Fiserv Inc. (NASDAQ:FISV)

The financial performance from 2017 to 2021 is characterized by consistent growth in operational profitability juxtaposed against a substantial expansion of the capital base, which has resulted in a prolonged period of negative economic profit.

Net Operating Profit After Taxes (NOPAT)

A steady upward trajectory is observed in NOPAT, which increased from US$ 1,176 million in 2017 to US$ 1,797 million in 2021. This consistent growth indicates an improvement in the core operational efficiency and earnings capacity over the five-year period.

Cost of Capital

The cost of capital exhibited a gradual decline, moving from 13.39% in 2017 to 11.87% in 2021. This downward trend suggests a slight reduction in the weighted average cost of financing or a decrease in the risk premium associated with the company's capital structure.

Invested Capital

A dramatic increase in invested capital occurred between 2018 and 2019, where the value surged from US$ 9,909 million to US$ 62,514 million. Following this peak, the invested capital saw a slight contraction, ending at US$ 59,700 million in 2021. This significant spike indicates a major capital event, such as a large-scale acquisition or strategic investment, occurring in 2019.

Economic Profit

Economic profit remained negative across all reported years, with a severe decline coinciding with the increase in invested capital. While the economic profit was nearly break-even in 2018 at US$ -7 million, it plummeted to US$ -6,125 million in 2019. Although a gradual recovery has been noted since then, with the deficit narrowing to US$ -5,289 million by 2021, the company has not yet generated sufficient NOPAT to cover its cost of capital, indicating a period of value destruction relative to the capital employed.

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 financial performance between 2017 and 2021 is characterized by a period of significant capital expansion that coincided with a sharp decline in economic value creation. While the company operated near a break-even point regarding economic profit in the early part of the period, a substantial structural shift occurred in 2019, leading to persistent negative economic value.

Invested Capital Trends

A dramatic increase in invested capital is observed between December 31, 2018, and December 31, 2019, where the figure rose from US$ 9,909 million to US$ 62,514 million. This represents a significant expansion of the capital base. Following this peak, the invested capital experienced a gradual decline, reaching US$ 59,700 million by December 31, 2021.

Economic Profit Performance

Economic profit remained negative throughout the analyzed five-year span. Losses were minimal in 2017 and 2018, but deteriorated sharply in 2019 to a deficit of US$ 6,125 million. A gradual recovery trend is evident from 2019 through 2021, as the economic loss narrowed to US$ 5,721 million in 2020 and further to US$ 5,289 million by the end of 2021.

Economic Spread Ratio Analysis

The economic spread ratio indicates a significant misalignment between the cost of capital and the returns generated starting in 2019. The ratio shifted from -0.07% in 2018 to a low of -9.80% in 2019, signifying that the return on invested capital fell substantially below the required threshold. Since 2019, a marginal but consistent improvement has been observed, with the ratio ascending to -9.51% in 2020 and -8.86% in 2021, suggesting a slow trajectory toward narrowing the economic spread deficit.

Between 2017 and 2021, a significant divergence is observed between revenue expansion and the generation of economic value. While adjusted revenue scaled rapidly, economic profit shifted from marginal losses to substantial negative figures, followed by a period of gradual recovery.

Economic Profit Trend

Initial losses in 2017 and 2018 were relatively minimal, recorded at negative US$ 56 million and negative US$ 7 million, respectively. A precipitous decline occurred in 2019, where economic profit dropped to negative US$ 6,125 million. A moderate recovery trend followed, with losses narrowing to negative US$ 5,721 million in 2020 and negative US$ 5,289 million by the end of 2021.

Adjusted Revenue Growth

Revenue exhibited a sharp acceleration beginning in 2019. Following a period of relative stability between 2017 and 2018, revenue increased from US$ 5,662 million to US$ 10,365 million in 2019. This growth trajectory persisted through the end of the period, reaching US$ 14,938 million in 2020 and US$ 16,303 million in 2021.

Economic Profit Margin Analysis

The economic profit margin shifted from near-equilibrium levels in 2017 (-0.97%) and 2018 (-0.12%) to a severe deficit of -59.09% in 2019. Despite the sustained negative values, a recovery pattern emerged over the subsequent two years, with the margin improving to -38.30% in 2020 and -32.44% in 2021. This indicates that while the entity continues to operate below its cost of capital, the gap is narrowing relative to the increase in adjusted revenue.