Return on Capital (ROC)
Return on capital (ROC) is after tax rate of return on net business assets. ROIC is unaffected by changes in interest rates or company debt and equity structure. It measures business productivity performance.
Return on Invested Capital (ROIC)
Biogen Inc., ROIC calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 1,501,467) | 4,370,868) | 6,023,385) | 4,663,032) | 2,890,089) | |
| Invested capital2 | 13,824,500) | 12,625,400) | 14,142,400) | 13,170,435) | 12,476,129) | |
| Performance Ratio | ||||||
| ROIC3 | 10.86% | 34.62% | 42.59% | 35.41% | 23.16% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| AbbVie Inc. | 12.89% | — | — | — | — | |
| Amgen Inc. | 15.93% | — | — | — | — | |
| Bristol-Myers Squibb Co. | 8.29% | — | — | — | — | |
| Danaher Corp. | 9.01% | — | — | — | — | |
| Eli Lilly & Co. | 19.39% | — | — | — | — | |
| Gilead Sciences Inc. | 14.43% | — | — | — | — | |
| Johnson & Johnson | 19.23% | — | — | — | — | |
| Merck & Co. Inc. | 18.87% | — | — | — | — | |
| Pfizer Inc. | 20.98% | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 72.50% | — | — | — | — | |
| Thermo Fisher Scientific Inc. | 9.42% | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | 23.86% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2021 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × 1,501,467 ÷ 13,824,500 = 10.86%
4 Click competitor name to see calculations.
The period from 2017 to 2021 is characterized by a significant arc in capital efficiency, marked by a period of rapid growth in returns followed by a sharp contraction. The company experienced a peak in its ability to generate profit from its invested capital in 2019, after which a precipitous decline in operating profitability led to a substantial erosion of the return on invested capital (ROIC).
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT exhibited substantial volatility over the analyzed timeframe. Profitability increased steadily from $2.89 billion in 2017 to a peak of $6.02 billion in 2019. This growth trend reversed sharply thereafter, with NOPAT falling to $4.37 billion in 2020 and further plummeting to $1.50 billion by December 31, 2021, indicating a significant reduction in core operating earnings.
- Invested Capital Stability
- The capital base remained relatively stable, fluctuating within a narrow range between $12.48 billion in 2017 and a maximum of $14.14 billion in 2019. Because the invested capital did not experience drastic shifts, the movements in ROIC are attributable primarily to the fluctuations in NOPAT rather than changes in the scale of investment.
- Return on Invested Capital (ROIC) Analysis
- ROIC followed a bell-shaped trajectory, starting at 23.16% in 2017 and climbing to 42.59% in 2019. This peak reflects a period of high capital efficiency. However, the subsequent decline was severe, with the ratio dropping to 34.62% in 2020 and falling to 10.86% by the end of 2021. The final figure represents the lowest return in the observed period, signaling a marked deterioration in the efficiency of capital deployment.
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Decomposition of ROIC
Biogen Inc., decomposition of ROIC
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Operating profit margin (OPM). See calculations »
2 Turnover of capital (TO). See calculations »
3 Effective cash tax rate (CTR). See calculations »
The Return on Invested Capital (ROIC) exhibited a cyclical trajectory between 2017 and 2021, characterized by a period of strong growth peaking in 2019, followed by a significant contraction.
- Operating Profit Margin (OPM)
- A growth trend was observed from 2017 to 2019, with the margin increasing from 43.44% to a peak of 49.60%. Following this peak, a sharp decline occurred, with the margin dropping to 39.10% in 2020 and falling precipitously to 18.53% by December 31, 2021, indicating a substantial erosion of operational profitability.
- Turnover of Capital (TO)
- Capital efficiency remained relatively stable and showed a gradual improvement from 0.98 in 2017 to 1.06 in 2020. However, this trend reversed sharply in 2021, as the turnover ratio fell to 0.79, reflecting a decrease in the effectiveness of invested capital in generating revenue.
- Effective Cash Tax Rate Impact (1 – CTR)
- The tax-related component of the ROIC decomposition saw a significant increase from 54.21% in 2017 to 84.47% in 2019, which effectively boosted after-tax returns during the growth phase. This metric remained elevated through 2020 before declining to 73.78% in 2021.
- Composite ROIC Analysis
- The convergence of expanding operating margins and a strengthening tax shield drove ROIC from 23.16% in 2017 to a high of 42.59% in 2019. The subsequent collapse to 10.86% by the end of 2021 was a result of simultaneous deterioration across all three decomposition drivers: the operating profit margin, capital turnover, and the tax shield.
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Operating Profit Margin (OPM)
Biogen Inc., OPM calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 1,501,467) | 4,370,868) | 6,023,385) | 4,663,032) | 2,890,089) | |
| Add: Cash operating taxes2 | 533,599) | 885,903) | 1,107,377) | 1,341,897) | 2,441,355) | |
| Net operating profit before taxes (NOPBT) | 2,035,066) | 5,256,771) | 7,130,762) | 6,004,929) | 5,331,444) | |
| Revenue | 10,981,700) | 13,444,600) | 14,377,900) | 13,452,900) | 12,273,900) | |
| Profitability Ratio | ||||||
| OPM3 | 18.53% | 39.10% | 49.60% | 44.64% | 43.44% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| AbbVie Inc. | 27.06% | — | — | — | — | |
| Amgen Inc. | 32.55% | — | — | — | — | |
| Bristol-Myers Squibb Co. | 20.31% | — | — | — | — | |
| Danaher Corp. | 27.65% | — | — | — | — | |
| Eli Lilly & Co. | 23.01% | — | — | — | — | |
| Gilead Sciences Inc. | 34.43% | — | — | — | — | |
| Johnson & Johnson | 24.39% | — | — | — | — | |
| Merck & Co. Inc. | 30.60% | — | — | — | — | |
| Pfizer Inc. | 29.86% | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 57.80% | — | — | — | — | |
| Thermo Fisher Scientific Inc. | 23.92% | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | 36.91% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2021 Calculation
OPM = 100 × NOPBT ÷ Revenue
= 100 × 2,035,066 ÷ 10,981,700 = 18.53%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by an initial period of operational expansion followed by a significant contraction in both profitability and revenue generation. The trend reflects a peak in operational efficiency in 2019, after which a sharp decline occurred in the subsequent two years.
- Revenue Trends
- Revenue exhibited a growth trajectory from 2017 to 2019, increasing from US$ 12.27 billion to a peak of US$ 14.38 billion. However, this growth reversed after 2019, with revenue declining to US$ 13.44 billion in 2020 and further dropping to US$ 10.98 billion by the end of 2021, representing a contraction below 2017 levels.
- Net Operating Profit Before Taxes (NOPBT)
- NOPBT followed a similar pattern to revenue but with greater volatility. Profits rose steadily to peak at US$ 7.13 billion in 2019. A substantial reversal followed, with profits falling to US$ 5.26 billion in 2020 and collapsing to US$ 2.04 billion in 2021. The decline in NOPBT between 2019 and 2021 was far more severe than the corresponding decline in revenue, indicating an increase in operating expenses or a loss of high-margin income streams.
- Operating Profit Margin (OPM)
- The operating profit margin demonstrated a clear bell-shaped trajectory. The margin improved from 43.44% in 2017 to a high of 49.60% in 2019, signaling strong operational leverage. This was followed by a precipitous decline to 39.10% in 2020 and a further crash to 18.53% in 2021. This sharp compression of the OPM suggests a significant deterioration in the company's ability to convert sales into operating profit during the final two years of the period.
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Turnover of Capital (TO)
Biogen Inc., TO calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Revenue | 10,981,700) | 13,444,600) | 14,377,900) | 13,452,900) | 12,273,900) | |
| Invested capital1 | 13,824,500) | 12,625,400) | 14,142,400) | 13,170,435) | 12,476,129) | |
| Efficiency Ratio | ||||||
| TO2 | 0.79 | 1.06 | 1.02 | 1.02 | 0.98 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| AbbVie Inc. | 0.59 | — | — | — | — | |
| Amgen Inc. | 0.60 | — | — | — | — | |
| Bristol-Myers Squibb Co. | 0.58 | — | — | — | — | |
| Danaher Corp. | 0.40 | — | — | — | — | |
| Eli Lilly & Co. | 1.08 | — | — | — | — | |
| Gilead Sciences Inc. | 0.57 | — | — | — | — | |
| Johnson & Johnson | 0.96 | — | — | — | — | |
| Merck & Co. Inc. | 0.69 | — | — | — | — | |
| Pfizer Inc. | 0.94 | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 1.48 | — | — | — | — | |
| Thermo Fisher Scientific Inc. | 0.49 | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | 0.81 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Invested capital. See details »
2 2021 Calculation
TO = Revenue ÷ Invested capital
= 10,981,700 ÷ 13,824,500 = 0.79
3 Click competitor name to see calculations.
The analysis of capital efficiency between 2017 and 2021 reveals a period of relative stability followed by a significant decline in the ability to generate revenue from invested capital. While the organization maintained a capital turnover ratio near or above 1.00 for the first four years of the period, a sharp contraction occurred in the final year.
- Revenue Trends
- Revenue exhibited an upward trajectory from 2017 to 2019, peaking at approximately 14.38 billion US dollars. However, a reversal occurred in 2020, followed by a substantial decrease in 2021, where revenue fell to 10.98 billion US dollars, representing a marked decline from its peak.
- Invested Capital Dynamics
- Invested capital grew steadily from 12.48 billion US dollars in 2017 to 14.14 billion US dollars in 2019. A reduction was noted in 2020 to 12.63 billion US dollars, but this was followed by an increase to 13.82 billion US dollars in 2021. This inverse relationship between revenue and invested capital in the final year contributed to a deterioration in efficiency.
- Turnover of Capital (TO) Efficiency
- The turnover ratio remained stable and showed slight improvement from 0.98 in 2017 to a peak of 1.06 in 2020. This peak was driven by a more significant reduction in invested capital relative to the modest decline in revenue during that year. However, in 2021, the ratio dropped sharply to 0.79, indicating a significant erosion in capital productivity as revenue decreased while the capital base expanded.
Overall, the trend suggests that the efficiency of capital utilization was optimized through 2020, but the combination of falling revenues and rising invested capital in 2021 resulted in a substantial loss of operational leverage.
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Effective Cash Tax Rate (CTR)
Biogen Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 1,501,467) | 4,370,868) | 6,023,385) | 4,663,032) | 2,890,089) | |
| Add: Cash operating taxes2 | 533,599) | 885,903) | 1,107,377) | 1,341,897) | 2,441,355) | |
| Net operating profit before taxes (NOPBT) | 2,035,066) | 5,256,771) | 7,130,762) | 6,004,929) | 5,331,444) | |
| Tax Rate | ||||||
| CTR3 | 26.22% | 16.85% | 15.53% | 22.35% | 45.79% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| AbbVie Inc. | 18.70% | — | — | — | — | |
| Amgen Inc. | 18.93% | — | — | — | — | |
| Bristol-Myers Squibb Co. | 29.34% | — | — | — | — | |
| Danaher Corp. | 18.58% | — | — | — | — | |
| Eli Lilly & Co. | 22.28% | — | — | — | — | |
| Gilead Sciences Inc. | 25.84% | — | — | — | — | |
| Johnson & Johnson | 17.53% | — | — | — | — | |
| Merck & Co. Inc. | 10.42% | — | — | — | — | |
| Pfizer Inc. | 25.02% | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | 15.19% | — | — | — | — | |
| Thermo Fisher Scientific Inc. | 19.89% | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | 19.91% | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2021 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × 533,599 ÷ 2,035,066 = 26.22%
4 Click competitor name to see calculations.
The financial trajectory from 2017 to 2021 reflects a significant shift in the relationship between operational profitability and tax obligations, characterized by a general decline in absolute tax expenditures and high volatility in the effective tax rate.
- Effective Cash Tax Rate (CTR) Volatility
- The CTR experienced a sharp decline in the early part of the period, dropping from a peak of 45.79% in 2017 to 15.53% by 2019. This represents a substantial improvement in tax efficiency relative to operational profit. After a period of relative stability in 2020, the rate rose to 26.22% in 2021, indicating a reversal of the prior downward trend.
- Cash Operating Taxes Trend
- A consistent and linear downward trend is observed in absolute cash operating taxes. Payments decreased every consecutive year, falling from US$ 2,441,355 thousand in 2017 to US$ 533,599 thousand in 2021, representing a reduction of approximately 78% over the five-year span.
- Net Operating Profit Before Taxes (NOPBT) Correlation
- Operational profitability grew steadily from 2017 to a peak of US$ 7,130,762 thousand in 2019. However, a significant contraction occurred thereafter, with NOPBT falling to US$ 2,035,066 thousand by 2021. The increase in the CTR observed in 2021 is driven by this sharp decline in NOPBT, as the operational profit decreased more aggressively than the cash tax payments during that specific fiscal year.
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