Waste Management Inc. (NYSE:WM)

The analysis of economic profit between 2017 and 2021 reveals a consistent inability to generate returns exceeding the cost of capital, with a significant deterioration in value creation beginning in 2019.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited moderate volatility, peaking at US$ 2,286 million in 2018 before experiencing a gradual decline to US$ 2,018 million in 2020. Although a slight recovery to US$ 2,064 million was recorded in 2021, the overall trend indicates a stagnation in operational earnings growth over the five-year period.

Invested Capital Dynamics

A substantial increase in invested capital is observed, rising from US$ 17,686 million in 2017 to a peak of US$ 23,729 million in 2020. The most significant expansion occurred between 2018 and 2019, where invested capital grew by approximately 22.7%. This aggressive increase in the capital base suggests significant investment or acquisition activity that did not yield immediate proportional gains in operating profit.

Cost of Capital Stability

The cost of capital remained relatively stable, fluctuating within a narrow band between 11.98% and 12.86%. Because the cost of capital did not undergo significant shifts, the decline in economic profit is attributable to the relationship between the operating returns and the size of the capital base rather than changes in the financing environment.

Economic Profit Performance

Economic profit remained negative throughout the entire period, signifying that the company failed to cover its cost of capital. While the deficit narrowed to -US$ 84 million in 2018, it widened sharply starting in 2019, reaching -US$ 722 million and ultimately declining to -US$ 837 million by 2021. This downward trend highlights a growing gap between the actual NOPAT and the required return on the expanded invested capital base.

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 from 2017 to 2021 is characterized by a persistent inability to generate positive economic value, as evidenced by consistently negative economic profit and a declining economic spread ratio. While a brief period of improvement was noted in 2018, the subsequent three years demonstrate a widening gap between the returns generated and the cost of the capital employed.

Economic Profit Trends

Economic profit remained negative throughout the five-year period, indicating that the returns on invested capital did not exceed the required cost of capital. A temporary recovery occurred in 2018, where the deficit narrowed to -84 million from -251 million in 2017. However, this trend reversed sharply in 2019, with economic profit dropping to -722 million and continuing a downward trajectory to reach -837 million by the end of 2021.

Invested Capital Expansion

There was a general upward trend in invested capital, which grew from 17,686 million in 2017 to a peak of 23,729 million in 2020. A significant increase was observed between 2018 and 2019, where capital rose by approximately 4.2 billion. A slight reduction in invested capital occurred in 2021, bringing the total to 22,932 million.

Economic Spread Ratio Analysis

The economic spread ratio, which measures the difference between the return on invested capital and the cost of capital, remained in negative territory for the duration of the analysis. The ratio improved to -0.45% in 2018 but deteriorated significantly thereafter. A steep decline to -3.19% in 2019 was followed by further degradation, ending the period at -3.65% in 2021. This suggests that the company's efficiency in generating returns relative to its cost of capital diminished progressively after 2018.

An analysis of the financial performance between 2017 and 2021 reveals a consistent trend of negative economic value added. Throughout the five-year period, the entity failed to generate returns exceeding its cost of capital, resulting in a persistent negative economic profit and a corresponding negative economic profit margin.

Economic Profit Trends

Economic profit remained negative for the duration of the analyzed period. After a brief improvement in 2018, where losses narrowed to -84 million US$, there was a significant deterioration starting in 2019. The economic profit dropped to -722 million US$ in 2019 and continued to decline, reaching -837 million US$ by December 31, 2021. This indicates an increasing gap between the net operating profit after taxes and the required return on capital employed.

Adjusted Operating Revenues

Operating revenues demonstrated a general upward trajectory, growing from 14,495 million US$ in 2017 to 17,963 million US$ in 2021. Despite a marginal contraction in 2020, the 2021 fiscal year saw a substantial increase in revenue. However, this growth in top-line revenue did not correlate with an improvement in economic profit, suggesting that the cost of capital increased or operating efficiency failed to keep pace with the expanded scale of operations.

Economic Profit Margin Volatility

The economic profit margin reflected the volatility of the economic profit relative to revenue. The margin improved from -1.73% in 2017 to a peak of -0.56% in 2018. Subsequently, a sharp decline occurred, with the margin falling to -4.67% in 2019 and hitting a low of -5.42% in 2020. By 2021, the margin experienced a slight recovery to -4.66%, coinciding with the significant surge in adjusted operating revenues, although the figure remained substantially lower than the 2017 and 2018 levels.