Diamondback Energy Inc. (NASDAQ:FANG)

The financial data indicates several significant trends over the analyzed periods. Net operating profit after taxes (NOPAT) exhibits considerable volatility, starting at a moderate positive value, peaking in 2018, experiencing a sharp decline to a substantial negative figure in 2020, and then recovering to a positive amount in 2021. This pattern suggests varying operational performance and profitability challenges, particularly pronounced in 2020.

The cost of capital shows a decreasing trend from 2017 to 2019, dropping from 27.43% to 20.29%, followed by a slight increase in 2020 and 2021. These changes indicate a fluctuating risk environment or changes in capital structure and market conditions influencing the cost of financing over the years.

Invested capital demonstrates an overall upward trend, increasing markedly from 2017 through 2019, then dipping in 2020 before rising again in 2021. This suggests periods of expanding investment in assets or projects, with a contraction potentially reflecting divestitures or asset impairments during 2020.

Economic profit consistently remains negative throughout the period, with the largest negative value appearing in 2020. Although there is some improvement by 2021, the persistent negative economic profit underscores that the company has not been generating returns exceeding its cost of capital, signaling issues with value creation despite fluctuations in operational profit and capital investment.

Net Operating Profit After Taxes (NOPAT)

Fluctuated significantly, peaking in 2018, declining sharply in 2020, then partially recovering in 2021.

Cost of Capital

Decreased from 2017 to 2019, followed by a slight rise in subsequent years, reflecting variable financing conditions.

Invested Capital

Increased substantially until 2019, dipped in 2020, and rose again in 2021, indicating variable investment strategies or asset base changes.

Economic Profit

Remained negative throughout the period, reaching a nadir in 2020, signaling persistent challenges in generating returns above the cost of capital.

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.

The analysis of the annual financial data reveals several notable trends related to economic profit, invested capital, and the economic spread ratio over the five-year period.

Economic Profit

Economic profit has remained negative throughout the entire period, indicating persistent economic losses. Starting at -1,445 million US dollars in 2017, the losses deepened sharply to -3,969 million in 2019 and further deteriorated to the lowest point of -8,919 million in 2020. However, a substantial recovery occurred in 2021, with economic losses reducing significantly to -2,027 million US dollars, signaling some improvement though still representing a loss.

Invested Capital

There has been a considerable increase in invested capital over the period. The amount rose sharply from 7,167 million US dollars in 2017 to a peak of 22,002 million in 2019. Following this, invested capital decreased notably to 16,329 million in 2020 but rebounded to 21,230 million in 2021. This fluctuation suggests varying levels of capital deployment, possibly reflecting strategic adjustments or shifts in operational scale.

Economic Spread Ratio

The economic spread ratio, which measures the return above the cost of capital, has consistently been negative throughout the period, reflecting an inability to generate value beyond capital costs. The ratio began at -20.16% in 2017 and, despite slight improvement in 2019 to -18.04%, it plummeted severely to -54.62% in 2020, indicating markedly inefficient capital utilization that year. In 2021, the ratio improved significantly to -9.55%, approaching but still remaining below breakeven levels.

In summary, the data indicates ongoing challenges with profitability and capital efficiency, though there is evidence of partial recovery in the latest year. The significant fluctuations in both invested capital and economic profit highlight periods of strategic shifts or market conditions impacting operational performance. The improvement in 2021's economic profit and spread ratio suggests efforts to enhance capital usage and financial results, but sustained profitability remains elusive.

Economic Profit

The economic profit demonstrates a negative trend throughout the five-year period, consistently reflecting losses. From 2017 to 2018, the deficit worsened significantly, from -1,445 million US dollars to -3,890 million US dollars. This decline continued at a similar scale in 2019 with a value of -3,969 million US dollars. In 2020, the economic loss peaked at -8,919 million US dollars, indicating a substantial increase in economic inefficiency or cost relative to returns. In 2021, there was a remarkable improvement, with economic losses narrowing considerably to -2,027 million US dollars, although the value remained negative.

Revenue from Contracts with Customers

Revenue showed a generally positive upward trajectory over the period. Starting from 1,186 million US dollars in 2017, there was a notable increase to 2,130 million US dollars in 2018, followed by continued growth to 3,887 million US dollars in 2019. Revenue saw a decline in 2020, falling to 2,756 million US dollars, which may be linked to external market or operational challenges. However, 2021 recorded a strong recovery and significant growth, reaching 6,747 million US dollars, the highest figure within the period examined.

Economic Profit Margin

The economic profit margin reflects a consistently negative performance, indicating that losses were not solely due to scale but also affected profitability relative to revenue. The margin worsened from -121.79% in 2017 to a more severe -182.65% in 2018. It improved somewhat in 2019 to -102.11%, but deteriorated sharply in 2020 to -323.6%, suggesting disproportionately high losses despite revenue. A significant recovery is observed in 2021 with the margin improving to -30.05%, signaling a move towards greater economic efficiency though still remaining below breakeven.

Summary

The data indicate that while revenue experienced strong overall growth with a temporary dip in 2020, economic profit and economic profit margin remained negative throughout the period, reflecting ongoing economic losses. The particularly severe deterioration in 2020 suggests that challenges during this year had a major adverse financial impact beyond revenue decline alone. Nevertheless, 2021 shows clear signs of operational and financial improvement, with a substantial reduction in economic loss and profit margin nearing less negative territory, supported by a significant increase in revenue. This pattern may imply a recovery phase and the potential for future economic profitability if trends continue positively.