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Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
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Fiserv Inc. pages available for free this week:
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Analysis of Short-term (Operating) Activity Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Net Profit Margin since 2005
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Current Ratio since 2005
- Analysis of Debt
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Economic Profit
12 months ended: | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | |
---|---|---|---|---|---|---|
Net operating profit after taxes (NOPAT)1 | ||||||
Cost of capital2 | ||||||
Invested capital3 | ||||||
Economic profit4 |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= – × =
The financial data reveals several significant trends over the five-year period analyzed.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT showed a steady increase from $1,176 million in 2017 to $1,797 million in 2021. This consistent upward trend indicates improving operational profitability over the years.
- Cost of Capital
- The cost of capital exhibited a generally decreasing trend, moving from 11.4% in 2017 to 10.16% in 2021, with minor fluctuations during the period. This reduction suggests a potential decrease in the company's risk profile or improvements in its capital structure.
- Invested Capital
- Invested capital increased modestly from $9,201 million in 2017 to $9,909 million in 2018, followed by a substantial jump to over $62 billion in 2019. Thereafter, it slightly decreased but remained above $59 billion through 2020 and 2021. This significant rise in invested capital beginning in 2019 reflects a major investment or acquisition, drastically changing the company's asset base.
- Economic Profit
- Economic profit was positive in 2017 and 2018, increasing from $127 million to $188 million. However, starting in 2019, it turned sharply negative, with large deficits of -$5,014 million, -$4,641 million, and -$4,268 million for 2019, 2020, and 2021 respectively. This shift indicates that despite growing NOPAT, the return on invested capital has not been sufficient to cover the cost of capital given the significantly increased invested capital from 2019 onward.
Overall, the company achieved higher operational profits and improved its cost of capital over time; however, the substantial rise in invested capital beginning in 2019 has resulted in persistently negative economic profits, suggesting challenges in generating value above the cost of capital in the post-2018 period.
Net Operating Profit after Taxes (NOPAT)
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowance for doubtful accounts.
3 Addition of increase (decrease) in contract liabilities.
4 Addition of increase (decrease) in employee termination costs reserve.
5 Addition of increase (decrease) in equity equivalents to net income attributable to Fiserv, Inc..
6 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= × =
7 2021 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= × 21.00% =
8 Addition of after taxes interest expense to net income attributable to Fiserv, Inc..
9 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= × 21.00% =
10 Elimination of after taxes investment income.
11 Elimination of discontinued operations.
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.
Cash Operating Taxes
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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.
Invested Capital
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of contract liabilities.
5 Addition of employee termination costs reserve.
6 Addition of equity equivalents to total Fiserv, Inc. shareholders’ equity.
7 Removal of accumulated other comprehensive income.
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 $59,700 million in 2021, suggesting moderate adjustments or repayments affecting the overall invested capital base during these last two years.
In summary, the data illustrates a period of significant capital restructuring or acquisition activity around 2019, characterized by sharp increases in both debt and equity components. Following this peak, the company maintained relatively stable but high financial leverage and equity levels, with minor declines in invested capital and equity in recent years. This pattern may indicate strategic investments or financing followed by a phase of consolidation or optimization of the capital structure.
Cost of Capital
Fiserv Inc., cost of capital calculations
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 21.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Capital (fair value)1 | Weights | Cost of capital | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity2 | ÷ | = | × | = | |||||||||
Debt3 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
Operating lease liability4 | ÷ | = | × | × (1 – 35.00%) | = | ||||||||
Total: |
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Invested capital2 | ||||||
Performance Ratio | ||||||
Economic spread ratio3 | ||||||
Benchmarks | ||||||
Economic Spread Ratio, Competitors4 | ||||||
Accenture PLC | ||||||
Adobe Inc. | ||||||
Cadence Design Systems Inc. | ||||||
CrowdStrike Holdings Inc. | ||||||
Fair Isaac Corp. | ||||||
International Business Machines Corp. | ||||||
Intuit Inc. | ||||||
Microsoft Corp. | ||||||
Oracle Corp. | ||||||
Palantir Technologies Inc. | ||||||
Palo Alto Networks Inc. | ||||||
Salesforce Inc. | ||||||
ServiceNow Inc. | ||||||
Synopsys Inc. | ||||||
Workday Inc. |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Economic Profit
- The economic profit showed a significant decline over the analyzed period. It started positively at 127 million US dollars in 2017 and increased to 188 million US dollars in 2018. However, from 2019 onwards, the company experienced substantial negative economic profit, with values at -5014 million US dollars in 2019, -4641 million US dollars in 2020, and -4268 million US dollars in 2021. This pattern indicates a sharp deterioration in the company's ability to generate value above its cost of capital during the latter years.
- Invested Capital
- Invested capital increased notably in 2019, rising from 9,909 million US dollars in 2018 to 62,514 million US dollars. This elevated level remained relatively stable through 2020 and 2021, with minor decreases to 60,165 and 59,700 million US dollars, respectively. The sharp increase in invested capital from 2018 to 2019 suggests significant investments or acquisitions, which represent a substantial shift in the company's balance sheet structure.
- Economic Spread Ratio
- Economic spread ratio exhibited an initial growth from 1.38% in 2017 to 1.9% in 2018, reflecting an improvement in returns over the cost of capital. However, from 2019 forward, the ratio dropped dramatically into negative territory, registering -8.02% in 2019, -7.71% in 2020, and -7.15% in 2021. This negative spread confirms that the company's returns on invested capital were below its capital costs, consistent with the persistent negative economic profit during these years.
Economic Profit Margin
Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
---|---|---|---|---|---|---|
Selected Financial Data (US$ in millions) | ||||||
Economic profit1 | ||||||
Revenue | ||||||
Add: Increase (decrease) in contract liabilities | ||||||
Adjusted revenue | ||||||
Performance Ratio | ||||||
Economic profit margin2 | ||||||
Benchmarks | ||||||
Economic Profit Margin, Competitors3 | ||||||
Accenture PLC | ||||||
Adobe Inc. | ||||||
Cadence Design Systems Inc. | ||||||
CrowdStrike Holdings Inc. | ||||||
Fair Isaac Corp. | ||||||
International Business Machines Corp. | ||||||
Intuit Inc. | ||||||
Microsoft Corp. | ||||||
Oracle Corp. | ||||||
Palantir Technologies Inc. | ||||||
Palo Alto Networks Inc. | ||||||
Salesforce Inc. | ||||||
ServiceNow Inc. | ||||||
Synopsys Inc. | ||||||
Workday Inc. |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × ÷ =
3 Click competitor name to see calculations.
- Adjusted Revenue
- The adjusted revenue demonstrates a clear upward trend across the periods analyzed. Starting at approximately $5.77 billion in 2017, the figure saw a slight decrease in 2018 to approximately $5.66 billion. However, a significant increase occurred in 2019, with revenue nearly doubling to $10.37 billion, followed by continued growth in 2020 and 2021, reaching $14.94 billion and $16.30 billion respectively. This substantial revenue growth indicates expansion in business activities or successful integration of additional sources of income during these years.
- Economic Profit
- Economic profit exhibits a markedly different pattern compared to adjusted revenue. Initially positive in 2017 and 2018, with values of $127 million and $188 million, economic profit sharply declined starting in 2019, turning negative and values remained deeply negative through to 2021. The recorded losses were substantial, at -$5.01 billion in 2019, slowly improving but still negative at approximately -$4.64 billion in 2020 and -$4.27 billion in 2021. This contrast with growing revenue suggests that although the company increased its income, it either faced rising costs, significant investments, or decreases in operating efficiency that negatively impacted overall profitability.
- Economic Profit Margin
- The economic profit margin echoes the trend in economic profit, shifting from positive percentages of 2.2% and 3.32% in 2017 and 2018 to severely negative margins from 2019 onward. Margins of -48.37%, -31.07%, and -26.18% during the last three years illustrate the widening gap between operating income and economic cost, further confirming a deteriorating value generation despite higher revenue. The negative margins imply that the company's operations may have become less economically efficient or burdened by costs not offset by revenue growth.
Overall, the financial data indicate a paradoxical situation where revenue growth is accompanied by substantial declines in economic profit and profit margin. This suggests operational challenges, increased costs, or other financial factors negatively influencing the company's economic value creation capacity through the period in question.