Fiserv Inc. (NASDAQ:FISV)

The period under review demonstrates a complex relationship between net operating profit after taxes, cost of capital, and invested capital, resulting in consistently negative economic profit. While NOPAT generally increased over the observed timeframe, it has not been sufficient to overcome the cost of capital when considering the substantial invested capital base.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited an upward trend from US$1,176 million in 2017 to US$1,797 million in 2021. Growth was most pronounced between 2017 and 2019, with a more moderate increase in subsequent years. This suggests improving operational efficiency or revenue generation, but the impact on overall profitability, as measured by economic profit, has been limited.

Cost of Capital

The cost of capital decreased from 13.27% in 2017 to 11.77% in 2021. This decline indicates a potentially decreasing risk profile or improved access to financing. However, the reduction in cost of capital was not substantial enough to offset the negative impact of invested capital on economic profit.

Invested Capital

Invested capital experienced a significant increase from US$9,201 million in 2017 to US$62,514 million in 2019, before decreasing slightly to US$59,700 million in 2021. The large increase in 2019 is the primary driver of the substantial negative economic profit observed in that year and subsequent periods. The subsequent modest decrease did not materially improve the economic profit position.

Economic Profit

Economic profit remained negative throughout the period, ranging from a loss of US$45 million in 2017 to a loss of US$6,060 million in 2019. While the magnitude of the loss decreased slightly in 2020 and 2021 (to US$5,658 million and US$5,230 million respectively), it remained substantial. This indicates that the company’s returns on invested capital are consistently below its cost of capital.

In summary, despite growth in NOPAT and a declining cost of capital, the substantial and relatively stable level of invested capital resulted in persistent negative economic profit. The significant increase in invested capital in 2019 had a particularly detrimental effect on economic profit, and while subsequent years showed some improvement, the company did not achieve positive economic profit during the analyzed period.

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 significant fluctuations in economic profit and the economic spread ratio. Invested capital exhibits an overall increasing trend, though with some stabilization in the later years. A detailed examination of these metrics reveals a complex performance pattern.

Economic Profit

Economic profit begins at a loss of US$45 million in 2017, recovers to a profit of US$4 million in 2018, then experiences substantial losses in subsequent years. Losses escalate dramatically to US$6,060 million in 2019 and remain significant at US$5,658 million in 2020, before decreasing slightly to US$5,230 million in 2021. This indicates a consistent inability to generate returns exceeding the cost of capital throughout most of the analyzed timeframe.

Invested Capital

Invested capital shows a general upward trajectory, increasing from US$9,201 million in 2017 to US$9,909 million in 2018. A substantial increase is then observed, reaching US$62,514 million in 2019. Following this peak, invested capital declines modestly to US$60,165 million in 2020 and further to US$59,700 million in 2021, suggesting a potential stabilization of capital deployment after the significant expansion in 2019.

Economic Spread Ratio

The economic spread ratio mirrors the pattern of economic profit. It begins at -0.49% in 2017, improves to 0.04% in 2018, and then declines sharply to -9.69% in 2019. The ratio remains negative and relatively stable at -9.40% in 2020 and -8.76% in 2021. The consistently negative values, particularly from 2019 onwards, indicate that the company’s return on invested capital is consistently below its weighted average cost of capital. The slight improvement in the ratio from 2020 to 2021 may suggest a marginal improvement in efficiency, but the overall performance remains suboptimal.

In summary, while invested capital increased significantly during the period, the company struggled to translate this investment into positive economic profit. The economic spread ratio consistently indicates that returns are insufficient to cover the cost of capital, raising concerns about value creation.

The period under review demonstrates significant fluctuations in economic profit and, consequently, the economic profit margin. Initial observations reveal a substantial shift from a negative economic profit in 2017 to a positive value in 2018, followed by a return to substantial negative economic profit for the subsequent years.

Economic Profit

Economic profit began at -45 US$ million in 2017, improved considerably to 4 US$ million in 2018, but then experienced a dramatic decline, reaching -6,060 US$ million in 2019. While the negative economic profit lessened in magnitude over the following two years, it remained substantial at -5,658 US$ million in 2020 and -5,230 US$ million in 2021.

Adjusted Revenue

Adjusted revenue exhibited an upward trend throughout the period. Starting at 5,765 US$ million in 2017, it decreased slightly to 5,662 US$ million in 2018. However, a significant increase was observed in 2019, reaching 10,365 US$ million, and continued to grow to 14,938 US$ million in 2020 and 16,303 US$ million in 2021. This indicates consistent revenue growth despite the negative economic profit.

Economic Profit Margin

The economic profit margin mirrored the trends in economic profit. It started at -0.79% in 2017, improved to 0.08% in 2018, and then deteriorated sharply to -58.47% in 2019. The margin improved slightly in 2020 to -37.88% and further to -32.08% in 2021, but remained considerably negative. The consistent negative margin, particularly from 2019 onwards, suggests that the cost of capital consistently exceeded the returns generated from operations, even with increasing revenue.

The divergence between increasing adjusted revenue and consistently negative economic profit and economic profit margin warrants further investigation. While revenue growth is positive, the company appears to be struggling to generate returns that exceed its cost of capital. The substantial decline in the economic profit margin in 2019, despite revenue increases, is a particularly noteworthy observation.