AT&T Inc. (NYSE:T)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited substantial volatility, while invested capital also experienced considerable changes. The cost of capital remained relatively stable for the majority of the period, with a noticeable increase in the final year. Consequently, economic profit consistently remained negative throughout the five-year span, though the magnitude of the loss varied considerably.

NOPAT Trend

NOPAT increased dramatically from US$4,489 million in 2020 to US$32,698 million in 2021. However, this was followed by a substantial decline to US$1,500 million in 2022. A recovery was observed in 2023, with NOPAT reaching US$22,742 million, before decreasing again to US$18,826 million in 2024. This pattern suggests considerable operational or market-driven variability impacting profitability.

Cost of Capital Trend

The cost of capital remained relatively consistent between 2020 and 2023, fluctuating between 7.72% and 8.49%. A notable increase to 9.44% was recorded in 2024, potentially reflecting changes in market interest rates or the company’s risk profile.

Invested Capital Trend

Invested capital rose from US$412,041 million in 2020 to US$439,195 million in 2021. A significant decrease occurred in 2022, falling to US$309,447 million. Invested capital then increased to US$326,144 million in 2023, followed by a slight decrease to US$314,065 million in 2024. These fluctuations may be attributable to asset sales, acquisitions, or changes in working capital requirements.

Economic Profit Analysis

Economic profit was negative in each year of the period. The largest loss occurred in 2020, at US$30,479 million. While the loss decreased in 2021 to US$1,193 million, it increased substantially again in 2022 to US$24,527 million. Losses moderated in 2023 to US$3,403 million, but increased to US$10,830 million in 2024. The consistent negative economic profit indicates that the company’s returns on invested capital have not consistently exceeded its cost of capital.

The interplay between NOPAT, cost of capital, and invested capital resulted in a consistently negative economic profit. The substantial volatility in NOPAT and invested capital, coupled with the increasing cost of capital in the final year, contributed to the observed financial performance.

The financial data indicates notable fluctuations in profitability metrics over the five-year period.

Net Income (Loss) Attributable to the Company

The net income demonstrates significant volatility, beginning with a substantial loss of approximately 5,176 million US dollars at the end of 2020. This is followed by a sharp turnaround in 2021, with net income reaching an impressive 20,081 million US dollars. However, this positive result was not sustained, as net income reverted to a loss of around 8,524 million in 2022. Subsequently, the company recovered again with net income of 14,400 million in 2023, before experiencing a moderate decline to 10,948 million in 2024. The pattern suggests a cyclical or event-driven influence on profitability, with pronounced peaks and troughs.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a similar pattern of fluctuations, though trends show a stronger positive trajectory post-2020. Starting from 4,489 million in 2020, there was a notable surge to 32,698 million in 2021, reaching the peak value within the dataset. A sharp drop to 1,500 million follows in 2022, indicating substantial operational or performance challenges. Recovery is evident thereafter, with NOPAT climbing back to 22,742 million in 2023 and slightly declining to 18,826 million in 2024. These variations highlight periods of operational strength and weakness, indicating potential impacts from market conditions, restructuring, or other internal and external factors affecting operating efficiency and profitability.

Overall, both net income and NOPAT metrics reflect high volatility but suggest a capacity for rapid recovery following downturns. Despite these fluctuations, the company managed to maintain generally positive operating profitability from 2021 onwards, although net income was less consistent. The downward adjustments in the latest year indicate caution and emphasize the need to monitor ongoing financial performance and underlying factors driving the variability.

Income Tax Expense

The income tax expense shows a marked increase from 965 million US dollars in 2020 to a peak of 5,468 million US dollars in 2021. This sharp rise is followed by a decline to 3,780 million US dollars in 2022. Subsequently, the tax expense exhibits a gradual increase over the next two periods, reaching 4,445 million US dollars by the end of 2024. Overall, the trend highlights significant volatility with an initial surge, a drop, and then stabilization at a relatively high level compared to the starting point.

Cash Operating Taxes

Cash operating taxes present a steady upward trajectory throughout the analyzed period. The values begin at 1,602 million US dollars in 2020 and remain relatively stable into 2021 at 1,603 million US dollars. After this point, there is a substantial increase to 2,134 million US dollars in 2022, followed by a pronounced rise to 4,298 million US dollars in 2023 and further growth to 5,277 million US dollars in 2024. This consistent increase indicates growing cash tax payments, potentially reflecting heightened operational profitability or changes in tax regulation or payment timing.

Comparative Observation

Comparing both items, cash operating taxes have increased consistently every year following a plateau in the first two years, whereas income tax expense has shown more fluctuation. The disparity between income tax expense and cash operating taxes narrows over time, especially from 2023 onwards, suggesting a possible alignment between reported tax expenses and actual cash tax outflows in the most recent periods.

Total reported debt & leases

The total reported debt and leases showed an initial increase from 182,984 million USD in 2020 to 202,321 million USD in 2021, reflecting a rising leverage or financing need in that period. Subsequently, there was a marked decline to 158,096 million USD in 2022, which remained relatively stable in 2023 at 158,423 million USD before continuing to decrease to 144,456 million USD by the end of 2024. The overall trend from 2021 to 2024 indicates a strategic reduction in debt obligations, potentially aimed at deleveraging and improving financial stability.

Stockholders’ equity attributable to AT&T

Stockholders' equity attributable to the company gradually increased from 161,673 million USD in 2020 to 166,332 million USD in 2021. However, a significant drop occurred in 2022, bringing equity down to 97,500 million USD. Following this decline, there was a modest recovery to 103,297 million USD in 2023 and a slight increase to 104,372 million USD in 2024. This decline in 2022 could signify a major event such as restructuring, asset revaluation, or other factors impacting retained earnings or equity components, with partial recovery in the subsequent years.

Invested capital

Invested capital exhibited an upward trajectory from 412,041 million USD in 2020 to 439,195 million USD in 2021, suggesting an increase in capital investment or assets employed in operations. However, this was followed by a notable decrease to 309,447 million USD in 2022, partly recovering to 326,144 million USD in 2023 before decreasing again to 314,065 million USD in 2024. The fluctuations in invested capital closely mirror the changes in equity, indicating possible asset disposals, changes in working capital, or other operational adjustments that influenced the capital base over the period.

The period under review demonstrates fluctuating financial performance as measured by economic value added metrics. Economic profit exhibits considerable volatility, moving from a substantial loss in 2020 to a minimal loss in 2021, then returning to a significant loss in 2022, followed by smaller losses in 2023 and 2024. Invested capital decreased notably from 2021 to 2022, and has remained relatively stable between 2022 and 2024. The economic spread ratio mirrors the trend in economic profit, indicating the efficiency with which capital is being deployed to generate returns.

Economic Profit

Economic profit began at a loss of US$30,479 million in 2020. A significant improvement occurred in 2021, with the loss reduced to US$1,193 million. However, 2022 saw a return to substantial losses, reaching US$24,527 million. Losses moderated in subsequent years, totaling US$3,403 million in 2023 and US$10,830 million in 2024. This suggests periods of both improved and diminished value creation.

Invested Capital

Invested capital increased from US$412,041 million in 2020 to US$439,195 million in 2021. A substantial decrease was observed in 2022, falling to US$309,447 million. The level of invested capital stabilized in the following two years, at US$326,144 million in 2023 and US$314,065 million in 2024. The decline in invested capital may reflect asset sales, reduced investment, or changes in capital structure.

Economic Spread Ratio

The economic spread ratio was -7.40% in 2020, indicating a significant shortfall in returns relative to the cost of capital. It improved to -0.27% in 2021, suggesting a near-breakeven performance. The ratio deteriorated again in 2022 to -7.93%, and remained negative in 2023 (-1.04%) and 2024 (-3.45%). The consistently negative values indicate that the company’s returns on invested capital have not consistently covered its cost of capital throughout the period. The increasing negative trend from 2023 to 2024 suggests a widening gap between returns and the cost of capital.

Overall, the analysis reveals a pattern of inconsistent economic profit generation coupled with a substantial decrease in invested capital followed by stabilization. The economic spread ratio consistently indicates that returns are insufficient to cover the cost of capital, and the trend suggests this situation is worsening.

The economic profit margin exhibited significant fluctuations between 2020 and 2024. Initially, the margin was substantially negative, then improved considerably before declining again. Operating revenues also demonstrated a notable shift during this period.

Economic Profit Margin

In 2020, the economic profit margin stood at -17.75%. A substantial improvement was observed in 2021, with the margin increasing to -0.71%. However, this positive trend reversed in 2022, as the margin deteriorated to -20.31%, representing the lowest value within the observed timeframe. A recovery occurred in 2023, with the margin reaching -2.78%. This improvement was not sustained into 2024, as the margin decreased to -8.85%.

Operating Revenues

Operating revenues decreased from US$171,760 million in 2020 to US$168,864 million in 2021, representing a modest decline. A more significant reduction occurred in 2022, with revenues falling to US$120,741 million. Revenues experienced a slight increase in 2023, reaching US$122,428 million, and remained relatively stable in 2024 at US$122,336 million.

The economic profit margin’s volatility suggests a complex relationship with underlying economic factors and company performance. The substantial decline in operating revenues between 2020 and 2022 appears to correlate with the worsening economic profit margin during that period. While revenue stabilized in the latter two years, the economic profit margin did not return to levels seen in 2021, indicating that factors beyond revenue generation are influencing profitability.

Relationship between Economic Profit Margin and Operating Revenues

While a general correlation between revenue and margin exists, the data suggests that revenue alone does not fully explain the fluctuations in economic profit margin. The margin’s performance in 2023 and 2024, despite relatively stable revenues, indicates that cost of capital and other economic factors play a significant role in determining economic profitability.