relative to the company's cost of capital, though the marked recovery in NOPAT and invested capital in 2021 may suggest initial steps toward improved financial health.

Net Income (Loss) Attributable to Diamondback Energy, Inc.

The net income experienced significant fluctuations over the five-year period. Starting at $482 million in 2017, it increased substantially to $846 million in 2018, indicating strong profitability growth. However, a sharp decline occurred in 2019, with net income dropping to $240 million. The year 2020 saw a drastic reversal, as the company reported a substantial net loss of $4,517 million, reflecting considerable financial distress or extraordinary losses. In 2021, the company recovered strongly, posting a net income of $2,182 million, the highest figure in the period under review, signaling a robust turnaround.

Net Operating Profit After Taxes (NOPAT)

NOPAT also displayed significant variability, mirroring the trends seen in net income. The value rose from $521 million in 2017 to $1,175 million in 2018, more than doubling, which suggests improved operational efficiency and profitability. In 2019, NOPAT decreased substantially to $495 million, indicating a drop in operating profitability. The year 2020 showed a severe negative NOPAT of $5,563 million, consistent with the net loss trend, indicating a substantial operational and tax burden. By 2021, NOPAT recovered to $3,031 million, reflecting a strong improvement in operational performance and effective tax management.

The financial data indicates significant volatility in the provision for income taxes over the five-year period. In 2017, the provision showed a tax benefit of $20 million, which shifted dramatically to a tax expense of $168 million in 2018. This was followed by a moderate tax expense of $47 million in 2019. The year 2020 saw a substantial reversal with a large tax benefit of $1,104 million, marking the most pronounced change within the timeframe. In 2021, the provision returned to a notable tax expense of $631 million.

Cash operating taxes also exhibited variability but on a relatively smaller scale compared to the provision for income taxes. From $14 million in 2017, cash operating taxes increased slightly to $15 million in 2018 and then rose more substantially to $35 million by 2019. In 2020, cash operating taxes decreased to a negative $22 million, implying a cash inflow or tax refund situation. By 2021, cash operating taxes had increased sharply to $64 million, the highest in the observed period.

Provision for Income Taxes:

Highly volatile with alternating tax expenses and benefits.

Significant tax benefit in 2020 contrasts with consistent tax expenses in most other years.

The peak tax expense occurred in 2021 at $631 million.

Cash Operating Taxes:

Gradual increase from 2017 through 2019.

Negative value in 2020 suggests tax refunds or credits received.

Sharp increase in 2021, reaching the highest cash tax outlay in the period.

Overall, the trends reveal considerable fluctuations in tax-related financial items, with 2020 standing out due to exceptional tax benefits and cash tax refunds. The years following show a return to positive tax expenses and increased cash tax payments, signaling potential changes in tax obligations and operational profitability.

Total reported debt & leases

The total debt and leases showed a significant increase from 2017 to 2018, rising from $1,477 million to $4,464 million. This upward trend continued in the following years, reaching $6,687 million by the end of 2021. The consistent rise indicates increasing leverage and possibly greater investments or acquisitions financed through debt.

Total stockholders’ equity

Stockholders’ equity increased markedly from $5,255 million in 2017 to a peak of $13,699 million in 2018. After a slight decline to $13,249 million in 2019, equity decreased further to $8,794 million in 2020, before recovering to $12,088 million in 2021. This pattern suggests volatility in retained earnings or equity capital transactions over the period, with a notable dip during 2020, possibly reflecting challenging market conditions or one-time charges.

Invested capital

Invested capital followed a similar upward trajectory from $7,167 million in 2017 to $22,002 million in 2019, indicating substantial growth in the company’s asset base. However, this figure declined sharply to $16,329 million in 2020, before increasing again to $21,230 million in 2021. The fluctuation mirrors the trends seen in equity and debt, implying adjustments in asset investment and financing approaches possibly influenced by external economic factors.

Economic Profit

The economic profit demonstrates a consistently negative trend throughout the period analyzed, indicating that the company was not generating returns above its cost of capital. Starting from -1,446 million US dollars at the end of 2017, the economic profit deteriorated significantly to -3,973 million US dollars by the end of 2019, reaching its lowest point at -8,921 million US dollars in 2020. There is an observable recovery in 2021, with the economic loss reducing to -2,031 million US dollars.

Invested Capital

The invested capital increased sharply from 7,167 million US dollars at the end of 2017 to 20,304 million US dollars by the end of 2018, reflecting a substantial expansion or asset acquisition. The upward trend continued moderately into 2019, reaching 22,002 million US dollars, followed by a moderate decrease to 16,329 million US dollars in 2020. At the end of 2021, the invested capital increased again to 21,230 million US dollars. This fluctuation suggests significant changes in the company's asset base or capital investments over the years.

Economic Spread Ratio

The economic spread ratio, which indicates the difference between the return on invested capital and the company's cost of capital expressed as a percentage, was negative in all years, implying the company’s returns were below its cost of capital. The ratio decreased from -20.18% in 2017 to -18.06% in 2019, showing a slight improvement but remaining deeply negative. In 2020, the ratio worsened dramatically to -54.63%, corresponding with the lowest economic profit observed that year. By 2021, the ratio improved markedly to -9.57%, indicating a partial recovery and better alignment of returns and costs.

Summary

Overall, the data reveals challenges in generating positive economic profit throughout the period, with a notable severe downturn in 2020, possibly linked to external factors affecting profitability. Invested capital showed significant growth, particularly between 2017 and 2019, albeit with some volatility. The economic spread ratio mirrored the profit trends, reflecting substantial underperformance relative to cost of capital, with some improvement towards the end of the period. These observations point to a period of financial strain but also partial stabilization or recovery in the latest year reported.

The financial data reveals notable fluctuations across the five-year period, highlighting significant shifts in profitability and revenue generation.

Revenue Trends

Revenue demonstrated strong growth overall, starting at approximately US$1.19 billion in 2017 and peaking at US$6.75 billion in 2021. A substantial increase occurred from 2019 to 2021, with revenue nearly doubling from about US$3.89 billion to US$6.75 billion. However, the year 2020 saw a dip in revenue to US$2.76 billion, indicating a temporary setback before recovery and significant expansion in the final year observed.

Economic Profit

Economic profit consistently remained negative throughout the period, indicating that the company did not generate returns above its cost of capital. The losses deepened markedly from -US$1.45 billion in 2017 to a peak negative value of approximately -US$8.92 billion in 2020, then recovering somewhat to -US$2.03 billion in 2021. This pattern suggests the company faced increasing economic challenges up to 2020, followed by partial improvement in economic profitability in 2021.

Economic Profit Margin

The economic profit margin mirrored the economic profit trend, remaining negative every year, which confirms the lack of economic profitability relative to revenue. The margin worsened significantly in 2020, reaching -323.7%, suggesting extremely high economic losses relative to revenue during that year. Despite this, it substantially improved by 2021 to -30.11%, correlating with the recovery observed in economic profit and increased revenue, indicating an improving financial position but still below breakeven.

Overall, the data depicts a company experiencing substantial revenue growth with volatile and negative economic profits, highlighting operational or capital inefficiencies that resulted in losses exceeding the cost of capital in all reported years. The marked worsening in 2020 followed by recovery in 2021 suggests external factors or internal restructurings influencing financial outcomes. The improvements in 2021 reflect better economic efficiency but do not yet achieve positive economic profits.