Verizon Communications Inc. (NYSE:VZ)

The period under review demonstrates fluctuating economic performance. Net operating profit after taxes (NOPAT) initially decreased, then recovered, exhibiting volatility over the five-year span. The cost of capital remained relatively stable, with a slight upward trend towards the end of the period. Invested capital consistently increased throughout the period, indicating ongoing investment in the business. Consequently, economic profit, a key measure of value creation, experienced significant variation.

NOPAT Trend

NOPAT declined from US$29,903 million in 2021 to US$28,039 million in 2022, representing a decrease of approximately 6.2%. A more substantial decline was observed in 2023, with NOPAT falling to US$19,450 million. However, NOPAT rebounded in 2024 to US$24,675 million and continued to increase in 2025, reaching US$25,872 million. This suggests potential operational challenges in 2023 followed by a recovery in subsequent years.

Cost of Capital

The cost of capital remained within a narrow range, starting at 7.18% in 2021 and increasing to 7.26% in 2025. The fluctuations were minimal, indicating a relatively stable financing environment. The consistent cost of capital allows for a clearer interpretation of changes in economic profit, as these are less likely to be driven by shifts in the discount rate.

Invested Capital

Invested capital showed a consistent upward trend, increasing from US$290,004 million in 2021 to US$329,613 million in 2025. This continuous growth suggests ongoing investment in assets and operations, potentially supporting future growth initiatives. The increasing capital base requires higher NOPAT levels to generate positive economic profit.

Economic Profit

Economic profit mirrored the volatility in NOPAT. It decreased from US$9,086 million in 2021 to US$7,138 million in 2022. A significant shift occurred in 2023, with economic profit turning negative at -US$2,030 million. This indicates that the return on invested capital was less than the cost of capital in that year. Economic profit recovered to positive values in 2024 (US$2,810 million) and 2025 (US$1,939 million), but remained below the levels observed in 2021 and 2022. The negative economic profit in 2023 is a key area for further investigation.

In summary, while invested capital consistently grew, the ability to generate economic profit was inconsistent. The decline in NOPAT in 2023 significantly impacted economic profit, highlighting the sensitivity of value creation to operational performance. The subsequent recovery in NOPAT partially offset this impact, but economic profit did not return to its earlier levels.

Net income attributable to Verizon and Net Operating Profit After Taxes (NOPAT) both exhibited fluctuations over the five-year period. NOPAT generally tracked above net income, as expected, reflecting the adjustments made to arrive at an operating profit figure. A notable decline in both metrics occurred between 2021 and 2023, followed by recoveries in subsequent years.

NOPAT Trend

NOPAT decreased from US$29,903 million in 2021 to US$19,450 million in 2023, representing a substantial reduction. This decline suggests a weakening in core operational profitability during this period. However, NOPAT rebounded in 2024 to US$24,675 million and continued to increase to US$25,872 million in 2025, indicating a recovery in operating performance. The 2024 and 2025 values, while improved, did not reach the levels observed in 2021.

Relationship between NOPAT and Net Income

The difference between NOPAT and net income attributable to Verizon varied across the period. In 2021, NOPAT exceeded net income by approximately US$7,838 million. This difference narrowed in 2022 to around US$6,783 million. The gap widened significantly in 2023, with NOPAT exceeding net income by US$7,836 million, likely due to the more pronounced decline in net income. In 2024, the difference was approximately US$7,129 million, and in 2025, it was around US$8,698 million. These variations suggest changes in non-operating items or tax impacts influencing the disparity between the two profit measures.

The recovery in NOPAT during 2024 and 2025 is a positive sign, but the levels remain below the 2021 peak. Further investigation would be required to understand the drivers behind the initial decline and the subsequent recovery in NOPAT, including analysis of revenue growth, operating expenses, and tax rates.

The income tax provision and cash operating taxes exhibited distinct trends over the five-year period. While the income tax provision generally decreased then stabilized, cash operating taxes demonstrated more volatility.

Income Tax Provision

The income tax provision decreased from US$6,802 million in 2021 to US$6,523 million in 2022, representing a 4.1% decline. A more substantial decrease was observed in 2023, falling to US$4,892 million. This trend reversed slightly in 2024, with the provision increasing to US$5,030 million, and continued with a further increase to US$5,064 million in 2025. Overall, the income tax provision shows an initial decline followed by a period of relative stability.

Cash Operating Taxes

Cash operating taxes increased significantly from US$3,436 million in 2021 to US$4,451 million in 2022, a rise of 29.6%. This was followed by a decrease to US$3,774 million in 2023. A substantial increase occurred in 2024, reaching US$5,750 million, before decreasing to US$4,273 million in 2025. The fluctuations in cash operating taxes suggest potential impacts from changes in tax laws, deferred tax asset realization, or timing differences between book and tax accounting.

The divergence between the income tax provision and cash operating taxes is notable. The income tax provision, representing the accounting expense, decreased initially and then stabilized, while cash operating taxes experienced larger swings. This difference suggests that non-cash components of the income tax provision, such as deferred taxes, play a significant role in the overall tax expense recognition. The increase in cash operating taxes in 2024, followed by a decrease in 2025, warrants further investigation to understand the underlying drivers of these changes.

Relationship between Items

In 2021, cash operating taxes were approximately 50.5% of the income tax provision. This percentage increased to 68.2% in 2022, decreased to 77.1% in 2023, rose to 114.3% in 2024, and then decreased to 84.3% in 2025. These shifts in the ratio indicate a changing relationship between reported tax expense and actual cash outflows for taxes.

The reported invested capital exhibited an overall increasing trend between December 31, 2021, and December 31, 2025. However, this progression was not consistently upward, with some fluctuations observed during the period.

Invested Capital Trend

Invested capital began at US$290,004 million in 2021 and increased to US$301,478 million in 2022, representing a growth of approximately 3.9%. A further, albeit smaller, increase was noted in 2023, reaching US$304,400 million. The upward trend continued in 2024, with invested capital reaching US$307,881 million. A more substantial increase occurred between 2024 and 2025, with invested capital rising to US$329,613 million, marking the highest value within the observed timeframe.

Debt & Leases

Total reported debt and leases generally decreased from US$177,930 million in 2021 to US$168,357 million in 2024. However, an increase was observed in 2025, with debt and leases rising to US$181,643 million. This suggests a potential shift in financing strategy or increased borrowing activity towards the end of the period.

Equity Attributable to Verizon

Equity attributable to Verizon demonstrated consistent growth throughout the period. Starting at US$81,790 million in 2021, equity increased to US$91,144 million in 2022, US$92,430 million in 2023, US$99,237 million in 2024, and ultimately reached US$104,460 million in 2025. This consistent increase in equity likely contributed to the overall growth in invested capital.

The combined effect of fluctuations in debt and consistent growth in equity contributed to the overall trend in invested capital. The significant increase in invested capital between 2024 and 2025 warrants further investigation to determine the underlying drivers, potentially including significant capital expenditures or acquisitions.

The economic spread ratio exhibited a declining trend from 2021 to 2023, followed by a recovery in subsequent years. This movement correlates with fluctuations in economic profit and invested capital over the observed period.

Economic Spread Ratio Trend

In 2021, the economic spread ratio stood at 3.13%. It decreased to 2.37% in 2022, indicating a narrowing spread between returns generated and the cost of capital. This downward trend continued into 2023, resulting in a negative ratio of -0.67%, signifying that returns were insufficient to cover the cost of capital. A positive shift occurred in 2024, with the ratio rising to 0.91%, and further increasing to 0.59% in 2025, though remaining below the 2021 level.

Relationship with Economic Profit

The economic spread ratio’s trajectory closely mirrors the changes in economic profit. The decline in the ratio from 2021 to 2023 aligns with the decrease in economic profit, culminating in a negative economic profit in 2023. The subsequent recovery in economic profit from 2024 onwards is reflected in the positive and increasing economic spread ratio.

Impact of Invested Capital

Invested capital consistently increased throughout the period, from US$290,004 million in 2021 to US$329,613 million in 2025. While increasing invested capital can drive higher economic profit, the negative economic spread ratio in 2023 suggests that the growth in invested capital did not translate into commensurate returns during that year. The improvement in the economic spread ratio in 2024 and 2025 indicates a more efficient utilization of the larger capital base.

Overall, the analysis suggests a period of diminishing returns followed by a stabilization and modest improvement in value creation as measured by the economic spread ratio. Continued monitoring of both economic profit and invested capital will be crucial to assess the sustainability of this improvement.

The economic profit exhibited volatility over the five-year period. Initially positive, it declined significantly before recovering, while operating revenues demonstrated a more consistent, albeit modest, growth pattern. The economic profit margin reflects these fluctuations, transitioning from positive to negative and then back to positive territory.

Economic Profit

Economic profit began at US$9,086 million in 2021, then decreased to US$7,138 million in 2022. A substantial decline followed in 2023, resulting in an economic loss of US$2,030 million. A recovery was observed in 2024, with economic profit reaching US$2,810 million, and this positive trend continued, albeit at a slower pace, to US$1,939 million in 2025.

Operating Revenues

Operating revenues increased from US$133,613 million in 2021 to US$136,835 million in 2022. A slight decrease occurred in 2023, with revenues falling to US$133,974 million. Revenues then experienced a modest increase in both 2024 (US$134,788 million) and 2025 (US$138,191 million). The overall trend indicates a gradual revenue expansion, despite the short-term dip in 2023.

Economic Profit Margin

The economic profit margin mirrored the trend in economic profit. It started at 6.80% in 2021, decreasing to 5.22% in 2022. In 2023, the margin turned negative, reaching -1.52%. A recovery began in 2024, with the margin rising to 2.08%, and continued to 1.40% in 2025. The margin’s volatility suggests a sensitivity of profitability to changes in economic profit relative to operating revenues.

The divergence between revenue growth and economic profit, particularly the negative economic profit and margin in 2023, warrants further investigation. While revenues remained relatively stable, the factors contributing to the significant decline in economic profit during that year should be examined to understand the underlying causes and potential mitigation strategies.