Fidelity National Information Services Inc. (NYSE:FIS)

The financial performance, as measured by economic profit, demonstrates a consistent decline over the five-year period. Net operating profit after taxes (NOPAT) and invested capital exhibit fluctuating patterns, while the cost of capital generally decreases. However, these movements are overshadowed by the consistently negative economic profit reported each year, with a significant deterioration in the most recent period.

Net Operating Profit After Taxes (NOPAT)

NOPAT decreased substantially from US$889 million in 2018 to US$578 million in 2019. A further decline was observed in 2020, reaching US$325 million. A modest recovery occurred in 2021, with NOPAT rising to US$524 million, but this was followed by a dramatic decrease to a loss of US$17,009 million in 2022. This substantial loss in 2022 is a significant deviation from prior performance.

Cost of Capital

The cost of capital began at 12.18% in 2018 and increased slightly to 12.36% in 2019. It then decreased to 12.00% in 2020 and continued to decline, reaching 10.94% in 2021 and 10.64% in 2022. This indicates a decreasing cost of funding over the period, although this benefit was insufficient to offset other performance issues.

Invested Capital

Invested capital increased significantly from US$22,222 million in 2018 to US$75,448 million in 2019. It remained relatively stable at US$75,049 million in 2020 and US$73,331 million in 2021 before decreasing to US$52,862 million in 2022. The large increase in 2019, followed by a decrease in 2022, suggests substantial capital allocation and subsequent adjustments.

Economic Profit

Economic profit was negative throughout the observed period. It started at a loss of US$1,818 million in 2018 and worsened to a loss of US$8,748 million in 2019. Losses remained substantial at US$8,678 million in 2020 and US$7,501 million in 2021. The loss escalated dramatically in 2022 to US$22,631 million, indicating a significant underperformance relative to the cost of capital. The increasing magnitude of the negative economic profit suggests a growing disparity between returns generated and the cost of capital employed.

The combination of declining NOPAT, fluctuating invested capital, and a decreasing cost of capital resulted in consistently negative economic profit. The substantial loss reported in 2022 warrants further investigation to determine the underlying causes and potential corrective actions.

Net earnings (loss) attributable to common stockholders

From 2018 through 2021, net earnings displayed a significant downward trend. Beginning at 846 million USD in 2018, earnings decreased sharply to 298 million USD in 2019 and further to 158 million USD in 2020. A partial recovery occurred in 2021, with net earnings increasing to 417 million USD. However, 2022 saw a dramatic reversal, with net earnings recording a substantial loss amounting to -16,720 million USD, indicating a severe deterioration in profitability during that year.

Net operating profit after taxes (NOPAT)

NOPAT followed a pattern similar to net earnings over the same period. Starting at 889 million USD in 2018, NOPAT declined to 578 million USD in 2019 and further to 325 million USD in 2020. An improvement occurred in 2021, with NOPAT rising to 524 million USD. In 2022, NOPAT experienced a significant negative swing, registering a loss of -17,009 million USD, closely mirroring the net earnings loss and highlighting operational challenges impacting the company drastically in that year.

Overall insights

The data reveal a weakening profitability trend from 2018 to 2020, followed by some operational recovery in 2021. The extreme losses recorded in 2022 suggest extraordinary events or impairments that severely affected financial performance. Both net earnings and NOPAT demonstrate a high correlation in their trajectory, underscoring consistent operational and financial difficulties particularly in the final year observed.

Provision for income taxes

The provision for income taxes exhibited a notable fluctuation over the analyzed years. Initially, there was a significant decline from 208 million US dollars in 2018 to 100 million in 2019, followed by a slight decrease to 96 million in 2020. However, from 2020 onwards, the provision increased sharply to 371 million in 2021 and slightly further to 377 million in 2022. This pattern indicates a period of reduced tax obligations or accounting adjustments in the middle years, followed by a substantial rise in tax provisions in the most recent years.

Cash operating taxes

Cash operating taxes demonstrated a variable upward trend with some fluctuations. The amount decreased from 389 million in 2018 to 290 million in 2019, then rebounded to 381 million in 2020. After 2020, there was a significant increase to 508 million in 2021, and this upward trajectory accelerated sharply to 962 million in 2022. This progression suggests increasing cash tax outflows in recent years, which may reflect growing taxable income or changes in tax payment schedules.

Over the observed period, the total reported debt and leases displayed a significant increase from 2018 to 2019, rising from approximately 9.4 billion to 20.8 billion US dollars. This level remained relatively stable through to 2022, fluctuating slightly but staying near the 20.5 billion mark.

The total stockholders’ equity exhibited a sharp growth from 2018 to 2019, more than quadrupling from just over 10.2 billion to nearly 49.4 billion US dollars. However, this equity value began to decline gradually after 2019, decreasing to approximately 47.3 billion in 2021, before falling more substantially to around 27.2 billion by the end of 2022.

Invested capital followed a somewhat similar trend as the debt figures, showing a substantial rise from 22.2 billion in 2018 to a peak of 75.4 billion in 2019. Following that peak, invested capital remained relatively steady around 73.3 to 75.0 billion through 2020 and 2021 but then saw a marked decrease to approximately 52.8 billion in 2022.

Overall, the data suggest a period of significant capital expansion and leverage increase around 2019, followed by a phase of declining equity and invested capital starting in 2021 and continuing through 2022. This pattern may indicate strategic changes in capital structure or operational adjustments during the latter years of the period analyzed.

The financial performance, as indicated by economic value added metrics, demonstrates a consistently negative economic profit over the five-year period. Simultaneously, invested capital fluctuated significantly before declining notably in the final year. The economic spread ratio, a key indicator of profitability relative to the cost of capital, reflects this performance and exhibits a worsening trend.

Economic Profit

Economic profit consistently registered as negative throughout the observed period, ranging from a loss of US$1,818 million in 2018 to a loss of US$22,631 million in 2022. The magnitude of the loss increased substantially in 2019 and remained relatively stable until the significant decline observed in 2022. This indicates the company consistently generated returns below its cost of capital.

Invested Capital

Invested capital experienced a substantial increase from US$22,222 million in 2018 to US$75,448 million in 2019. It remained relatively consistent between 2019 and 2021, fluctuating around US$75 billion. However, a considerable decrease to US$52,862 million was observed in 2022. This suggests a potential shift in capital allocation strategy or divestiture of assets during the latter period.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, was negative across all years, signifying that returns on invested capital were insufficient to cover the cost of capital. The ratio moved from -8.18% in 2018 to -11.60% in 2019 and remained relatively stable around -11% through 2021. A dramatic deterioration was observed in 2022, with the ratio falling to -42.81%. This substantial decline suggests a significant widening of the gap between returns and the cost of capital, coinciding with the increased economic loss and decreased invested capital.

The combined trends suggest a growing challenge in generating returns that meet the company’s cost of capital. The substantial decline in the economic spread ratio in 2022, coupled with the significant increase in economic loss, warrants further investigation into the underlying drivers of this performance.

The economic profit margin demonstrates a consistently negative trend over the five-year period. Economic profit itself is negative throughout the observed timeframe, indicating the company’s returns are insufficient to cover its cost of capital.

Economic Profit

Economic profit exhibits increasing negative values from 2018 to 2022. Starting at negative $1,818 million in 2018, it declines to negative $22,631 million in 2022. This represents a substantial deterioration in the company’s ability to generate returns exceeding its cost of capital.

Adjusted Revenue

Adjusted revenue shows a generally positive trend, increasing from $8,347 million in 2018 to $14,527 million in 2022. However, the growth in revenue has not been sufficient to offset the increasing negative economic profit.

Economic Profit Margin

The economic profit margin, calculated as economic profit divided by adjusted revenue, reflects the declining profitability relative to revenue. The margin moves from -21.78% in 2018 to -84.15% in 2019, then moderates to -68.74% in 2020 and -54.00% in 2021. A significant deterioration is then observed in 2022, with the margin reaching -155.78%. This indicates a substantial decrease in the company’s ability to translate revenue into economic profit.

The widening gap between negative economic profit and increasing adjusted revenue suggests that while the company is growing its top line, its cost of capital and/or operational expenses are increasing at a faster rate, resulting in a significantly diminished economic return. The substantial decline in the economic profit margin in 2022 is particularly concerning and warrants further investigation.