Fiserv Inc. (NASDAQ:FISV)

The period under review demonstrates a shifting financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibits a consistent upward trajectory from 2017 to 2021. However, this increase in NOPAT is offset by a substantial rise in invested capital, ultimately leading to a decline in economic profit over the same timeframe.

NOPAT Trend

NOPAT increased steadily from US$1,176 million in 2017 to US$1,797 million in 2021. This indicates improving operational efficiency and profitability. The growth rate appears to moderate in later years, but the overall trend remains positive.

Cost of Capital Trend

The cost of capital experienced a slight increase from 11.69% in 2017 to 11.73% in 2018, followed by a decrease to 10.41% in 2021. This suggests a changing risk profile or adjustments in financing strategies. The decline in the cost of capital in the later years partially mitigates the negative impact of rising invested capital on economic profit.

Invested Capital Trend

Invested capital shows a significant increase from US$9,201 million in 2017 to US$62,514 million in 2019. While it decreased slightly in 2020 and 2021 to US$60,165 million and US$59,700 million respectively, it remains substantially higher than the initial value. This large increase in invested capital is a primary driver of the declining economic profit.

Economic Profit Trend

Economic profit started at US$101 million in 2017 and increased to US$160 million in 2018. However, it then transitioned to negative values, reaching -US$5,174 million in 2019, -US$4,796 million in 2020, and -US$4,415 million in 2021. This indicates that, despite growing NOPAT, the returns generated are insufficient to cover the cost of the invested capital. The magnitude of the negative economic profit suggests a substantial destruction of shareholder value in the later years of the period.

In summary, while operational profitability, as indicated by NOPAT, improved, the substantial growth in invested capital overwhelmed these gains, resulting in a consistent decline in economic profit. The cost of capital fluctuations had a secondary effect, but the primary driver of the negative trend is the disproportionate increase in 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 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 quickly transitions to substantial economic losses. This is coupled with a considerable increase in invested capital, ultimately resulting in a declining economic spread ratio.

Economic Profit

Economic profit begins at US$101 million in 2017 and increases to US$160 million in 2018. However, a dramatic decline follows, with economic profit becoming negative in 2019 at -US$5,174 million. This negative trend continues through 2020 (-US$4,796 million) and 2021 (-US$4,415 million), although the magnitude of the loss slightly decreases in the latter year.

Invested Capital

Invested capital shows a consistent upward trend, increasing from US$9,201 million in 2017 to US$9,909 million in 2018. A substantial jump is then observed in 2019, reaching US$62,514 million. While the increase slows in subsequent years, invested capital remains high, at US$60,165 million in 2020 and US$59,700 million in 2021. The significant increase in 2019 appears to be a primary driver of the declining economic spread ratio.

Economic Spread Ratio

The economic spread ratio mirrors the changes in economic profit and invested capital. It begins at 1.09% in 2017 and rises to 1.62% in 2018. A sharp decline is then evident, falling to -8.28% in 2019. This negative ratio persists in 2020 (-7.97%) and 2021 (-7.40%), indicating that the return on invested capital is consistently below the cost of capital. The gradual increase in the ratio from 2019 to 2021, despite continued negative values, suggests a slight improvement in the relationship between returns and capital costs, though performance remains unfavorable.

In summary, the period is characterized by a transition from positive economic profit to substantial losses, driven by a significant increase in invested capital that outpaces the returns generated. The economic spread ratio reflects this deterioration, consistently indicating that the cost of capital exceeds the return on investment.

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

In 2017, the economic profit margin stood at 1.74%. This increased to 2.83% in 2018, indicating improved economic profit generation per dollar of revenue. However, a dramatic shift occurred in 2019, with the margin plummeting to -49.92%. This negative trend continued in 2020 and 2021, with margins reported at -32.11% and -27.08% respectively. While the magnitude of the negative margin decreased slightly between 2020 and 2021, it remained considerably negative.

The economic profit itself mirrors this pattern. Positive values of US$101 million and US$160 million were recorded in 2017 and 2018, respectively. Subsequent years saw substantial negative economic profits, reaching -US$5,174 million in 2019, -US$4,796 million in 2020, and -US$4,415 million in 2021. The decreasing absolute value of the negative economic profit from 2019 to 2021 suggests a lessening, but persistent, shortfall in returns exceeding the cost of capital.

Adjusted Revenue

Adjusted revenue increased consistently throughout the period. From US$5,765 million in 2017, it rose to US$5,662 million in 2018, then experienced significant growth to US$10,365 million in 2019. This growth continued, reaching US$14,938 million in 2020 and US$16,303 million in 2021. The consistent revenue growth contrasts sharply with the declining economic profit margin, suggesting that revenue increases were not translating into proportional economic profits.

The divergence between increasing adjusted revenue and decreasing economic profit margin indicates a potential issue with cost management, capital efficiency, or the pricing of products and services. Further investigation would be required to determine the underlying drivers of this trend.