Fiserv Inc. (NASDAQ:FISV)

An analysis of the economic profit trends from 2017 to 2021 reveals a significant shift in value creation dynamics, primarily driven by a substantial expansion of the capital base beginning in 2019.

Net Operating Profit After Taxes (NOPAT)

A consistent upward trajectory is observed in NOPAT, which grew steadily from US$ 1,176 million in 2017 to US$ 1,797 million by 2021. This indicates a sustained improvement in operational profitability throughout the period.

Invested Capital

The capital base remained relatively stable between 2017 and 2018, before experiencing a sharp increase in 2019, rising from US$ 9,909 million to US$ 62,514 million. Following this peak, invested capital showed a gradual decline, ending at US$ 59,700 million in 2021.

Cost of Capital

The cost of capital exhibited a general downward trend over the five-year span, decreasing from 13.29% in 2017 to 11.78% in 2021. This suggests a slight reduction in the weighted average cost of financing the company's assets.

Economic Profit

Economic profit transitioned from a near-breakeven position in 2017 and 2018 to substantial negative values starting in 2019, reaching a deficit of US$ 6,069 million. While the economic profit improved slightly to -US$ 5,237 million by 2021, the company experienced persistent value destruction from 2019 onward. This trend is directly attributable to the surge in invested capital; the resulting increase in the capital charge far outpaced the growth in operational earnings, leading to a significant gap between NOPAT and the required return on 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 financial performance from 2017 to 2021 is characterized by a profound shift in capital structure and value creation, specifically marked by a significant escalation in invested capital beginning in 2019. While the initial two years showed relative stability near a breakeven point, the subsequent period reflects a substantial increase in economic losses, followed by a gradual trend toward recovery.

Invested Capital Trends

A dramatic increase in invested capital occurred between December 31, 2018, and December 31, 2019, rising from 9,909 million US$ to 62,514 million US$. This represents a more than six-fold increase in the capital base within a single fiscal year. Following this peak, the invested capital experienced a slight downward trajectory, settling at 59,700 million US$ by the end of 2021.

Economic Profit Analysis

Economic profit remained marginal during 2017 and 2018, moving from -47 million US$ to a slight positive of 3 million US$. However, coinciding with the capital expansion in 2019, economic profit plummeted to -6,069 million US$. From 2019 to 2021, a consistent recovery pattern is observed, with losses narrowing to -5,666 million US$ in 2020 and further improving to -5,237 million US$ in 2021.

Economic Spread Ratio Interpretation

The economic spread ratio mirrors the trajectory of economic profit, reflecting the efficiency of capital utilization. The ratio shifted from a near-neutral position of -0.51% in 2017 and 0.03% in 2018 to a sharp decline of -9.71% in 2019. This indicates that the return on invested capital fell significantly below the cost of capital following the massive investment. A gradual upward trend followed, with the ratio improving to -9.42% in 2020 and -8.77% in 2021, suggesting a slow reclamation of value relative to the invested base.

The financial performance from 2017 to 2021 is characterized by a significant structural shift occurring in 2019, followed by a period of gradual recovery in value creation metrics. While revenue experienced substantial growth, the period was marked by a sharp decline in economic profit, leading to deeply negative economic profit margins that began to stabilize toward the end of the analyzed timeframe.

Economic Profit Trends

Economic profit remained relatively stable and near the break-even point between 2017 and 2018. A precipitous decline occurred in 2019, with economic profit falling to -6,069 million USD. Although the figure remained negative through 2021, a gradual recovery trend is evident, as the deficit narrowed to -5,237 million USD by the end of the period.

Adjusted Revenue Expansion

Adjusted revenue showed minimal movement between 2017 and 2018. A pivotal increase was recorded in 2019, where revenue grew to 10,365 million USD. This growth trajectory continued consistently through 2020 and 2021, ultimately reaching 16,303 million USD, indicating a significant expansion in the scale of operations.

Economic Profit Margin Analysis

The economic profit margin shifted from a near-neutral position of 0.05% in 2018 to a severe contraction of -58.55% in 2019. This suggests that the capital charge significantly exceeded the operating returns during the period of rapid revenue expansion. From 2019 to 2021, the margin demonstrated a steady improvement, rising from -58.55% to -32.13%, which indicates a gradual increase in the efficiency of capital utilization relative to revenue generation.