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 – 11.14% × 30,724 = -2,356
The analysis of economic profit from 2017 to 2021 reveals a consistent failure to generate returns in excess of the cost of capital, resulting in persistent shareholder value destruction throughout the period. While operating profits showed signs of recovery and growth in the mid-term, they remained insufficient to cover the capital charge associated with the company's invested capital base.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility, transitioning from a loss of 121 million US$ in 2017 to a peak of 2,393 million US$ in 2019. However, a downward trend followed this peak, with profits declining to 1,788 million US$ in 2020 and further eroding to 1,066 million US$ by 2021. This suggests a diminishing capacity to generate operating earnings over the latter half of the analyzed period.
- Invested Capital
- A substantial increase in invested capital occurred between 2017 and 2018, rising from 21,151 million US$ to 31,259 million US$. Following this expansion, the capital base remained relatively stagnant, fluctuating marginally between 30,674 million US$ and 30,994 million US$ from 2019 through 2021. The stability of the capital base indicates that the decline in economic profit was driven by operating performance and capital costs rather than further capital expansion.
- Cost of Capital
- The cost of capital showed fluctuations over the five-year span, starting at 9.62% in 2017 and reaching a peak of 13.71% in 2020. Although it moderated to 11.14% in 2021, the overall increase from 2017 levels heightened the threshold for achieving positive economic profit, exacerbating the value destruction during years of lower NOPAT.
- Economic Profit
- Economic profit remained negative for all five years, indicating that the company did not achieve its required rate of return. The most significant improvement occurred in 2019, where economic profit rose to -942 million US$, coinciding with peak NOPAT and a relatively stable cost of capital. However, this recovery was temporary, as the figure deteriorated to -2,417 million US$ in 2020 and -2,356 million US$ in 2021, largely due to the combined effect of declining operating profits and an elevated cost of capital.
In summary, the divergence between the growth in invested capital in 2018 and the subsequent decline in NOPAT through 2021 created a sustained gap in economic value. The company's inability to align its operating returns with its cost of capital has resulted in a chronic state of negative economic profit.
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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.
- Net Income (Loss) Available to Discovery, Inc.
- The net income experienced significant fluctuations over the five-year period. In 2017, the company reported a net loss of 337 million USD. A substantial turnaround occurred in 2018, with net income improving sharply to 594 million USD. This positive trend continued through 2019, peaking at 2069 million USD, indicating a phase of strong profitability. However, subsequent years showed a decline, with net income falling to 1219 million USD in 2020 and further down to 1006 million USD in 2021. Despite this decline, net income remained positive and considerably higher than the 2017 loss, reflecting sustained profitability after the initial recovery.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT mirrored a similar trajectory to net income but on a different scale. The value was negative in 2017 at -121 million USD, indicating operational challenges. A sharp recovery took place in 2018 as NOPAT increased substantially to 1195 million USD. This improvement continued in 2019, reaching a high point of 2393 million USD, which suggests enhanced operational efficiency and profitability. However, the subsequent years showed a downward trend with NOPAT decreasing to 1788 million USD in 2020 and 1066 million USD in 2021. This decline suggests that while operations remained profitable, perhaps operational cost pressures or other factors impacted the efficiency or scale of profit generation.
- Overall Trends and Insights
- Both net income and NOPAT demonstrate a recovery from losses in 2017 to strong profitability in 2019. This trend indicates successful strategic or operational changes during these years. However, the decline in the last two years suggests emerging challenges or market conditions affecting profitability. Despite this decline, the company maintained positive earnings, indicating resilience. The gap between NOPAT and net income also suggests consistent tax impacts and possibly financing costs that moderated net income compared to operating profits.
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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).
- Provision for Income Taxes
- The provision for income taxes fluctuated significantly over the analyzed period. Starting at 176 million US dollars in 2017, it increased sharply to 341 million in 2018. This was followed by a notable decline to 81 million in 2019. Subsequently, the provision rose again to 373 million in 2020 before decreasing to 236 million in 2021. These fluctuations indicate variability in the company’s taxable income or tax planning strategies over the years.
- Cash Operating Taxes
- Cash operating taxes demonstrated a generally increasing trend throughout the period. From 537 million US dollars in 2017, the amount increased steadily to 627 million in 2018 and further to 728 million in 2019. Although there was a slight decline to 698 million in 2020, the figure rebounded to reach a peak of 880 million in 2021. This overall upward trajectory may suggest growing taxable operations or changes in tax payment timing and cash flow management.
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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 financial data reveals several notable trends over the five-year period ending December 31, 2021. The total reported debt and leases exhibited fluctuation rather than a consistent trajectory. Starting at approximately $14.99 billion in 2017, the debt increased notably to about $17.78 billion in 2018. Subsequently, it declined over the next three years, reaching approximately $15.64 billion in 2021. This suggests a period of increased borrowing followed by a gradual reduction or restructuring of debt obligations.
Stockholders’ equity showed a consistent and robust upward trend throughout the period. Beginning at $4.61 billion in 2017, equity rose sharply to approximately $8.39 billion in 2018 and continued to increase steadily year-over-year, reaching about $11.60 billion by 2021. This steady growth in equity indicates an improvement in the company’s net asset position and indicates potentially positive retained earnings or capital injections over time.
Invested capital peaked in 2018 at approximately $31.26 billion, having increased significantly from $21.15 billion in 2017. Following 2018, invested capital remained relatively stable through 2021, hovering around $30.7 billion without substantial increase or decrease. This stabilization after an initial sharp rise could imply a plateau in new investments or acquisitions during the latter part of the period under review.
- Total Reported Debt & Leases
- Increased from 2017 to 2018, then gradually decreased each subsequent year, ending lower in 2021 than its peak.
- Total Stockholders’ Equity
- Displayed continuous and steady growth across the entire period, indicating strengthening financial foundations.
- Invested Capital
- Experienced a significant rise from 2017 to 2018, followed by a plateau, remaining relatively unchanged from 2018 through 2021.
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Cost of Capital
Warner Bros. Discovery Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 14,038) | 14,038) | ÷ | 32,122) | = | 0.44 | 0.44 | × | 21.33% | = | 9.32% | ||
| Total debt and finance lease liabilities3 | 17,455) | 17,455) | ÷ | 32,122) | = | 0.54 | 0.54 | × | 4.13% × (1 – 21.00%) | = | 1.77% | ||
| Operating lease liability4 | 629) | 629) | ÷ | 32,122) | = | 0.02 | 0.02 | × | 2.94% × (1 – 21.00%) | = | 0.05% | ||
| Total: | 32,122) | 1.00 | 11.14% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ 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 | × | 21.33% | = | 12.35% | ||
| 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 | 13.71% | ||||||||||
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 | × | 21.33% | = | 8.87% | ||
| 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 | 10.76% | ||||||||||
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 | × | 21.33% | = | 9.92% | ||
| 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 | 11.61% | ||||||||||
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 | × | 21.33% | = | 7.94% | ||
| 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 | 9.62% | ||||||||||
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 | (2,356) | (2,417) | (942) | (2,435) | (2,156) | |
| Invested capital2 | 30,724) | 30,674) | 30,994) | 31,259) | 21,151) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -7.67% | -7.88% | -3.04% | -7.79% | -10.19% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Alphabet Inc. | 26.56% | — | — | — | — | |
| Comcast Corp. | -2.73% | — | — | — | — | |
| Meta Platforms Inc. | 22.62% | — | — | — | — | |
| Netflix Inc. | -6.22% | — | — | — | — | |
| Trade Desk Inc. | -10.58% | — | — | — | — | |
| Walt Disney Co. | -18.36% | -20.61% | — | — | — | |
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 × -2,356 ÷ 30,724 = -7.67%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by persistent negative economic profit and a negative economic spread ratio, indicating that the return on invested capital failed to exceed the cost of capital throughout the entire observed period.
- Economic Profit Trends
- Economic profit remained consistently negative between 2017 and 2021. A notable fluctuation occurred in 2019, where the economic loss narrowed significantly to -942 million US$ from -2,435 million US$ in 2018. However, this recovery was temporary, as losses expanded again to -2,417 million US$ in 2020 and -2,356 million US$ in 2021, suggesting a recurring inability to generate value above the required threshold.
- Invested Capital Analysis
- A substantial increase in invested capital was observed between 2017 and 2018, rising from 21,151 million US$ to 31,259 million US$. Following this sharp expansion, the invested capital remained relatively stable for the remainder of the period, fluctuating minimally and ending at 30,724 million US$ in 2021.
- Economic Spread Ratio Performance
- The economic spread ratio remained negative for all five years, confirming a lack of economic value creation. The ratio improved from -10.19% in 2017 to a peak of -3.04% in 2019, coinciding with the narrowest economic loss of that period. This trend reversed sharply in 2020, with the ratio dropping to -7.88%, and remained largely stagnant at -7.67% in 2021. The persistence of a negative spread despite a significantly larger capital base after 2018 indicates that the additional invested capital did not yield a sufficient increase in returns to offset its cost.
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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 | (2,356) | (2,417) | (942) | (2,435) | (2,156) | |
| 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 | -19.45% | -22.54% | -8.28% | -23.06% | -31.01% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Alphabet Inc. | 17.62% | — | — | — | — | |
| Comcast Corp. | -5.37% | — | — | — | — | |
| Meta Platforms Inc. | 17.77% | — | — | — | — | |
| Netflix Inc. | -7.27% | — | — | — | — | |
| Trade Desk Inc. | -13.61% | — | — | — | — | |
| Walt Disney Co. | -46.77% | -55.42% | — | — | — | |
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 × -2,356 ÷ 12,115 = -19.45%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a persistent inability to generate positive economic value, as economic profit remained negative throughout the entire period. Despite a general upward trajectory in adjusted revenues, the operating returns were insufficient to cover the cost of capital, resulting in a continuous destruction of economic value.
- Economic Profit Volatility
- Economic losses experienced significant fluctuations over the five-year span. Starting at -2,156 million USD in 2017, losses deepened to -2,435 million USD in 2018. A substantial improvement was observed in 2019, where the economic loss narrowed to -942 million USD, marking the most efficient year in the series. However, this trend reversed sharply in 2020, with losses expanding to -2,417 million USD, before stabilizing slightly at -2,356 million USD in 2021.
- Revenue Growth and Value Correlation
- Adjusted revenues demonstrated a strong growth trend, increasing from 6,952 million USD in 2017 to 12,115 million USD in 2021. Despite a total revenue increase of approximately 74% over the period, this growth did not translate into economic profitability. The decline in revenue observed in 2020 closely correlated with a sharp increase in economic loss, suggesting that the business model remained highly sensitive to revenue volatility while maintaining a high cost of capital.
- Economic Profit Margin Analysis
- The economic profit margin remained consistently negative, reflecting a systemic failure to achieve value creation. The margin improved from -31.01% in 2017 to a peak of -8.28% in 2019, indicating a period of increased operational efficiency relative to the capital employed. This progress was erased in 2020, as the margin fell to -22.54%. By the end of 2021, the margin showed a slight recovery to -19.45%, though it remained significantly below the breakeven point required for positive economic value added.
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