Fidelity National Information Services Inc. (NYSE:FIS)

The financial performance, as measured by economic profit, demonstrates a consistent decline over the observed period. Net operating profit after taxes (NOPAT) and invested capital exhibit fluctuating patterns, while the cost of capital remains relatively stable. The resulting economic profit consistently registers as negative, and the magnitude of the loss increases substantially in the final year.

NOPAT Trend

Net operating profit after taxes decreased significantly from 889 million in 2018 to 578 million in 2019. A further substantial decrease occurred in 2020, reaching 325 million. A modest recovery was observed in 2021, with NOPAT rising to 524 million, but this was followed by a dramatic decline to -17,009 million in 2022. This final figure represents a significant shift to a net loss.

Cost of Capital Trend

The cost of capital experienced a slight increase from 10.77% in 2018 to 10.89% in 2019. It then decreased to 10.58% in 2020 and continued to decline to 9.64% in 2021. The cost of capital remained relatively stable at 9.43% in 2022. The overall trend indicates a gradual reduction in the cost of funding, though the impact of this reduction is overshadowed by the decline in NOPAT.

Invested Capital Trend

Invested capital increased substantially from 22,222 million in 2018 to 75,448 million in 2019. It remained relatively stable at 75,049 million in 2020 and 73,331 million in 2021. A decrease to 52,862 million was observed in 2022. The initial increase in invested capital, followed by a subsequent decline, suggests potential shifts in capital allocation strategies.

Economic Profit Trend

Economic profit was negative throughout the period, indicating that the company’s returns did not exceed its cost of capital. The economic loss increased from -1,505 million in 2018 to -7,642 million in 2019. Losses remained at approximately the same level in 2020 (-7,614 million) and 2021 (-6,548 million). A substantial increase in the economic loss occurred in 2022, reaching -21,993 million. This significant deterioration in economic profit is primarily driven by the substantial decline in NOPAT.

The consistent negative economic profit suggests the company is destroying value for its investors. The dramatic decline in NOPAT in 2022 is a critical concern, and warrants further investigation to understand the underlying causes. While the cost of capital decreased slightly over the period, it did not offset the negative impact of declining profitability.

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 period under review demonstrates a consistently negative economic profit, alongside fluctuating invested capital, resulting in a declining economic spread ratio. A clear trend of diminishing financial performance is evident when considering these metrics collectively.

Economic Profit

Economic profit exhibits a negative value throughout the observed timeframe. The magnitude of the loss increased significantly from 2018 to 2019, moving from negative $1,505 million to negative $7,642 million. While the loss stabilized somewhat between 2019 and 2021, it experienced a substantial increase in 2022, reaching negative $21,993 million. This indicates a growing inability to generate returns exceeding the cost of capital.

Invested Capital

Invested capital increased substantially from $22,222 million in 2018 to $75,448 million in 2019. It remained relatively stable between 2019 and 2021, with minor fluctuations. However, a significant decrease is observed in 2022, with invested capital falling to $52,862 million. This reduction could be attributed to asset sales, reduced investment, or other capital structure adjustments.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, consistently registers negative values, signifying that the company’s return on invested capital is less than its cost of capital. The ratio worsened from -6.77% in 2018 to -10.13% in 2019 and -10.15% in 2020. A slight improvement to -8.93% was noted in 2021, but this was followed by a dramatic decline to -41.61% in 2022. This substantial deterioration in 2022 aligns with the increased economic loss and the decrease in invested capital, suggesting a significant widening of the gap between returns and the cost of capital.

The combined trends suggest a deteriorating financial position. While the stabilization of economic profit between 2019 and 2021 offered a brief respite, the substantial losses and declining economic spread ratio in 2022 indicate a significant underperformance relative to the cost of capital. The decrease in invested capital in the latest year, coupled with the increased loss, warrants further investigation.

The financial performance, as measured by economic profit and its margin, demonstrates a consistently negative trend over the five-year period. Economic profit exhibits increasing losses, while the economic profit margin reflects a worsening of profitability from an economic value perspective.

Economic Profit

Economic profit decreased significantly from a loss of US$1,505 million in 2018 to a loss of US$21,993 million in 2022. The magnitude of the loss more than tripled over the period, indicating a substantial decline in value creation relative to the cost of capital. The largest single-year decrease occurred between 2019 and 2020, followed by a substantial increase in the loss between 2021 and 2022.

Adjusted Revenue

Adjusted revenue increased steadily from US$8,347 million in 2018 to US$14,527 million in 2022. This represents a cumulative increase of approximately 74% over the five-year period. While revenue growth is apparent, it has not translated into economic profit.

Economic Profit Margin

The economic profit margin moved from -18.03% in 2018 to -151.40% in 2022. This indicates a dramatic deterioration in the company’s ability to generate returns exceeding its cost of capital. The margin became substantially more negative each year, with the most significant decline occurring between 2021 and 2022. The increasing negative margin suggests that the cost of capital is growing at a faster rate than the economic profit generated from revenue.

The consistent divergence between increasing revenue and declining economic profit margin suggests potential issues with cost management, capital allocation, or the competitive landscape. Further investigation is warranted to understand the drivers behind the escalating losses and the widening gap between revenue growth and economic profitability.