Waste Management Inc. (NYSE:WM)

Between 2017 and 2021, a persistent trend of value erosion is observed, as economic profit remained negative throughout the entire period. The widening deficit suggests that the returns generated from operations were insufficient to cover the weighted average cost of the capital employed.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited initial growth, peaking at US$ 2,286 million in 2018. Following this peak, a slight downward trend occurred, with values stabilizing between US$ 2,018 million and US$ 2,064 million from 2020 to 2021. This indicates a stagnation in operational profitability relative to the growth in the capital base.

Invested Capital and Cost of Capital

A significant expansion in invested capital occurred, rising from US$ 17,686 million in 2017 to a peak of US$ 23,729 million in 2020, before a slight reduction to US$ 22,932 million in 2021. Concurrently, the cost of capital remained relatively stable, fluctuating within a tight range between 11.89% and 12.76%.

Economic Profit Performance

Economic profit was consistently negative, signaling that the company did not create economic value during this period. Although the deficit narrowed to -US$ 67 million in 2018, it deteriorated sharply starting in 2019, falling to -US$ 701 million and eventually reaching -US$ 816 million by 2021. This decline is primarily driven by the substantial increase in invested capital, which raised the capital charge beyond the capacity of NOPAT to offset it.

The financial data indicates fluctuations and trends in the profitability measures of the entity over the five-year period ending December 31, 2021.

Net Income Attributable to the Company

The net income shows a declining trend from 2017 through 2020, starting at 1,949 million US dollars in 2017, slightly decreasing to 1,925 million in 2018, followed by a more pronounced decrease to 1,670 million in 2019 and further down to 1,496 million in 2020. However, there is a rebound in 2021, with net income rising to 1,816 million, indicating a recovery after the decline in prior years.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures reveal a different pattern. Starting at 1,952 million US dollars in 2017, NOPAT increased substantially in 2018 to 2,286 million, peaking in that year. Afterward, it declined over the next two years to 2,119 million in 2019 and 2,018 million in 2020. By 2021, NOPAT experienced a slight increase to 2,064 million, indicating some stabilization or modest recovery in operating profitability after taxes.

In summary, while both net income and NOPAT exhibit declines starting around 2018 or 2019, net income shows a more significant decrease and a notable rebound by 2021, whereas NOPAT peaked earlier in 2018, followed by declines with a slight recovery by 2021. These patterns may reflect variations in non-operating income, expenses, taxes, or other adjustments impacting net income differently compared to operating profit.

The financial data over the five-year period ending December 31, 2021, shows distinct trends in both income tax expense and cash operating taxes.

Income Tax Expense

Income tax expense experienced a general increase from 2017 to 2021, with fluctuations during the intermediate years. The value rose significantly from $242 million in 2017 to $453 million in 2018. It then slightly decreased to $434 million in 2019 and further declined to $397 million in 2020. However, in 2021, there was a notable increase to $532 million, marking the highest expense in the period analyzed.

Cash Operating Taxes

Cash operating taxes demonstrated a downward trend from 2017 through 2020, followed by a sharp rise in 2021. Specifically, cash operating taxes decreased from $626 million in 2017 to $511 million in 2018 and further to $424 million in 2019. This downward trajectory continued with a reduction to $324 million in 2020. In 2021, this trend reversed dramatically as cash operating taxes surged to $689 million, surpassing all previous years in the data set.

Overall, while the income tax expense shows variability with an eventual upward movement to reach its peak in 2021, cash operating taxes reveal a more pronounced downward trend until 2020, followed by a significant increase in the last year. The contrasting movements in these two tax-related financial items in 2021 may indicate changes in tax policy application, operational performance, or other tax-related accounting factors impacting the company’s tax obligations.

The financial data reveals distinct trends in key balance sheet components over the five-year period ending December 31, 2021.

Total Reported Debt & Leases

The total reported debt and leases exhibit an overall upward trend from 2017 through 2020, increasing from approximately $9,976 million in 2017 to a peak near $14,326 million in 2020. This represents a significant increase of roughly 43% over three years. In 2021, a slight decline to $13,928 million is noted, indicating a minor reduction in indebtedness or lease obligations after reaching the high point the prior year.

Total Stockholders’ Equity

Stockholders' equity also shows a general increase over the reviewed period, rising from about $6,019 million in 2017 to a maximum of $7,452 million in 2020. This growth suggests accumulated retained earnings and possible capital contributions enhancing the company’s net asset base. However, equity decreases slightly in 2021 to $7,124 million, indicating some erosion following the peak, which could be due to net losses, dividends, or other equity-reducing activities.

Invested Capital

Invested capital follows a similar pattern to total debt and equity, with steady growth from $17,686 million in 2017 to $23,729 million in 2020. This growth, amounting to approximately 34%, reflects increased deployment of financial resources into the company's operations, likely contributing to expansion or asset acquisition. The figure slightly contracts to $22,932 million in 2021, aligning with the modest declines in both debt and equity components.

Overall, the data depicts growth in the company’s financial size and capital structure through 2020, with a slight retrenchment in debt, equity, and invested capital during 2021. This trend suggests a period of expansion followed by cautious tightening or normalization of the balance sheet in the most recent year.

The financial performance relative to the cost of capital indicates a consistent failure to generate positive economic value added from 2017 through 2021. While there was a brief period of improvement in 2018, the subsequent years show a marked deterioration in both absolute economic profit and the relative efficiency of invested capital.

Economic Profit Trends

A persistent negative economic profit is observed throughout the analyzed period, signifying that returns are insufficient to cover the cost of capital. Although the deficit narrowed significantly in 2018 to -67 million US dollars, a sharp reversal occurred in 2019, with losses expanding to -701 million US dollars. This downward trajectory continued through 2021, reaching a peak deficit of -816 million US dollars.

Invested Capital Dynamics

Invested capital exhibited a general upward trend for the majority of the period, growing from 17,686 million US dollars in 2017 to a peak of 23,729 million US dollars in 2020. A slight contraction occurred in 2021, with capital decreasing to 22,932 million US dollars. The expansion of the capital base between 2018 and 2020 coincided with a significant increase in economic losses, suggesting that the additional capital deployed did not generate proportional returns.

Economic Spread Ratio Analysis

The economic spread ratio remained negative for all five years, indicating that the return on invested capital consistently trailed the weighted average cost of capital. The ratio improved to its highest point of -0.36% in 2018, but subsequently declined sharply. By 2021, the spread widened to -3.56%, representing a significant erosion in value creation efficiency and a widening gap between actual returns and the required rate of return.

Waste Management Inc. demonstrated a consistent negative economic profit throughout the five-year period from 2017 to 2021. Despite a general increase in adjusted operating revenues, the company failed to achieve a positive economic profit margin, indicating that the returns generated were insufficient to cover the cost of capital invested in the business.

Economic Profit Trends

Economic profit remained in negative territory for the duration of the analyzed period. After a brief improvement in 2018, where losses narrowed to 67 million US$, a sharp deterioration occurred in 2019, with losses expanding to 701 million US$. This downward trend continued through 2020 and 2021, with the deficit reaching 816 million US$ by the end of the final year.

Revenue Performance

Adjusted operating revenues grew from 14,495 million US$ in 2017 to 17,963 million US$ in 2021. A slight contraction was noted in 2020, followed by a substantial increase in 2021. However, this growth in top-line revenue did not translate into positive economic value added.

Economic Profit Margin Analysis

The economic profit margin mirrored the trajectory of the economic profit. The margin peaked at -0.45% in 2018 before dropping significantly to -4.53% in 2019 and reaching its lowest point of -5.28% in 2020. In 2021, the margin improved slightly to -4.54%, coinciding with the surge in operating revenues, although it remained substantially lower than the levels observed in 2017 and 2018.