Warner Bros. Discovery Inc. (NASDAQ:WBD)

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Warner Bros. Discovery Inc., Profitability Ratios: Reported vs. Adjusted

Warner Bros. Discovery Inc., adjusted profitability ratios

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Net Profit Margin
Reported net profit margin	8.25%	11.42%	18.57%	5.63%	-4.90%
Adjusted net profit margin	8.25%	11.42%	18.57%	5.63%	-4.68%
Return on Equity (ROE)
Reported ROE	8.67%	11.65%	20.92%	7.08%	-7.31%
Adjusted ROE	8.67%	11.65%	20.92%	7.08%	-6.98%
Return on Assets (ROA)
Reported ROA	2.92%	3.58%	6.13%	1.82%	-1.49%
Adjusted ROA	2.92%	3.58%	6.13%	1.82%	-1.43%

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 profitability profile exhibits a volatile trajectory between 2017 and 2021, characterized by a sharp recovery from initial losses to a performance peak in 2019, followed by a gradual contraction in subsequent years.

Net Profit Margin Trends: A significant transition occurred between 2017 and 2019, where the reported net profit margin shifted from -4.90% to a peak of 18.57%. Following this peak, a downward trend is observed, with margins compressing to 11.42% in 2020 and further to 8.25% by the end of 2021.
Return on Equity (ROE) and Return on Assets (ROA): Both ROE and ROA track closely with the net profit margin trends. ROE peaked at 20.92% in 2019 before declining to 8.67% in 2021. Similarly, ROA reached its maximum at 6.13% in 2019, subsequently decreasing to 2.92% in 2021. This suggests that the decline in overall profitability was the primary driver for the reduced efficiency in utilizing both equity and assets.
Reported versus Adjusted Variance: A minimal variance between reported and adjusted figures is evident across the period. In 2017, adjusted ratios were slightly more favorable than reported figures; for instance, the adjusted net profit margin was -4.68% compared to the reported -4.90%. From 2018 through 2021, reported and adjusted values converged completely, indicating that mark-to-market adjustments for available-for-sale securities had no material impact on the profitability ratios during those years.

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	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Net income (loss) available to Discovery, Inc.	1,006)	1,219)	2,069)	594)	(337)
Revenues	12,191)	10,671)	11,144)	10,553)	6,873)
Profitability Ratio
Net profit margin¹	8.25%	11.42%	18.57%	5.63%	-4.90%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income (loss) available to Discovery, Inc.	1,006)	1,219)	2,069)	594)	(322)
Revenues	12,191)	10,671)	11,144)	10,553)	6,873)
Profitability Ratio
Adjusted net profit margin²	8.25%	11.42%	18.57%	5.63%	-4.68%

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).

2021 Calculations

¹ Net profit margin = 100 × Net income (loss) available to Discovery, Inc. ÷ Revenues
= 100 × 1,006 ÷ 12,191 = 8.25%

² Adjusted net profit margin = 100 × Adjusted net income (loss) available to Discovery, Inc. ÷ Revenues
= 100 × 1,006 ÷ 12,191 = 8.25%

The financial performance between 2017 and 2021 is characterized by a significant cycle of recovery, a peak in profitability, and a subsequent gradual decline in margins.

Adjusted Net Profit Margin Trends: A sharp recovery is observed starting in 2017, where the adjusted net profit margin transitioned from -4.68% to a peak of 18.57% by 2019. Following this peak, a consistent downward trajectory occurred, with the margin contracting to 11.42% in 2020 and further decreasing to 8.25% by the end of 2021.
Net Income Trajectory: Adjusted net income followed a similar pattern to the profit margins. After recording a loss of US$ 322 million in 2017, earnings increased substantially to a high of US$ 2,069 million in 2019. This growth was followed by a decline in annual net income to US$ 1,219 million in 2020 and US$ 1,006 million in 2021.
Convergence of Reported and Adjusted Metrics: A high level of alignment exists between reported and adjusted financial figures. The only marginal variance occurred in 2017, where the adjusted net profit margin was 22 basis points higher than the reported margin. From 2018 through 2021, the reported and adjusted net income and margin figures remained identical, indicating that non-recurring items had no material impact on the bottom line during this four-year period.

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	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Net income (loss) available to Discovery, Inc.	1,006)	1,219)	2,069)	594)	(337)
Total Discovery, Inc. stockholders’ equity	11,599)	10,464)	9,891)	8,386)	4,610)
Profitability Ratio
ROE¹	8.67%	11.65%	20.92%	7.08%	-7.31%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income (loss) available to Discovery, Inc.	1,006)	1,219)	2,069)	594)	(322)
Total Discovery, Inc. stockholders’ equity	11,599)	10,464)	9,891)	8,386)	4,610)
Profitability Ratio
Adjusted ROE²	8.67%	11.65%	20.92%	7.08%	-6.98%

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).

2021 Calculations

¹ ROE = 100 × Net income (loss) available to Discovery, Inc. ÷ Total Discovery, Inc. stockholders’ equity
= 100 × 1,006 ÷ 11,599 = 8.67%

² Adjusted ROE = 100 × Adjusted net income (loss) available to Discovery, Inc. ÷ Total Discovery, Inc. stockholders’ equity
= 100 × 1,006 ÷ 11,599 = 8.67%

The financial performance from 2017 through 2021 is characterized by an initial recovery from losses, a significant peak in profitability in 2019, and a subsequent gradual decline in both net income and return on equity.

Net Income Trends: A transition from a reported net loss of 337 million USD in 2017 to a substantial peak of 2,069 million USD in 2019 is observed. Following this peak, net income experienced a downward trajectory, decreasing to 1,219 million USD in 2020 and further to 1,006 million USD in 2021.
Convergence of Reported and Adjusted Metrics: A marginal variance between reported and adjusted net income existed in 2017, with adjusted net income appearing slightly less negative at -322 million USD. From 2018 through 2021, reported and adjusted figures became identical, indicating an absence of significant non-recurring items or adjustments affecting the bottom line during those years.
Adjusted Return on Equity (ROE) Analysis: The Adjusted ROE mirrored the trend of net income, rising from a negative 6.98% in 2017 to a peak of 20.92% in 2019. This shift indicates a period of rapid increase in the efficiency of generating profits from shareholders' equity. However, this efficiency declined in the subsequent two years, falling to 11.65% in 2020 and 8.67% in 2021.
Capital Efficiency Observations: The contraction of the Adjusted ROE from 20.92% in 2019 to 8.67% in 2021 suggests a reduction in the company's ability to convert equity into profit. Because the ROE declined in tandem with net income, the downward trend is primarily driven by the reduction in earnings rather than a significant restructuring of the equity base.

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	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Net income (loss) available to Discovery, Inc.	1,006)	1,219)	2,069)	594)	(337)
Total assets	34,427)	34,087)	33,735)	32,550)	22,555)
Profitability Ratio
ROA¹	2.92%	3.58%	6.13%	1.82%	-1.49%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income (loss) available to Discovery, Inc.	1,006)	1,219)	2,069)	594)	(322)
Total assets	34,427)	34,087)	33,735)	32,550)	22,555)
Profitability Ratio
Adjusted ROA²	2.92%	3.58%	6.13%	1.82%	-1.43%

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).

2021 Calculations

¹ ROA = 100 × Net income (loss) available to Discovery, Inc. ÷ Total assets
= 100 × 1,006 ÷ 34,427 = 2.92%

² Adjusted ROA = 100 × Adjusted net income (loss) available to Discovery, Inc. ÷ Total assets
= 100 × 1,006 ÷ 34,427 = 2.92%

The financial performance between 2017 and 2021 is characterized by an initial recovery from losses, a significant peak in profitability and asset efficiency in 2019, and a subsequent gradual decline through 2021.

Net Income Trends: A transition from a reported net loss of 337 million USD in 2017 to a peak reported net income of 2,069 million USD in 2019 was observed. Following this peak, net income experienced a downward trajectory, decreasing to 1,219 million USD in 2020 and further to 1,006 million USD by the end of 2021.
Adjusted Return on Assets (ROA): The adjusted ROA mirrored the trend seen in net income, moving from a negative 1.43% in 2017 to a maximum of 6.13% in 2019. A subsequent contraction occurred, with the ratio falling to 3.58% in 2020 and 2.92% in 2021, indicating a reduction in the efficiency of asset utilization to generate earnings after the 2019 peak.
Comparison of Reported and Adjusted Metrics: A marginal variance between reported and adjusted figures was present only in 2017, where adjusted net income and ROA were slightly more favorable than reported values. From 2018 through 2021, reported and adjusted figures converged completely, showing no discrepancy between the two measures of profitability and return.

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