Time Warner Inc. (NYSE:TWX)

The period under review demonstrates a consistent pattern of negative economic profit. Net operating profit after taxes (NOPAT) fluctuates over the five-year span, while the cost of capital remains relatively stable. Invested capital generally increases, contributing to the persistent negative economic profit.

Economic Profit Trend

Economic profit exhibits a downward trend throughout the period, moving from a loss of US$2,164 million in 2013 to a loss of US$2,471 million in 2017. This indicates a widening gap between the return generated from invested capital and the cost of that capital.

NOPAT Analysis

NOPAT shows initial stability between 2013 and 2014, followed by a decrease in 2015 to US$4,751 million. A modest recovery is observed in 2016, and further growth occurs in 2017, reaching US$5,040 million. Despite this increase, NOPAT remains insufficient to cover the cost of capital.

Cost of Capital

The cost of capital remains consistently high, fluctuating between 12.34% and 13.18% over the five years. While there is a slight decrease in 2015, it quickly returns to levels similar to those observed in 2013 and 2014. This sustained high cost of capital significantly contributes to the negative economic profit.

Invested Capital

Invested capital demonstrates an overall increasing trend, beginning at US$56,262 million in 2013 and rising to US$57,150 million in 2017. A dip is noted in 2014, but the subsequent years show consistent growth. The increasing invested capital base, coupled with a high cost of capital, exacerbates the negative economic profit.

In summary, the consistent negative economic profit suggests that the company’s investments are not generating returns sufficient to cover their cost. While NOPAT shows some improvement in later years, it is not enough to offset the combined effect of a high cost of capital and a growing invested capital base.

Net Income Attributable to Time Warner Inc. Shareholders

A consistent upward trend in net income is observable over the five-year period. Starting at $3,691 million in 2013, net income increased marginally each year, reaching $3,927 million in 2016. A notable rise occurred in 2017, with net income sharply increasing to $5,247 million, indicating a significant enhancement in profitability in that year.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a relatively stable but slightly fluctuating pattern. From $5,150 million in 2013, it increased slightly to $5,167 million in 2014, followed by a decline to $4,751 million in 2015. The figure then recovered somewhat in 2016 and 2017, reaching $5,040 million by the end of 2017. Overall, NOPAT remained within a narrow range, suggesting moderate operational profit stability with some variation over the years.

Comparative Observations

While net income demonstrated a robust growth trajectory, especially in the final year, NOPAT displayed greater stability but without a clear upward trend. The divergence between the increasing net income and relatively stable NOPAT in the last year might indicate changes in non-operating factors such as financing activities, tax adjustments, or other income components contributing positively to net income.

Current and Deferred Income Taxes on Income from Continuing Operations

The amount of current and deferred income taxes provided on income from continuing operations exhibited a fluctuating trend over the five-year period. In 2013, the value was 1,749 million US dollars, which decreased significantly to 785 million in 2014. It then increased again to 1,651 million in 2015, followed by a decline to 1,281 million in 2016. By the end of 2017, this measure further dropped to 701 million US dollars, marking the lowest point in the observed range. Overall, the data suggest variability with no clear upward or downward long-term trend, but a general reduction from the starting value.

Cash Operating Taxes

Cash operating taxes showed a more consistent upward trend compared to the income taxes provided on continuing operations. Starting at 1,442 million US dollars in 2013, there was a notable increase to 1,048 million in 2014, which appears to be a decline; however, the following years reversed this pattern with values rising to 1,757 million in 2015 and then slightly decreasing to 1,465 million in 2016. The amount surged substantially in 2017 to 2,078 million US dollars, representing the highest value within the period. This trend indicates growing cash tax liabilities over time, with some minor fluctuations in the middle years.

Comparison Insights

Comparing both tax-related measures reveals divergent patterns: while current and deferred income taxes showed a volatile yet generally declining trend, cash operating taxes tended to increase, especially markedly in the final year. This divergence may indicate changes in tax accounting, timing differences, or shifts in taxable income and cash tax payment obligations across the reporting years.

Total Reported Debt & Leases

The total reported debt and leases exhibited a generally increasing trend from 2013 to 2016, rising from $21,765 million to $25,355 million. However, in 2017, there was a slight decrease to $24,720 million. This indicates an overall growth in debt commitments over the period, with a minor reduction in the final year.

Total Time Warner Inc. Shareholders’ Equity

Shareholders’ equity showed a declining trend from 2013 through 2015, decreasing from $29,904 million to $23,619 million. In 2016, the equity slightly increased to $24,335 million and further rebounded more significantly in 2017 to $28,375 million. This pattern suggests a period of equity contraction followed by recovery toward the end of the analyzed timeframe.

Invested Capital

Invested capital declined from $56,262 million in 2013 to $52,455 million in 2014, followed by a modest increase in subsequent years, reaching $57,150 million in 2017. The leveling and eventual rise in invested capital imply a stabilization and renewed investment activities after an initial drop.

Overall Observations

Over the five-year period, the company’s financial structure demonstrated changes characterized by an initial increase in debt and decrease in equity and invested capital, followed by a stabilization and partial recovery. The reduction in shareholders’ equity between 2013 and 2015 could be indicative of challenges faced, while the subsequent increases in equity and invested capital suggest restored confidence and investment. The relatively stable debt levels near the end of the period highlight a controlled leverage approach.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern of negative economic profit over the five-year period from 2013 to 2017. Simultaneously, invested capital exhibits a generally increasing trend, though with a slight decrease between 2013 and 2014. The economic spread ratio, calculated from these figures, reflects a declining trend in profitability relative to invested capital.

Economic Profit

Economic profit consistently registers as negative throughout the observed period, ranging from a low of -2,471 US$ millions in 2017 to a high of -1,673 US$ millions in 2014. The magnitude of the negative economic profit increases over time, indicating a widening gap between the company’s cost of capital and the returns generated from its investments. The largest year-over-year decrease in economic profit occurred between 2016 and 2017.

Invested Capital

Invested capital decreased from 56,262 US$ millions in 2013 to 52,455 US$ millions in 2014. Following this decrease, invested capital generally increased each year, reaching 57,150 US$ millions in 2017. This suggests a reinvestment strategy or capital acquisition, despite the concurrent negative economic profit.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, shows a consistent downward trend. Starting at -3.85% in 2013, it declines to -4.32% in 2017. This indicates that the company’s return on invested capital is falling further below its weighted average cost of capital. The ratio’s decline mirrors the increasing negative economic profit and suggests a worsening trend in value creation.

In summary, the observed trends suggest a growing disparity between the cost of capital and the returns generated by the company’s investments. While invested capital has generally increased, the economic spread ratio’s decline and consistently negative economic profit indicate diminishing returns and a potential need for strategic review.

The financial performance, as indicated by economic profit and its margin, demonstrates a consistent pattern of negative economic profit over the five-year period from 2013 to 2017. Adjusted revenues exhibit some fluctuation, but do not offset the persistent negative economic profit.

Economic Profit

Economic profit consistently registers as a negative value throughout the observed period. The magnitude of the loss increases year-over-year, moving from a loss of US$2,164 million in 2013 to a loss of US$2,471 million in 2017. This indicates a widening gap between the company’s cost of capital and the returns generated from its operations.

Adjusted Revenues

Adjusted revenues decreased from US$29,738 million in 2013 to US$27,360 million in 2014, representing a decline. Revenues then experienced a modest increase to US$28,192 million in 2015, followed by further growth to US$29,400 million in 2016. The highest revenue level was achieved in 2017, reaching US$31,400 million. Despite this revenue growth in the later years, it was insufficient to generate a positive economic profit.

Economic Profit Margin

The economic profit margin is negative for each year, mirroring the negative economic profit. The margin generally worsens over time, declining from -7.28% in 2013 to -7.87% in 2017. This indicates that the proportion of revenue insufficient to cover the cost of capital is increasing. While revenue increased in 2016 and 2017, the economic profit margin continued to decline, suggesting that cost of capital increases or operational inefficiencies are outpacing revenue gains.

In summary, the company consistently fails to generate returns exceeding its cost of capital, as evidenced by the negative economic profit and declining economic profit margin. Revenue growth in the later years of the period did not translate into improved economic profitability.