Waste Management Inc. (NYSE:WM)

An analysis of the financial performance from 2017 to 2021 reveals a persistent trend of negative economic profit, indicating that the net operating profit after taxes was insufficient to cover the cost of invested capital throughout the period.

Net Operating Profit After Taxes (NOPAT)

Operating profitability experienced an initial increase, peaking in 2018 at 2,286 million US dollars. Following this peak, NOPAT declined and stabilized, ending the period at 2,064 million US dollars in 2021. The overall trend suggests a plateau in operating earnings despite changes in the capital base.

Invested Capital and Cost of Capital

Invested capital grew significantly over the five-year period, rising from 17,686 million US dollars in 2017 to a peak of 23,729 million US dollars in 2020, before a slight contraction to 22,932 million US dollars in 2021. The cost of capital remained relatively stable, fluctuating within a narrow range between 11.90% and 12.76%.

Economic Profit Trends

Economic profit remained negative for all analyzed years, demonstrating a consistent failure to generate value above the required return. While there was a slight improvement in 2018, where economic profit rose to -67 million US dollars, a sharp deterioration occurred starting in 2019. The economic profit fell to -702 million US dollars in 2019 and continued to decline, reaching its lowest point of -816 million US dollars by 2021.

Causal Relationship Analysis

The widening negative gap in economic profit is primarily attributable to the substantial increase in invested capital between 2018 and 2020. Because the increase in the capital base was not matched by a proportional growth in NOPAT, the capital charge grew faster than the operating returns, leading to a significant erosion of economic value.

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.

A comprehensive evaluation of the economic value added metrics reveals a persistent trend of value destruction over the five-year period ending December 31, 2021. The consistently negative economic profit and economic spread ratio indicate that the organization failed to generate returns above its cost of capital throughout the analyzed timeframe.

Economic Profit Trends

Economic profit remained in negative territory for the entire duration. A temporary improvement occurred in 2018, where losses narrowed to 67 million USD, but this was followed by a significant deterioration. Losses expanded sharply to 702 million USD in 2019 and continued to widen, reaching 816 million USD by the end of 2021.

Invested Capital Dynamics

Invested capital exhibited a general upward trajectory for most of the period, increasing from 17,686 million USD in 2017 to a peak of 23,729 million USD in 2020. A slight reduction to 22,932 million USD was observed in 2021, although the total capital base remained substantially higher than the initial 2017 levels.

Economic Spread Ratio Analysis

The economic spread ratio remained negative, confirming that the return on invested capital did not exceed the cost of capital. After a brief recovery to -0.36% in 2018, the ratio declined precipitously to -3.10% in 2019 and continued to deteriorate to -3.56% in 2021. This widening negative spread indicates an increasing gap between the actual returns generated and the required rate of return.

The financial performance from 2017 to 2021 is characterized by a persistent inability to generate positive economic profit, indicating that the returns on capital consistently remained below the required cost of capital throughout the observed period.

Economic Profit Trends

Economic profit exhibited significant volatility and a general downward trajectory. After an initial improvement from negative 235 million US dollars in 2017 to negative 67 million US dollars in 2018, a sharp deterioration occurred. Economic profit fell to negative 702 million US dollars in 2019 and continued to decline, reaching negative 816 million US dollars by the end of 2021.

Adjusted Operating Revenues

Revenues demonstrated a generally positive growth trend, rising from 14,495 million US dollars in 2017 to 17,963 million US dollars in 2021. Although a slight contraction was observed in 2020, the significant revenue increase in 2021 did not lead to a corresponding improvement in economic value creation, suggesting that the cost of capital or operating expenses grew at a rate that offset revenue gains.

Economic Profit Margin Analysis

The economic profit margin reached its peak efficiency in 2018 at negative 0.45%, marking the closest point to breaking even on an economic basis. This was followed by a substantial decline to negative 4.54% in 2019 and a further drop to negative 5.29% in 2020. By 2021, the margin slightly recovered to negative 4.54%, yet it remained deeply negative, confirming a sustained gap between the company's operating performance and its capital costs.