Fiserv Inc. (NASDAQ:FISV)

The period under review demonstrates a complex relationship between net operating profit after taxes, cost of capital, and invested capital, resulting in fluctuating economic profit. While NOPAT generally increased, economic profit remained largely negative throughout the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a consistent upward trend from 2017 to 2021. Starting at US$1,176 million, it increased to US$1,322 million in 2018, then to US$1,565 million in 2019, and continued to rise to US$1,728 million in 2020. This growth continued, albeit at a slower pace, reaching US$1,797 million in 2021.

Cost of Capital

The cost of capital experienced a slight increase from 13.28% in 2017 to 13.31% in 2018. Subsequently, it decreased to 12.20% in 2019 and 12.28% in 2020, before further declining to 11.77% in 2021. This suggests a decreasing risk profile or improved financing conditions over the period.

Invested Capital

Invested capital showed a substantial increase from US$9,201 million in 2017 to US$9,909 million in 2018. A significant jump occurred in 2019, reaching US$62,514 million. Following this, invested capital decreased to US$60,165 million in 2020 and continued to decline slightly to US$59,700 million in 2021. The large increase in 2019 warrants further investigation to understand the underlying drivers.

Economic Profit

Economic profit was negative for all years examined. It began at -US$46 million in 2017, improved to a positive US$4 million in 2018, but then deteriorated significantly to -US$6,063 million in 2019. The negative trend continued in 2020 with a value of -US$5,661 million, and further decreased to -US$5,232 million in 2021. Despite the growth in NOPAT, the substantial increases in invested capital, particularly in 2019, outweighed the profit generated, resulting in continued economic losses. The relatively stable economic profit from 2020 to 2021 suggests that the relationship between NOPAT and invested capital stabilized during those years.

In summary, while operational profitability improved, the company’s economic profit remained negative, primarily due to a large capital base. The significant increase in invested capital in 2019 appears to be a key factor contributing to the sustained negative economic profit.

The analysis of the annual financial data reveals mixed trends in profitability measures over the five-year period ending December 31, 2021.

Net Income Attributable to Fiserv, Inc.

The net income shows some volatility throughout the years. From 2017 to 2018, it decreased slightly from 1246 million USD to 1187 million USD. A more significant decline occurred between 2018 and 2019, dropping to 893 million USD. However, this was followed by a modest recovery in 2020 to 958 million USD and a substantial increase in 2021 to 1334 million USD, surpassing the initial 2017 level. This pattern indicates a dip in profitability midway through the period, followed by a strong rebound in recent years.

Net Operating Profit After Taxes (NOPAT)

NOPAT displayed a consistent upward trajectory over the entire five-year span. It increased from 1176 million USD in 2017 to 1322 million USD in 2018, with further growth to 1565 million USD in 2019. This positive trend persisted in 2020 at 1728 million USD and reached 1797 million USD by the end of 2021. The steady rise in NOPAT suggests improving operational efficiency and profitability after taxes despite fluctuations in net income.

Overall, while net income faced a decline mid-period before a recovery, NOPAT steadily improved year-over-year, indicating strengthening core operating performance. The divergence between net income and NOPAT trends could be attributed to factors such as non-operating items, tax effects, or one-time charges influencing net income figures differently than operating profit metrics.

The financial data reveals varying trends in tax-related expenses over the five-year period ending in 2021.

Income Tax Provision

The income tax provision exhibits fluctuations without a clear linear trend. Starting at 158 million USD in 2017, it more than doubled to 378 million USD in 2018. This was followed by a significant reduction to 198 million USD in 2019 and stability around 196 million USD in 2020. In 2021, there was a notable increase to 363 million USD, approaching the 2018 level. This pattern suggests variability in taxable income, tax rates, or tax planning outcomes over the years.

Cash Operating Taxes

The cash operating taxes show a different pattern characterized by an initial decrease from 471 million USD in 2017 to 288 million USD in 2018 and a further decline to 255 million USD in 2019. In 2020, the figure rose slightly to 278 million USD, followed by a sharp increase to 775 million USD in 2021, which represents a nearly threefold jump compared to the previous year. This sharp rise in 2021 might reflect changes in operational profitability, tax timing differences, or alterations in cash tax policy or payments.

Overall, while income tax provision levels remained relatively volatile with peaks in 2018 and 2021, cash operating taxes demonstrated a steady decline until 2019, a minor uptick in 2020, and a significant surge in 2021. The disparity between the trends in provision and cash taxes in recent years may indicate differences in accrued versus actual cash tax payments, suggesting the influence of tax deferrals, credits, or adjustments impacting cash flow differently from the provision expense.

The financial data reveals several significant trends in the company’s capital structure and financial positioning over the five-year period.

Total reported debt & leases

The reported debt and leases displayed an increasing trend from 2017 through 2019, rising sharply from $5,266 million in 2017 to $22,642 million in 2019. This substantial increase indicates a significant leveraging or financing activity during that period. In 2020 and 2021, the reported debt & leases figures stabilized somewhat, with slight decreases and then a modest increase ending at $21,974 million in 2021, suggesting a relatively stable level of debt in the most recent years considered.

Total shareholders’ equity

Shareholders’ equity experienced a decline from $2,731 million in 2017 to $2,293 million in 2018, followed by a dramatic increase to $32,979 million in 2019. This surge aligns with the observed rise in debt, which may reflect an equity issuance, revaluation, or comprehensive income increase that boosted equity considerably. Subsequently, shareholders’ equity declined slightly but remained high at $32,330 million in 2020 and then decreased further to $30,952 million in 2021. Despite these decreases, equity levels remain substantially higher than the initial 2017-2018 amounts.

Invested capital

Invested capital followed a trend similar to that of total debt and shareholders’ equity. Beginning at $9,201 million in 2017 and increasing modestly to $9,909 million in 2018, it then surged to $62,514 million by the end of 2019. This jump reflects the substantial changes in both debt and equity levels noted previously. Despite the surge, invested capital slightly decreased in 2020 and 2021, ending at $59,700 million in 2021, suggesting moderate adjustments or repayments affecting the overall invested capital base during these last two years.

In summary, the data illustrates a period of significant capital restructuring or acquisition activity around 2019, characterized by sharp increases in both debt and equity components. Following this peak, the company maintained relatively stable but high financial leverage and equity levels, with minor declines in invested capital and equity in recent years. This pattern may indicate strategic investments or financing followed by a phase of consolidation or optimization of the capital structure.

The period under review demonstrates significant fluctuations in economic performance. While a brief period of positive economic profit was observed, the overall trend indicates a consistent shortfall in generating returns exceeding the cost of capital. Invested capital experienced substantial growth initially, followed by relative stabilization.

Economic Profit

Economic profit began at a loss of US$46 million in 2017, improved to a profit of US$4 million in 2018, then declined dramatically to a loss of US$6,063 million in 2019. Losses continued in 2020 and 2021, at US$5,661 million and US$5,232 million respectively, indicating a persistent inability to generate returns above the cost of capital. The magnitude of the losses in 2019, 2020, and 2021 is considerably larger than the initial loss in 2017.

Invested Capital

Invested capital increased from US$9,201 million in 2017 to US$9,909 million in 2018, representing a moderate growth rate. A substantial increase was then observed in 2019, reaching US$62,514 million. Following this significant jump, invested capital decreased slightly to US$60,165 million in 2020 and further to US$59,700 million in 2021, suggesting a stabilization of capital deployment after the large 2019 increase.

Economic Spread Ratio

The economic spread ratio mirrored the trend in economic profit. It began at -0.50% in 2017, improved to 0.04% in 2018, then deteriorated sharply to -9.70% in 2019. The ratio remained negative in 2020 (-9.41%) and 2021 (-8.76%), although showing a slight improvement in the latter year. This indicates that the return on invested capital consistently fell short of the cost of capital, with the gap widening considerably in 2019 before stabilizing at a substantial negative spread.

The substantial increase in invested capital in 2019 did not translate into a corresponding increase in economic profit, and in fact coincided with the largest loss. This suggests that the deployed capital may not have been utilized effectively or that the cost of capital is particularly high relative to the returns generated by the investments.

The economic profit margin exhibited significant fluctuation between 2017 and 2021. Initially negative, it briefly turned positive before declining substantially and remaining negative for the remainder of the observed period. This analysis details the observed trends in economic profit, adjusted revenue, and the resulting economic profit margin.

Economic Profit

Economic profit began at negative US$46 million in 2017, increased to US$4 million in 2018, then experienced a dramatic decrease to negative US$6,063 million in 2019. Subsequent years showed a moderate reduction in the magnitude of the loss, reaching negative US$5,661 million in 2020 and negative US$5,232 million in 2021. The substantial decline in 2019 is a key observation.

Adjusted Revenue

Adjusted revenue decreased slightly from US$5,765 million in 2017 to US$5,662 million in 2018. A substantial increase was then observed, with revenue reaching US$10,365 million in 2019. Further growth continued into 2020, reaching US$14,938 million, and then to US$16,303 million in 2021. Revenue consistently increased from 2019 onward.

Economic Profit Margin

The economic profit margin was -0.79% in 2017, improving to 0.07% in 2018. However, it then plummeted to -58.50% in 2019. The margin improved modestly in 2020 to -37.89% and further to -32.09% in 2021. Despite the growth in adjusted revenue from 2019 onwards, the economic profit margin remained significantly negative, indicating that the cost of capital consistently exceeded economic profit generated. The large negative margin in 2019, coinciding with the revenue increase, suggests a substantial increase in the cost of capital or a significant decline in operational efficiency relative to that revenue.

In summary, while adjusted revenue demonstrated a positive trend from 2019, economic profit remained negative throughout the period, resulting in a consistently negative economic profit margin. The magnitude of the negative economic profit margin decreased from 2019 to 2021, but remained substantial, suggesting ongoing challenges in generating returns exceeding the cost of capital.