Fiserv Inc. (NASDAQ:FISV)

The period under review demonstrates a shifting financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibited consistent growth from 2017 to 2021, increasing from US$1,176 million to US$1,797 million. However, this positive trend in operational profitability was offset by changes in invested capital and cost of capital, ultimately resulting in a decline in economic profit over the same timeframe.

NOPAT Trend

NOPAT increased steadily between 2017 and 2021. Growth was approximately 12.4% from 2017 to 2018, 18.0% from 2018 to 2019, and continued, albeit at a decreasing rate, through 2021. This suggests improving operational efficiency or increased revenue generation.

Cost of Capital Trend

The cost of capital experienced a slight increase from 11.49% in 2017 to 11.53% in 2018, followed by a decrease to 10.23% in 2021. The decline in the cost of capital from 2019 onwards could be attributed to changes in market conditions or the company’s risk profile.

Invested Capital Trend

Invested capital showed a substantial increase from US$9,201 million in 2017 to US$62,514 million in 2019. Following this significant rise, invested capital decreased slightly to US$60,165 million in 2020 and further to US$59,700 million in 2021. This fluctuation suggests potentially large capital expenditures or acquisitions in 2019, followed by a stabilization or minor reduction in capital employed.

Economic Profit Trend

Economic profit began at US$119 million in 2017 and increased to US$180 million in 2018. However, a dramatic shift occurred in 2019, with economic profit becoming negative at -US$5,062 million. This negative trend continued in 2020 (-US$4,688 million) and 2021 (-US$4,313 million). The decline in economic profit is primarily attributable to the significant increase in invested capital in 2019, which outweighed the gains from NOPAT, despite a decreasing cost of capital in later years. While NOPAT continued to grow, it was insufficient to generate a positive economic profit given the level of capital employed.

In summary, while operational profitability improved, the substantial increase in invested capital, particularly in 2019, resulted in a consistent decline in economic profit throughout the analyzed period. The company generated accounting profits, but failed to generate returns exceeding its cost of capital.

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 a significant shift in financial performance as measured by economic value added metrics. Initially, positive economic profit is observed, but this transitions to substantial economic losses in subsequent years. This is accompanied by a corresponding change in the economic spread ratio, moving from positive values to consistently negative figures.

Economic Profit

Economic profit begins at US$119 million in 2017 and increases to US$180 million in 2018. However, a dramatic decline occurs in 2019, resulting in an economic loss of US$5,062 million. This loss persists in 2020 and 2021, with figures of US$4,688 million and US$4,313 million respectively, indicating a sustained period of value destruction.

Invested Capital

Invested capital shows an initial increase from US$9,201 million in 2017 to US$9,909 million in 2018. A substantial increase is then observed in 2019, reaching US$62,514 million. While it decreases slightly in 2020 to US$60,165 million, it remains at a high level, concluding at US$59,700 million in 2021. The significant rise in invested capital coincides with the onset of economic losses.

Economic Spread Ratio

The economic spread ratio reflects the relationship between economic profit and invested capital. It starts at 1.29% in 2017 and rises to 1.81% in 2018, aligning with the positive economic profit. From 2019 onwards, the ratio becomes negative, reaching -8.10% in 2019, -7.79% in 2020, and -7.22% in 2021. This consistent negativity indicates that the return generated on invested capital is insufficient to cover the cost of that capital.

The trend suggests that while invested capital increased significantly, the returns generated from that capital were unable to offset the cost of capital, leading to substantial economic losses. The economic spread ratio consistently declining into negative territory confirms this observation. The magnitude of the negative economic profit and the economic spread ratio suggests a considerable underperformance relative to investor expectations.

The economic profit margin exhibited significant fluctuations between 2017 and 2021. Initially positive, the metric transitioned to substantial negative values, demonstrating a deteriorating trend in economic profitability relative to revenue.

Economic Profit Margin Trend

In 2017, the economic profit margin stood at 2.06%. This increased to 3.17% in 2018, indicating improved economic profit generation relative to adjusted revenue. However, a dramatic shift occurred in 2019, with the margin plummeting to -48.84%. This negative trend continued in 2020 and 2021, with margins reported at -31.38% and -26.45% respectively, although the magnitude of the negative value lessened in the latter year.

The movement in economic profit margin closely mirrors the trend in economic profit. While economic profit increased from US$119 million to US$180 million between 2017 and 2018, the subsequent years saw substantial declines in economic profit, culminating in large negative values. This suggests that the cost of capital consistently exceeded the returns generated from operations during the 2019-2021 period.

Revenue and Economic Profit Margin Relationship

Adjusted revenue demonstrated a consistent upward trend throughout the observed period, increasing from US$5,765 million in 2017 to US$16,303 million in 2021. Despite this revenue growth, the economic profit margin remained negative from 2019 onwards. This indicates that revenue increases were insufficient to offset the increasing costs, or more specifically, to generate returns exceeding the cost of capital. The diminishing negative margin from 2020 to 2021, alongside continued revenue growth, suggests a potential stabilization, but not a return to profitability from an economic value perspective.

The substantial decline in economic profit margin warrants further investigation into the underlying factors contributing to the increased costs or decreased operational efficiency. The consistent negative economic profit margin from 2019 onwards signals a potential erosion of shareholder value.