Time Warner Cable Inc. (NYSE:TWC)

The financial performance, as measured by economic profit, demonstrates a consistent pattern of negative value creation over the five-year period. While net operating profit after taxes (NOPAT) fluctuates, it does not generate sufficient returns to cover the cost of capital employed.

NOPAT

Net operating profit after taxes begins at US$3,328 million in 2011, increases to US$3,807 million in 2012, then declines to US$3,388 million in 2013. A subsequent rise to US$3,745 million occurs in 2014, followed by a decrease to US$3,391 million in 2015. This indicates some volatility in operational profitability, but remains within a relatively narrow range.

Cost of Capital

The cost of capital exhibits an increasing trend throughout the period. Starting at 9.96% in 2011, it decreases slightly to 9.51% in 2012, then rises steadily to 11.64% in 2013, 11.43% in 2014, and peaks at 12.67% in 2015. This suggests increasing financial risk or changing market conditions impacting funding costs.

Invested Capital

Invested capital remains relatively stable, fluctuating between US$44,327 million and US$46,124 million. It begins at US$44,961 million in 2011, increases to US$46,124 million in 2012, decreases to US$44,327 million in 2013, and then rises again to US$44,929 million in 2014 before reaching US$45,332 million in 2015. The consistency in invested capital suggests a stable capital structure.

Economic Profit

Economic profit is consistently negative throughout the observed period. It starts at -US$1,152 million in 2011, improves to -US$577 million in 2012, but then worsens to -US$1,770 million in 2013. Further declines are observed in 2014 (-US$1,392 million) and 2015 (-US$2,351 million). The increasing magnitude of the negative economic profit indicates a widening gap between returns generated and the cost of capital, signifying a diminishing ability to create shareholder value.

The combined effect of a relatively stable NOPAT, rising cost of capital, and consistent invested capital results in a worsening economic profit. This suggests that while the business generates operating profits, these profits are insufficient to cover the cost of the capital employed, leading to a consistent destruction of economic value.

Net income attributable to TWC shareholders

The net income showed an upward trend from 2011 to 2012, increasing from $1665 million to $2155 million. However, in 2013 a decline occurred to $1954 million, followed by a slight recovery in 2014 to $2031 million. The year 2015 saw another decrease to $1844 million, indicating a general volatility with a peak in 2012 and subsequent fluctuations.

Net operating profit after taxes (NOPAT)

NOPAT increased from $3328 million in 2011 to $3807 million in 2012, mirroring the peak found in net income for the same year. In 2013, NOPAT declined to $3388 million but rose again in 2014 to $3745 million, approaching the 2012 level. By 2015, NOPAT decreased to $3391 million, showing the same fluctuating pattern observed in net income, with 2012 and 2014 as relatively stronger years.

Overall financial performance trends

Both net income and NOPAT exhibited similar cyclical patterns over the five-year period. The highest values were observed in the early part of the timeframe (specifically 2012), followed by periods of decline and partial recovery. This suggests fluctuations in profitability and operating efficiency, potentially reflecting changes in operational effectiveness, market conditions, or other external factors influencing financial outcomes.

The financial data indicates fluctuations in the income tax provision and cash operating taxes of the company over the five-year period ending December 31, 2015.

Income Tax Provision

The income tax provision demonstrates an overall upward trend from 2011 through 2014, increasing from 795 million US dollars in 2011 to a peak of 1,217 million in 2014. However, in 2015, there is a slight decline to 1,144 million US dollars. This suggests rising taxable earnings or adjustments in tax liabilities during the initial years followed by a moderate reduction in the last year.

Cash Operating Taxes

Cash operating taxes present a more variable pattern. Beginning at 705 million US dollars in 2011, the amount rises sharply to 1,194 million in 2012 and continues to increase to 1,281 million in 2013. Subsequently, it decreases to 973 million in 2014 before partially rebounding to 1,057 million in 2015. This fluctuation may reflect changes in the company's actual cash outflows for taxes, potentially influenced by alterations in tax payment timing, tax credits, or tax planning strategies.

Overall, while the income tax provision generally increased over the period with a minor decline at the end, the cash operating taxes followed a less consistent path, showing considerable volatility. The divergence between the income tax provision and cash operating taxes in certain years may indicate differences between accounting for tax expenses and actual cash paid, affecting cash flow management and tax planning effectiveness.

Total reported debt & leases

The reported debt and leases demonstrate a consistent declining trend over the observed period. Starting at 27,138 million USD at the end of 2011, the debt slightly increased to 27,378 million USD in 2012, then steadily decreased each year thereafter, reaching 23,183 million USD by the end of 2015. This indicates a reduction in the company's leverage or obligations related to debt and lease commitments over five years.

Total shareholders’ equity

Shareholders’ equity shows some fluctuations but a general upward trend across the period. Initially, the equity value decreased from 7,530 million USD in 2011 to 6,943 million USD in 2013. Afterward, the equity figures improved significantly, increasing to 8,013 million USD in 2014 and further to 8,995 million USD by the end of 2015. This growth suggests strengthening of the company's net asset position or profitability retention over time.

Invested capital

Invested capital remained relatively stable throughout the period, with minor fluctuations. It started at 44,961 million USD in 2011, peaked at 46,124 million USD in 2012, then decreased to 44,327 million USD in 2013. It showed slight increases in subsequent years, ending at 45,332 million USD in 2015. This stability reflects consistency in the company's overall capital base employed in operations.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern of negative economic profit over the five-year period from 2011 to 2015. Invested capital remained relatively stable, while the economic spread ratio exhibited a clear downward trend.

Economic Profit

Economic profit consistently registered as negative throughout the observed period, ranging from a low of -2,351 US$ millions in 2015 to a high of -577 US$ millions in 2012. The magnitude of the negative economic profit increased over time, suggesting a widening gap between the company’s cost of capital and the returns generated from invested capital. The largest decrease in economic profit occurred between 2014 and 2015.

Invested Capital

Invested capital showed minimal fluctuation across the five years. It began at 44,961 US$ millions in 2011, peaked at 46,124 US$ millions in 2012, and concluded at 45,332 US$ millions in 2015. This relative stability suggests that capital allocation decisions did not significantly alter the overall capital base during this period.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, consistently remained negative, indicating that the company’s return on invested capital was less than its cost of capital. A distinct downward trend is observed, moving from -2.56% in 2011 to -5.19% in 2015. This worsening ratio reinforces the trend of declining economic profit and suggests an increasing disparity between returns and the cost of funding those returns. The most substantial decline in the economic spread ratio occurred between 2014 and 2015.

In summary, the observed trends suggest a deteriorating financial performance from an economic value perspective. While invested capital remained stable, the increasing negative economic profit and declining economic spread ratio indicate a growing inability to generate returns exceeding the cost of capital.

The economic profit margin exhibited a consistent decline over the five-year period. While economic profit fluctuated in absolute terms, it remained negative throughout, indicating the company did not generate returns exceeding its cost of capital during these years. Adjusted revenue demonstrated a steady upward trajectory, yet this revenue growth was insufficient to translate into positive economic profit.

Economic Profit Margin

The economic profit margin began at -5.85% in 2011. It improved to -2.70% in 2012, but then deteriorated significantly, reaching -8.00% in 2013. A slight improvement to -6.10% occurred in 2014, followed by a further decline to -9.91% in 2015. This represents the most substantial negative margin within the observed timeframe.

Economic Profit

Economic profit showed volatility. Starting at a loss of US$1,152 million in 2011, it decreased to a loss of US$577 million in 2012. The loss widened considerably to US$1,770 million in 2013, then lessened to US$1,392 million in 2014. The largest loss occurred in 2015, totaling US$2,351 million. The increasing magnitude of the negative economic profit, particularly in 2015, suggests a growing disparity between returns and the cost of capital.

Adjusted Revenue

Adjusted revenue increased consistently each year. From US$19,681 million in 2011, it rose to US$21,400 million in 2012, US$22,125 million in 2013, US$22,822 million in 2014, and finally reached US$23,723 million in 2015. Despite this consistent revenue growth, the company was unable to achieve positive economic profit.

The divergence between increasing revenue and declining economic profit margin suggests potential issues with cost control, capital efficiency, or pricing strategies. Further investigation would be required to determine the underlying causes of this trend.