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 generally decreases. However, these movements culminate in increasingly negative economic profit figures.

Net Operating Profit After Taxes (NOPAT)

NOPAT decreased significantly from US$889 million in 2018 to US$578 million in 2019. A further substantial reduction occurred in 2020, reaching US$325 million. A modest recovery was noted in 2021 with NOPAT at US$524 million, but this was followed by a dramatic decline to a loss of US$17,009 million in 2022.

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 10.63% in 2022. This suggests a decreasing risk profile or improved financing conditions over the period.

Invested Capital

Invested capital increased substantially 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 warrants further investigation to understand the drivers of this capital deployment.

Economic Profit

Economic profit was negative throughout the entire 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 continued in 2020 and 2021, at US$8,677 million and US$7,500 million respectively. The most significant decline occurred in 2022, with economic profit plummeting to a loss of US$22,630 million. This indicates that the company’s returns are consistently failing to cover the cost of capital.

The substantial deterioration in economic profit in 2022, coupled with the significant decrease in NOPAT, is a key area of concern. While the cost of capital has decreased, it has not been sufficient to offset the decline in profitability and the continued high level of invested capital. The large fluctuations in NOPAT and invested capital suggest potential operational or strategic shifts that require further scrutiny.

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. Initially, the loss was approximately $1.8 billion in 2018. This loss significantly increased to nearly $8.7 billion in 2019 and remained substantial at approximately $8.7 billion in 2020. A slight improvement was noted in 2021, with the loss decreasing to $7.5 billion, but this was followed by a substantial decline in 2022, reaching a loss of $22.6 billion. This indicates a worsening trend in the company’s ability to generate returns exceeding its cost of capital, particularly in the most recent year.

Invested Capital

Invested capital experienced a considerable increase from $22.2 billion in 2018 to $75.4 billion in 2019. It remained relatively stable at approximately $75.0 billion in 2020 and then decreased slightly to $73.3 billion in 2021. A more pronounced decrease occurred in 2022, falling to $52.9 billion. The initial surge in invested capital, coupled with the subsequent decline, suggests potential shifts in capital allocation strategies or asset base.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, consistently registered negative values throughout the period. The ratio began at -8.18% in 2018 and deteriorated to -11.59% in 2019 and -11.56% in 2020. A modest improvement was observed in 2021, with the ratio reaching -10.23%. However, the ratio experienced a dramatic decline in 2022, reaching -42.81%. This substantial decrease indicates a significant widening of the gap between the company’s cost of capital and its return on invested capital, signaling a substantial erosion of shareholder value.

The combined trends suggest that while invested capital fluctuated, the company consistently failed to generate economic profit. The increasingly negative economic spread ratio in 2022 is particularly concerning, highlighting a substantial underperformance relative to the cost of capital employed.

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$1,818 million in 2018 to a loss of US$22,630 million in 2022. The magnitude of the loss more than doubled over the period, indicating a substantial decline in value creation relative to the cost of capital. The largest single-year decrease occurred between 2021 and 2022, with a loss increase of US$15,130 million.

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 -21.78% in 2018 to -155.78% in 2022. This indicates a substantial deterioration in the company’s ability to generate returns exceeding its cost of capital. The margin became increasingly negative each year, with the most significant decline occurring between 2021 (-53.99%) and 2022 (-155.78%). The increasing negative margin, despite revenue growth, suggests that the cost of capital is rising faster than the profitability of revenue, or that the adjustments made to net income are significantly impacting the calculation.

In summary, while the company experienced revenue growth, its economic profit declined substantially, resulting in a significantly worsening economic profit margin. This suggests a growing disparity between the cost of capital and the returns generated by the business.