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)
Celgene Corp., ROIC calculation, comparison to benchmarks
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 4,676) | 1,913) | 1,954) | 1,787) | 1,826) | |
| Invested capital2 | 27,773) | 18,857) | 18,672) | 18,136) | 9,844) | |
| Performance Ratio | ||||||
| ROIC3 | 16.84% | 10.15% | 10.47% | 9.85% | 18.55% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2018 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × 4,676 ÷ 27,773 = 16.84%
4 Click competitor name to see calculations.
The Return on Invested Capital (ROIC) exhibited significant volatility between 2014 and 2018, characterized by an initial sharp contraction followed by a period of stagnation and a subsequent strong recovery in the final year of the period.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT remained relatively stagnant from 2014 through 2017, fluctuating within a narrow range between 1,787 million and 1,954 million USD. A substantial shift occurred in 2018, with NOPAT increasing to 4,676 million USD, representing an increase of approximately 144% compared to the 2017 level.
- Invested Capital Growth
- The capital base expanded aggressively during two distinct phases. The first phase occurred between 2014 and 2015, when invested capital rose from 9,844 million to 18,136 million USD. Following a period of relative stability from 2015 to 2017, a second significant increase was recorded in 2018, bringing the total invested capital to 27,773 million USD.
- ROIC Analysis and Correlation
- A sharp decline in ROIC is observed from 18.55% in 2014 to 9.85% in 2015, directly correlating with the rapid expansion of the capital base that did not yield an immediate increase in operating profits. From 2015 to 2017, the ROIC plateaued around 10%, suggesting a period of low incremental return on the newly deployed capital. However, the significant spike in NOPAT in 2018 more than offset the increase in invested capital for that year, resulting in a recovery of the ROIC to 16.84%.
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Decomposition of ROIC
Celgene Corp., decomposition of ROIC
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
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 significant volatility between 2014 and 2018. After an initial peak of 18.55% in 2014, the metric experienced a sharp decline, remaining stagnant near the 10% level from 2015 through 2017, before recovering to 16.84% in 2018. This trajectory indicates a period of diminished capital efficiency followed by a strong recovery in the final year of the observed period.
- Operating Profit Margin (OPM)
- The operating profit margin showed a U-shaped trend. A contraction occurred between 2014 and 2016, with the margin dropping from 32.76% to a low of 25.40%. However, a significant expansion followed, with the margin rising to 36.66% in 2017 and remaining stable at 36.46% in 2018. This suggests a successful improvement in operational profitability during the latter half of the period.
- Turnover of Capital (TO)
- Capital turnover demonstrated a general downward trend and increased instability. From a high of 0.77 in 2014, the ratio fell to 0.51 in 2015. Despite a partial recovery to 0.69 by 2017, it declined again to 0.55 in 2018. This pattern indicates that the company became less efficient at generating revenue from its invested capital base over the five-year span.
- Effective Cash Tax Rate (1 – CTR)
- The tax efficiency component was the most volatile driver of ROIC. While it remained relatively stable between 68.85% and 76.29% from 2014 to 2016, it plummeted to 40.14% in 2017. This anomaly suggests a significant one-time tax event or a change in tax jurisdiction impact. The metric rebounded sharply to 83.81% in 2018, representing the highest level of tax efficiency in the period.
- Decomposition of ROIC Performance
- The fluctuations in ROIC were driven by divergent movements between the three components. The depressed ROIC in 2017 was primarily caused by the collapse in the effective cash tax rate, which offset a peak in the operating profit margin. Conversely, the recovery of ROIC in 2018 was propelled by the combination of sustained high operating margins and a strong rebound in tax efficiency, which compensated for the decline in capital turnover.
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Operating Profit Margin (OPM)
Celgene Corp., OPM calculation, comparison to benchmarks
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 4,676) | 1,913) | 1,954) | 1,787) | 1,826) | |
| Add: Cash operating taxes2 | 903) | 2,853) | 884) | 555) | 654) | |
| Net operating profit before taxes (NOPBT) | 5,579) | 4,766) | 2,839) | 2,342) | 2,480) | |
| Net product sales | 15,265) | 12,973) | 11,185) | 9,161) | 7,564) | |
| Add: Increase (decrease) in deferred revenue | 37) | 26) | (8) | 34) | 5) | |
| Adjusted net product sales | 15,302) | 12,999) | 11,177) | 9,195) | 7,569) | |
| Profitability Ratio | ||||||
| OPM3 | 36.46% | 36.66% | 25.40% | 25.47% | 32.76% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2018 Calculation
OPM = 100 × NOPBT ÷ Adjusted net product sales
= 100 × 5,579 ÷ 15,302 = 36.46%
4 Click competitor name to see calculations.
The company experienced a period of sustained growth in both top-line revenue and operating profitability between 2014 and 2018. While adjusted net product sales exhibited a steady upward trajectory throughout the period, the operating profit margin followed a more volatile path, characterized by an initial contraction followed by a significant expansion.
- Revenue Growth Trend
- Adjusted net product sales showed consistent year-over-year growth, increasing from 7,569 million US$ in 2014 to 15,302 million US$ in 2018. This indicates a steady expansion of the company's market reach or product demand over the five-year interval.
- Operating Profitability (NOPBT)
- Net operating profit before taxes grew from 2,480 million US$ in 2014 to 5,579 million US$ in 2018. A significant surge in profitability is evident between 2016 and 2017, during which NOPBT increased by approximately 68% in a single fiscal year.
- Operating Profit Margin (OPM) Analysis
- The operating profit margin underwent a U-shaped transition. An initial decline is observed from 32.76% in 2014 to a trough of 25.40% in 2016. This was followed by a sharp recovery in 2017, with the margin reaching 36.66%, and maintaining a stable level of 36.46% in 2018. This trend suggests that the company successfully optimized its cost structure or shifted toward higher-margin products after 2016.
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Turnover of Capital (TO)
Celgene Corp., TO calculation, comparison to benchmarks
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net product sales | 15,265) | 12,973) | 11,185) | 9,161) | 7,564) | |
| Add: Increase (decrease) in deferred revenue | 37) | 26) | (8) | 34) | 5) | |
| Adjusted net product sales | 15,302) | 12,999) | 11,177) | 9,195) | 7,569) | |
| Invested capital1 | 27,773) | 18,857) | 18,672) | 18,136) | 9,844) | |
| Efficiency Ratio | ||||||
| TO2 | 0.55 | 0.69 | 0.60 | 0.51 | 0.77 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 Invested capital. See details »
2 2018 Calculation
TO = Adjusted net product sales ÷ Invested capital
= 15,302 ÷ 27,773 = 0.55
3 Click competitor name to see calculations.
The analysis of capital efficiency reveals a divergence between revenue growth and the expansion of the capital base between 2014 and 2018. While top-line growth remained consistent, the rate of investment exceeded the rate of sales expansion, impacting the overall efficiency of capital utilization.
- Adjusted Net Product Sales
- A consistent upward trajectory is observed, with sales increasing from 7,569 million US dollars in 2014 to 15,302 million US dollars by 2018. This represents a steady and significant growth in revenue generation over the five-year period.
- Invested Capital
- Invested capital experienced substantial increases, most notably in 2015 and 2018. The total invested capital rose from 9,844 million US dollars in 2014 to 27,773 million US dollars in 2018, nearly tripling the initial capital base.
- Turnover of Capital (TO)
- The turnover ratio exhibited marked volatility, starting at 0.77 in 2014 and declining sharply to 0.51 in 2015, coinciding with a surge in invested capital. A recovery trend followed in 2016 and 2017, with the ratio climbing to 0.69 as sales growth outpaced capital expansion. However, this trend reversed in 2018, where the ratio fell to 0.55 due to another significant increase in invested capital. This pattern suggests that large-scale capital deployments occurred in phases, causing temporary dips in asset productivity before the corresponding revenue gains were realized.
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Effective Cash Tax Rate (CTR)
Celgene Corp., CTR calculation, comparison to benchmarks
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 4,676) | 1,913) | 1,954) | 1,787) | 1,826) | |
| Add: Cash operating taxes2 | 903) | 2,853) | 884) | 555) | 654) | |
| Net operating profit before taxes (NOPBT) | 5,579) | 4,766) | 2,839) | 2,342) | 2,480) | |
| Tax Rate | ||||||
| CTR3 | 16.19% | 59.86% | 31.15% | 23.71% | 26.37% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2018 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × 903 ÷ 5,579 = 16.19%
4 Click competitor name to see calculations.
The financial performance from 2014 to 2018 is characterized by a steady expansion in operating profitability contrasted by high volatility in cash tax expenditures.
- Net Operating Profit Before Taxes (NOPBT)
- An overall upward trajectory in NOPBT is observed, rising from 2,480 million US dollars in 2014 to 5,579 million US dollars in 2018. Aside from a slight contraction in 2015, the profit trend reflects consistent growth, with the most significant acceleration occurring between 2016 and 2018.
- Cash Operating Taxes
- Cash tax payments demonstrated significant instability. Payments remained under 900 million US dollars for the first three years, followed by a sharp increase to 2,853 million US dollars in 2017. A subsequent correction occurred in 2018, where cash taxes decreased to 903 million US dollars despite the continued increase in operating profits.
- Effective Cash Tax Rate (CTR)
- The CTR exhibited extreme fluctuations, moving from 26.37% in 2014 to a peak of 59.86% in 2017, before dropping to a five-year low of 16.19% in 2018. The disparity between the 2017 peak and the 2018 trough is particularly notable, as the lowest tax rate coincided with the highest NOPBT. This pattern suggests that the cash tax burden was not linearly correlated with operating profitability during this period, potentially indicating the impact of one-time tax adjustments or changes in tax jurisdiction strategies.
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