Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Warner Bros. Discovery Inc., economic profit calculation
US$ in millions
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
= 1,066 – 11.10% × 30,724 = -2,343
The analysis of economic profit reveals a consistent failure to generate value above the cost of capital from 2017 through 2021. Despite periods of positive Net Operating Profit After Taxes (NOPAT), economic profit remained negative throughout the five-year duration, indicating that the operating returns were insufficient to cover the required return on invested capital.
- Net Operating Profit After Taxes (NOPAT)
- A volatile trajectory is observed in NOPAT, which moved from a loss of 121 million in 2017 to a peak of 2,393 million in 2019. Following this peak, a downward trend emerged, with values declining to 1,788 million in 2020 and further decreasing to 1,066 million by the end of 2021.
- Invested Capital
- A substantial increase in invested capital occurred between 2017 and 2018, rising from 21,151 million to 31,259 million. Following this expansion, the capital base remained relatively stable, fluctuating minimally around the 30,700 million to 31,000 million range through 2021.
- Cost of Capital
- The cost of capital exhibited fluctuation, ranging from a minimum of 9.59% in 2017 to a maximum of 13.65% in 2020. The spike in the cost of capital in 2020 coincided with a reduction in NOPAT, contributing to a significant decline in economic profit for that period.
- Economic Profit Performance
- Economic profit remained consistently negative, with the most significant deficit of -2,421 million recorded in 2018. The narrowest deficit occurred in 2019 at -929 million, aligning with the period's peak NOPAT. However, the persistent negative values suggest that the returns generated from the invested capital base were consistently below the organization's weighted average cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Warner Bros. Discovery Inc., NOPAT calculation
US$ in millions
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 credit losses.
3 Addition of increase (decrease) in deferred revenues.
4 Addition of increase (decrease) in restructuring and other liabilities.
5 Addition of increase (decrease) in equity equivalents to net income (loss) available to Discovery, Inc..
6 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 629 × 2.94% = 18
7 2021 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 651 × 21.00% = 137
8 Addition of after taxes interest expense to net income (loss) available to Discovery, Inc..
9 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 18 × 21.00% = 4
10 Elimination of after taxes investment income.
The financial performance between 2017 and 2021 is characterized by an initial period of rapid growth followed by a consistent decline in both operational and net profitability. A significant transition occurred between 2017 and 2018, where the entity moved from negative earnings to substantial profitability.
- Net Operating Profit After Taxes (NOPAT) Trend
- NOPAT experienced a sharp upward trajectory from a loss of 121 million US$ in 2017 to a peak of 2,393 million US$ in 2019. Following this peak, a downward trend is observed, with values receding to 1,788 million US$ in 2020 and further declining to 1,066 million US$ by the end of 2021. This represents a reduction of approximately 55% from the 2019 peak to the 2021 year-end figure.
- Net Income Performance
- Net income followed a similar pattern to NOPAT, starting at a deficit of 337 million US$ in 2017 and reaching a maximum of 2,069 million US$ in 2019. The subsequent decline mirrored the operational trend, with net income falling to 1,219 million US$ in 2020 and 1,006 million US$ in 2021.
- Operational vs. Net Profitability Gap
- A consistent positive variance between NOPAT and net income is evident from 2018 through 2021. This gap indicates that operating performance, when adjusted for financing costs and non-operating items, remained stronger than the final bottom-line net income. The divergence was most pronounced in 2019, where NOPAT exceeded net income by 324 million US$, suggesting a significant impact from non-operating expenses or financing costs during that period.
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Cash Operating Taxes
Warner Bros. Discovery Inc., cash operating taxes calculation
US$ in millions
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).
An analysis of the tax components reveals a distinct divergence between accounting-based tax provisions and actual cash outflows. While the provision for income taxes exhibits significant volatility over the five-year period, cash operating taxes demonstrate a consistent long-term upward trajectory, which directly impacts the calculation of after-tax cash flows for economic value added assessments.
- Cash Operating Tax Trends
- Actual cash tax payments grew steadily from 537 million USD in 2017 to 880 million USD by 2021. This represents a substantial overall increase, despite a marginal contraction observed in 2020, where payments dipped to 698 million USD before rebounding sharply in the following year.
- Provision for Income Taxes Volatility
- The accounting provision for income taxes shows a lack of linear progression, characterized by sharp fluctuations. The values peaked at 373 million USD in 2020 and reached a period low of 81 million USD in 2019, indicating significant variance in non-cash tax accounting charges compared to actual liquidity outflows.
- Variance Between Cash Taxes and Provisions
- A consistent gap is observed where cash operating taxes exceed the provision for income taxes in every reported year. This disparity suggests that the cash burden of taxes was consistently higher than the tax expense recognized on the income statement, a critical distinction for evaluating the real economic cost of capital and the resulting economic value added.
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Invested Capital
Warner Bros. Discovery Inc., invested capital calculation (financing approach)
US$ in millions
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 deferred revenues.
5 Addition of restructuring and other liabilities.
6 Addition of equity equivalents to total Discovery, Inc. stockholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of assets under construction.
9 Subtraction of equity investments with readily determinable fair values.
The analysis of invested capital reveals a period of significant expansion between 2017 and 2018, followed by a phase of relative stabilization through 2021. The initial surge in invested capital was driven by concurrent increases in both debt and equity, while subsequent years show a transition toward a more equity-heavy capital structure.
- Debt and Lease Trends
- Total reported debt and leases experienced an initial increase, rising from 14,990 million US$ in 2017 to a peak of 17,781 million US$ in 2018. Following this peak, a consistent downward trend is observed, with debt levels declining annually to reach 15,643 million US$ by December 31, 2021. This indicates a gradual deleveraging of the balance sheet over the final four years of the period.
- Equity Growth Patterns
- Stockholders' equity demonstrated strong and continuous growth throughout the entire period. Starting at 4,610 million US$ in 2017, equity expanded rapidly to 8,386 million US$ in 2018 and continued a steady upward climb to 11,599 million US$ by 2021. This represents a total increase of approximately 151%, suggesting a substantial strengthening of the company's internal funding base.
- Invested Capital Composition and Stability
- Invested capital saw a sharp increase of approximately 47.5% between 2017 and 2018, jumping from 21,151 million US$ to 31,259 million US$. From 2019 through 2021, the total invested capital remained remarkably stable, fluctuating within a narrow range between 30,674 million US$ and 30,994 million US$. The data indicates that the growth in stockholders' equity effectively offset the reduction in total debt, maintaining a consistent level of total capital employed in the business.
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Cost of Capital
Warner Bros. Discovery Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 14,038) | 14,038) | ÷ | 32,122) | = | 0.44 | 0.44 | × | 21.23% | = | 9.28% | ||
| Total debt and finance lease liabilities3 | 17,455) | 17,455) | ÷ | 32,122) | = | 0.54 | 0.54 | × | 4.13% × (1 – 21.00%) | = | 1.77% | ||
| Operating lease liability4 | 629) | 629) | ÷ | 32,122) | = | 0.02 | 0.02 | × | 2.94% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 32,122) | 1.00 | 11.10% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 26,945) | 26,945) | ÷ | 46,549) | = | 0.58 | 0.58 | × | 21.23% | = | 12.29% | ||
| Total debt and finance lease liabilities3 | 18,941) | 18,941) | ÷ | 46,549) | = | 0.41 | 0.41 | × | 4.12% × (1 – 21.00%) | = | 1.32% | ||
| Operating lease liability4 | 663) | 663) | ÷ | 46,549) | = | 0.01 | 0.01 | × | 3.37% × (1 – 21.00%) | = | 0.04% | ||
| Total: | 46,549) | 1.00 | 13.65% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 12,851) | 12,851) | ÷ | 30,914) | = | 0.42 | 0.42 | × | 21.23% | = | 8.83% | ||
| Total debt and finance lease liabilities3 | 17,360) | 17,360) | ÷ | 30,914) | = | 0.56 | 0.56 | × | 4.12% × (1 – 21.00%) | = | 1.83% | ||
| Operating lease liability4 | 703) | 703) | ÷ | 30,914) | = | 0.02 | 0.02 | × | 3.77% × (1 – 21.00%) | = | 0.07% | ||
| Total: | 30,914) | 1.00 | 10.72% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 15,237) | 15,237) | ÷ | 32,772) | = | 0.46 | 0.46 | × | 21.23% | = | 9.87% | ||
| Total debt and finance lease liabilities3 | 16,799) | 16,799) | ÷ | 32,772) | = | 0.51 | 0.51 | × | 4.04% × (1 – 21.00%) | = | 1.64% | ||
| Operating lease liability4 | 736) | 736) | ÷ | 32,772) | = | 0.02 | 0.02 | × | 3.48% × (1 – 21.00%) | = | 0.06% | ||
| Total: | 32,772) | 1.00 | 11.57% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 9,288) | 9,288) | ÷ | 24,943) | = | 0.37 | 0.37 | × | 21.23% | = | 7.91% | ||
| Total debt and finance lease liabilities3 | 15,450) | 15,450) | ÷ | 24,943) | = | 0.62 | 0.62 | × | 4.12% × (1 – 35.00%) | = | 1.66% | ||
| Operating lease liability4 | 205) | 205) | ÷ | 24,943) | = | 0.01 | 0.01 | × | 3.89% × (1 – 35.00%) | = | 0.02% | ||
| Total: | 24,943) | 1.00 | 9.59% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in millions
2 Equity. See details »
3 Total debt and finance lease liabilities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Warner Bros. Discovery Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,343) | (2,400) | (929) | (2,421) | (2,148) | |
| Invested capital2 | 30,724) | 30,674) | 30,994) | 31,259) | 21,151) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.63% | -7.82% | -3.00% | -7.74% | -10.16% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | 26.64% | — | — | — | — | |
| Comcast Corp. | -2.70% | — | — | — | — | |
| Meta Platforms Inc. | 22.71% | — | — | — | — | |
| Netflix Inc. | -6.10% | — | — | — | — | |
| Walt Disney Co. | -18.26% | -20.51% | — | — | — | |
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 × -2,343 ÷ 30,724 = -7.63%
4 Click competitor name to see calculations.
The analysis of economic value added metrics reveals a persistent failure to generate returns exceeding the cost of capital from 2017 through 2021. Economic profit remained negative throughout the entire five-year period, indicating that operational returns were consistently insufficient to cover the imputed cost of the capital employed.
- Economic Profit Trends
- Economic profit exhibited significant volatility, starting at -2,148 million USD in 2017 and declining to -2,421 million USD in 2018. A notable improvement occurred in 2019, with losses narrowing to -929 million USD, before a sharp reversal in 2020 led to a deficit of -2,400 million USD. The period concluded in 2021 with a marginal recovery to -2,343 million USD.
- Invested Capital Dynamics
- A substantial expansion of the capital base was observed between 2017 and 2018, as invested capital increased from 21,151 million USD to 31,259 million USD. Following this surge, the level of invested capital remained relatively stagnant, fluctuating within a narrow range between 30,674 million USD and 30,994 million USD from 2019 through 2021.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative throughout the analyzed period, confirming a continuous state of value destruction. The ratio showed a positive trend from -10.16% in 2017 to a peak of -3.00% in 2019, which aligns with the year of lowest economic loss. However, this progress was erased in 2020, when the ratio dropped to -7.82%, ending at -7.63% in 2021.
The combination of a stabilized capital base and a consistently negative economic spread ratio suggests that the investments made in 2018 did not yield the requisite efficiency or profitability to shift the company toward positive economic value creation.
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Economic Profit Margin
Warner Bros. Discovery Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | (2,343) | (2,400) | (929) | (2,421) | (2,148) | |
| Revenues | 12,191) | 10,671) | 11,144) | 10,553) | 6,873) | |
| Add: Increase (decrease) in deferred revenues | (76) | 52) | 228) | 5) | 79) | |
| Adjusted revenues | 12,115) | 10,723) | 11,372) | 10,558) | 6,952) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -19.34% | -22.38% | -8.17% | -22.93% | -30.90% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | 17.67% | — | — | — | — | |
| Comcast Corp. | -5.32% | — | — | — | — | |
| Meta Platforms Inc. | 17.84% | — | — | — | — | |
| Netflix Inc. | -7.12% | — | — | — | — | |
| Walt Disney Co. | -46.53% | -55.17% | — | — | — | |
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 revenues
= 100 × -2,343 ÷ 12,115 = -19.34%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by persistent negative economic profit despite a general upward trajectory in adjusted revenues. This indicates a consistent failure to generate returns in excess of the cost of capital over the analyzed five-year period.
- Economic Profit Trends
- Economic profit remained negative throughout the period, experiencing significant volatility. The lowest point occurred in 2018 at -US$ 2,421 million, followed by a notable improvement in 2019 where losses narrowed to -US$ 929 million. However, this progress was reversed in 2020 and 2021, with economic profit falling back to -US$ 2,400 million and -US$ 2,343 million, respectively.
- Adjusted Revenue Performance
- A general growth pattern is observed in adjusted revenues, which rose from US$ 6,952 million in 2017 to US$ 12,115 million by 2021. The only exception to this growth trend was a moderate decline in 2020, when revenues decreased to US$ 10,723 million from US$ 11,372 million in 2019, before recovering in the final year of the period.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit. The margin improved from -30.90% in 2017 to its most favorable level of -8.17% in 2019. A sharp deterioration followed in 2020, with the margin dropping to -22.38%, before a slight recovery to -19.34% in 2021. The fact that margins remained negative despite the substantial increase in adjusted revenues suggests that the scaling of operations did not sufficiently offset the cost of capital.
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