Diamondback Energy Inc. (NASDAQ:FANG)

Net operating profit after taxes (NOPAT)

The net operating profit after taxes shows a fluctuating trend over the five-year period. It increased significantly from 521 million USD in 2017 to a peak of 1,175 million USD in 2018. However, it then declined sharply to 495 million USD in 2019, followed by a substantial loss of 5,563 million USD in 2020. In 2021, the company recovered with a positive NOPAT of 3,031 million USD.

Invested capital

Invested capital exhibited a generally upward trend over the period. It rose from 7,167 million USD in 2017 to 20,304 million USD in 2018 and further to 22,002 million USD in 2019. A decrease occurred in 2020, with invested capital falling to 16,329 million USD, but it increased again to 21,230 million USD in 2021, near previous peak levels.

Return on invested capital (ROIC)

The return on invested capital shows considerable volatility. Initially, ROIC was 7.27% in 2017, declining to 5.79% in 2018 and further to 2.25% in 2019, indicating decreasing efficiency in generating returns. In 2020, ROIC turned sharply negative to -34.07%, reflective of the substantial losses reported. In 2021, ROIC rebounded strongly to 14.27%, surpassing earlier years and indicating improved profitability relative to invested capital.

Overall insights

The period under review is characterized by significant financial volatility. Despite growth in invested capital, profitability measured by NOPAT and ROIC declined sharply in 2019 and was deeply negative in 2020, likely indicating operational or market challenges. The recovery in 2021 across all three metrics suggests a notable turnaround in financial performance. The large fluctuations in ROIC and NOPAT warrant further investigation into underlying factors affecting operational efficiency and capital deployment during these years.

The financial data indicates significant fluctuations in key performance metrics over the five-year period.

Operating Profit Margin (OPM)

There is considerable volatility in operating profit margins. It started relatively strong at 45.15% in 2017 and increased to a peak of 55.88% in 2018. However, 2019 saw a sharp decline to 13.64%, followed by a dramatic negative margin of -202.65% in 2020, indicating substantial operating losses during that year. In 2021, there was a recovery to 45.87%, approaching levels similar to the early years.

Turnover of Capital (TO)

This ratio shows a general upward trend, beginning at 0.17 in 2017 and dipping slightly to 0.10 in 2018. From 2019 onwards, it rises steadily, reaching 0.18 in 2019, maintaining 0.17 in 2020, and jumping to 0.32 by 2021. This suggests improving efficiency in utilizing capital to generate revenue over the later years.

1 – Effective Cash Tax Rate (CTR)

The tax rate remained consistently high throughout the period, fluctuating narrowly between 93.34% and 100%. The effective cash tax rate effectively equates to near full taxation on cash earnings in every year, indicating minimal tax relief or deferrals.

Return on Invested Capital (ROIC)

ROIC exhibits a volatile pattern similar to operating margins. Starting at 7.27% in 2017, it decreased to 5.79% in 2018 and further declined to 2.25% in 2019. The year 2020 shows a significant downturn into negative territory at -34.07%, marking a period of substantial capital destruction. There is a strong rebound in 2021 to 14.27%, surpassing all previous years, signaling improved capital returns.

Overall, the data reflects a period marked by operational and profitability challenges, particularly in 2020, with substantial losses and negative returns on capital. Notwithstanding, the recovery in 2021 is notable, with operating margins and ROIC returning to positive and improved levels. Capital turnover efficiency also strengthened toward the end of the period. The consistently high effective cash tax rate suggests limited tax expense management influence on reported results throughout the years.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes exhibited considerable volatility over the five-year period. Beginning at $536 million in 2017, it nearly doubled to $1,190 million in 2018. However, in 2019, the figure contracted sharply to $530 million, returning approximately to the 2017 level. A significant downturn occurred in 2020, with NOPBT plunging to a negative $5,585 million, indicating a substantial operating loss during that year. This was followed by a strong recovery in 2021, with NOPBT increasing to $3,095 million, returning to positive territory and exceeding previous highs.

Revenue from Contracts with Customers

Revenue demonstrated a consistent upward trend across the period, with notable variations in growth rates. Revenue increased from $1,186 million in 2017 to $2,130 million in 2018, representing substantial growth. This growth accelerated in 2019 to $3,887 million, before dipping in 2020 to $2,756 million, which may reflect adverse market or operational conditions during that year. The revenue rebounded significantly in 2021 to $6,747 million, reaching the highest point in the observed timeframe and indicating strong sales performance.

Operating Profit Margin (OPM)

The operating profit margin followed a pattern mirroring the fluctuations seen in NOPBT. Starting at 45.15% in 2017, it increased to 55.88% in 2018, achieving the highest margin in the sample. In 2019, the margin decreased sharply to 13.64%, signaling reduced profitability relative to revenue. The margin swung dramatically to a negative 202.65% in 2020, reflecting operating losses outweighing revenues by a large margin. This negative margin was reversed in 2021, with the margin returning to a healthy and robust 45.87%, slightly above the 2017 level.

Summary

The financial data reveals cyclical and volatile operational performance over the five years. Revenue generally increased, except for a dip in 2020. Operating profit and margins showed more pronounced fluctuations, with severe losses in 2020 likely due to extraordinary challenges impacting profitability. The recovery in 2021 was strong, suggesting operational resilience and effective management response to prior-year difficulties. Overall, the company experienced significant operational stress in 2020, followed by a substantial rebound in 2021.

Revenue from contracts with customers

The revenue exhibited a significant upward trend over the five-year period. Starting at $1,186 million in 2017, it nearly doubled to $2,130 million in 2018 and continued to increase substantially to $3,887 million by 2019. Although there was a decline to $2,756 million in 2020, the revenue rebounded sharply in 2021, reaching the highest level in the period at $6,747 million. Overall, this reflects strong growth with a temporary dip in 2020.

Invested capital

Invested capital rose markedly from $7,167 million in 2017 to $20,304 million in 2018, indicating significant capital deployment. It marginally increased to $22,002 million in 2019 before declining to $16,329 million in 2020. In 2021, invested capital increased again to $21,230 million. These shifts suggest fluctuating investment levels, with peak investment noted in 2019 and 2021 after a reduction in 2020.

Turnover of capital (TO)

The turnover of capital ratio, representing revenue generated relative to invested capital, started at a low of 0.17 in 2017 and declined to 0.10 in 2018, signaling less efficient use of capital despite revenue growth. It improved to 0.18 in 2019, slightly decreased to 0.17 in 2020, and then significantly increased to 0.32 in 2021. This last improvement indicates enhanced efficiency in generating revenue from invested capital, aligning with the strong revenue growth in 2021.

Cash Operating Taxes

There was a general upward trend in cash operating taxes from 2017 to 2019, increasing from 14 million US dollars in 2017 to 35 million US dollars in 2019. However, a notable anomaly occurred in 2020 with a negative value of -22 million US dollars, indicating a possible tax refund or credit. Following this, the figure rose sharply to 64 million US dollars in 2021, reaching the highest level in the observed period.

Net Operating Profit Before Taxes (NOPBT)

The net operating profit before taxes exhibited significant volatility over the years. It increased markedly from 536 million US dollars in 2017 to 1,190 million US dollars in 2018, followed by a sharp decline to 530 million US dollars in 2019. The year 2020 saw a substantial downturn, with a negative NOPBT of -5,585 million US dollars, indicating a major operating loss. In 2021, there was a strong recovery, with NOPBT rising to 3,095 million US dollars, the highest level recorded during the period.

Effective Cash Tax Rate (CTR)

The effective cash tax rate remained relatively low throughout the period, with values ranging from 1.27% to 6.66%. The highest rate was observed in 2019 at 6.66%, while the lowest was in 2018 at 1.27%. The data for 2020 is missing, possibly due to the negative profit before taxes that year. In 2021, the effective cash tax rate was 2.08%, indicating a modest tax burden relative to earnings.

Overall Observations

The financial data reveal significant fluctuations in operational profitability and tax payments, especially during 2020, which was marked by an operating loss and a negative cash tax figure. The recovery in 2021 suggests improved operational performance and a return to positive profitability. The low effective cash tax rates across the years imply efficient tax management or the impact of tax credits and deductions.