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)
O’Reilly Automotive 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 | 2,362,405) | 1,953,719) | 1,589,868) | 1,512,921) | 1,241,849) | |
| Invested capital2 | 5,766,861) | 6,200,132) | 6,076,741) | 5,606,204) | 5,440,691) | |
| Performance Ratio | ||||||
| ROIC3 | 40.97% | 31.51% | 26.16% | 26.99% | 22.83% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Amazon.com Inc. | 18.50% | — | — | — | — | |
| Home Depot Inc. | 28.36% | — | — | — | — | |
| Lowe’s Cos. Inc. | 24.73% | — | — | — | — | |
| TJX Cos. Inc. | 1.20% | — | — | — | — | |
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 × 2,362,405 ÷ 5,766,861 = 40.97%
4 Click competitor name to see calculations.
An analysis of the return on invested capital from 2017 to 2021 reveals a significant and consistent improvement in capital efficiency. The period is characterized by a strong expansion in operational profitability coupled with a strategic stabilization and eventual reduction of the invested capital base.
- Net Operating Profit After Taxes (NOPAT)
- A continuous upward trajectory in NOPAT is observed, rising from US$ 1,241,849 thousand in 2017 to US$ 2,362,405 thousand in 2021. This consistent growth indicates a substantial increase in the company's ability to generate after-tax operating income.
- Invested Capital
- Invested capital experienced moderate growth from 2017 through 2020, reaching a peak of US$ 6,200,132 thousand. However, a notable contraction occurred in 2021, where the capital base decreased to US$ 5,766,861 thousand, signaling an optimization of assets or a reduction in liabilities used for operations.
- Return on Invested Capital (ROIC)
- ROIC demonstrated a strong positive trend, increasing from 22.83% in 2017 to 40.97% in 2021. The growth in ROIC accelerated sharply in the final two years of the period. This acceleration was driven by the compounding effect of achieving record-high NOPAT while simultaneously reducing the denominator of invested capital in 2021, resulting in a significant increase in the yield per dollar of capital employed.
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Decomposition of ROIC
O’Reilly Automotive 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) exhibits a substantial upward trajectory over the analyzed five-year period, increasing from 22.83% in 2017 to 40.97% by 2021. This growth indicates a significant enhancement in the company's ability to generate returns from its deployed capital, with the most aggressive acceleration occurring between 2020 and 2021.
- Operating Profit Margin (OPM)
- The operating profit margin remained relatively stable between 2017 and 2019, fluctuating within a narrow range around 20%. A positive trend emerged starting in 2020, with margins expanding to 21.58% and further increasing to 22.54% in 2021, suggesting improved operational efficiency or enhanced pricing power.
- Turnover of Capital (TO)
- Capital turnover demonstrated a consistent upward trend, rising from 1.65 in 2017 to 2.31 in 2021. A sharp increase is observed in the final year of the period, indicating a marked improvement in asset utilization and the efficiency with which the company generates revenue from its invested capital base.
- Effective Cash Tax Rate Impact (1 – CTR)
- A significant shift in tax efficiency occurred between 2017 and 2018, where the value rose from 68.73% to 79.42%. Following this initial jump, the ratio remained stable, fluctuating minimally between 78.00% and 79.42% through 2021, providing a consistent baseline contribution to the overall return.
- ROIC Decomposition Analysis
- The overall expansion of ROIC is the result of a synergistic effect between increasing profit margins and accelerating capital turnover. While the improvement in the effective cash tax rate provided an initial lift in 2018, the primary drivers of the long-term growth—particularly the surge to 40.97% in 2021—are the simultaneous gains in operational profitability and capital efficiency.
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Operating Profit Margin (OPM)
O’Reilly Automotive 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 | 2,362,405) | 1,953,719) | 1,589,868) | 1,512,921) | 1,241,849) | |
| Add: Cash operating taxes2 | 641,484) | 551,050) | 422,745) | 392,060) | 565,004) | |
| Net operating profit before taxes (NOPBT) | 3,003,889) | 2,504,769) | 2,012,613) | 1,904,981) | 1,806,852) | |
| Sales | 13,327,563) | 11,604,493) | 10,149,985) | 9,536,428) | 8,977,726) | |
| Add: Increase (decrease) in deferred revenue liability | (1,100) | 400) | (200) | (400) | (100) | |
| Adjusted sales | 13,326,463) | 11,604,893) | 10,149,785) | 9,536,028) | 8,977,626) | |
| Profitability Ratio | ||||||
| OPM3 | 22.54% | 21.58% | 19.83% | 19.98% | 20.13% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Amazon.com Inc. | 9.14% | — | — | — | — | |
| Home Depot Inc. | 14.46% | — | — | — | — | |
| Lowe’s Cos. Inc. | 10.29% | — | — | — | — | |
| TJX Cos. Inc. | 1.83% | — | — | — | — | |
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 ÷ Adjusted sales
= 100 × 3,003,889 ÷ 13,326,463 = 22.54%
4 Click competitor name to see calculations.
Between the end of fiscal year 2017 and 2021, a consistent upward trajectory is observed in both revenue and absolute operating profitability. While the initial period was characterized by steady growth accompanied by slight margin compression, the latter period demonstrates an acceleration in profit growth and a significant expansion of operating efficiency.
- Revenue and Profitability Growth
- Adjusted sales increased from US$ 8,977,626 thousand in 2017 to US$ 13,326,463 thousand in 2021. Over the same period, Net Operating Profit Before Taxes (NOPBT) rose from US$ 1,806,852 thousand to US$ 3,003,889 thousand. The growth in NOPBT outpaced the growth in adjusted sales, particularly between 2019 and 2021, during which NOPBT increased by approximately 49%.
- Operating Profit Margin (OPM) Trends
- The operating profit margin exhibited a slight downward trend from 2017 to 2019, declining from 20.13% to 19.83%. A reversal occurred in 2020, as the margin expanded to 21.58%, further increasing to 22.54% by the end of 2021. This transition marks a shift from a period of marginal efficiency decline to one of strengthened operational leverage.
- Operational Efficiency Analysis
- The simultaneous increase in sales and margin expansion from 2020 onward suggests the realization of economies of scale or the implementation of effective cost-management strategies. The 271 basis point increase in OPM between 2019 and 2021 indicates a significant improvement in the company's ability to convert adjusted sales into operating profit.
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Turnover of Capital (TO)
O’Reilly Automotive 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) | ||||||
| Sales | 13,327,563) | 11,604,493) | 10,149,985) | 9,536,428) | 8,977,726) | |
| Add: Increase (decrease) in deferred revenue liability | (1,100) | 400) | (200) | (400) | (100) | |
| Adjusted sales | 13,326,463) | 11,604,893) | 10,149,785) | 9,536,028) | 8,977,626) | |
| Invested capital1 | 5,766,861) | 6,200,132) | 6,076,741) | 5,606,204) | 5,440,691) | |
| Efficiency Ratio | ||||||
| TO2 | 2.31 | 1.87 | 1.67 | 1.70 | 1.65 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Amazon.com Inc. | 2.33 | — | — | — | — | |
| Home Depot Inc. | 2.66 | — | — | — | — | |
| Lowe’s Cos. Inc. | 3.16 | — | — | — | — | |
| TJX Cos. Inc. | 1.44 | — | — | — | — | |
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 = Adjusted sales ÷ Invested capital
= 13,326,463 ÷ 5,766,861 = 2.31
3 Click competitor name to see calculations.
The analyzed period from 2017 to 2021 is characterized by a consistent expansion in revenue generation and a marked improvement in capital efficiency. While adjusted sales followed a steady upward trajectory, the invested capital remained relatively stable before declining in the final year, leading to a significant increase in the turnover of capital.
- Adjusted Sales Performance
- Adjusted sales exhibited uninterrupted growth throughout the five-year period, increasing from $8.98 billion in 2017 to $13.33 billion in 2021. This trend reflects a strong and consistent expansion of the company's top-line revenue.
- Invested Capital Trends
- Invested capital grew moderately from $5.44 billion in 2017 to a peak of $6.20 billion in 2020. A reversal occurred in 2021, where invested capital decreased to $5.77 billion, suggesting a strategic optimization of the capital base or a reduction in invested assets.
- Turnover of Capital (TO) Analysis
- The turnover of capital ratio remained relatively stable between 2017 and 2019, ranging from 1.65 to 1.67. An acceleration in efficiency began in 2020, with the ratio rising to 1.87, and peaked in 2021 at 2.31. This sharp increase indicates that the company has significantly enhanced its ability to generate sales relative to its invested capital, particularly in 2021, where the simultaneous increase in sales and decrease in invested capital drove a substantial gain in operational productivity.
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Effective Cash Tax Rate (CTR)
O’Reilly Automotive Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 2,362,405) | 1,953,719) | 1,589,868) | 1,512,921) | 1,241,849) | |
| Add: Cash operating taxes2 | 641,484) | 551,050) | 422,745) | 392,060) | 565,004) | |
| Net operating profit before taxes (NOPBT) | 3,003,889) | 2,504,769) | 2,012,613) | 1,904,981) | 1,806,852) | |
| Tax Rate | ||||||
| CTR3 | 21.36% | 22.00% | 21.00% | 20.58% | 31.27% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Amazon.com Inc. | 13.08% | — | — | — | — | |
| Home Depot Inc. | 26.23% | — | — | — | — | |
| Lowe’s Cos. Inc. | 23.91% | — | — | — | — | |
| TJX Cos. Inc. | 54.29% | — | — | — | — | |
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 × 641,484 ÷ 3,003,889 = 21.36%
4 Click competitor name to see calculations.
The analysis of the effective cash tax rate (CTR) and net operating profit before taxes (NOPBT) reveals a period of sustained profitability growth accompanied by a structural shift in the company's tax burden.
- Net Operating Profit Growth
- Net operating profit before taxes exhibited a consistent upward trajectory, increasing from US$ 1,806,852 thousand in 2017 to US$ 3,003,889 thousand in 2021. This represents a substantial expansion in operational earnings over the five-year period.
- Effective Cash Tax Rate Volatility and Stabilization
- A significant reduction in the effective cash tax rate is observed between 2017 and 2018, where the rate dropped from 31.27% to 20.58%. Following this decline, the CTR entered a phase of stabilization, remaining within a tight range between 20.58% and 22.00% from 2018 through 2021.
- Cash Operating Tax Trends
- Cash operating taxes initially decreased in 2018 to US$ 392,060 thousand, coinciding with the drop in the effective tax rate. Subsequently, cash taxes rose in tandem with NOPBT, reaching US$ 641,484 thousand by 2021. Despite this nominal increase, the tax outflow remained proportionally lower relative to operating profits than in the 2017 fiscal year.
Overall, the data indicates that the company successfully scaled its operating profits while maintaining a lower and more stable effective cash tax rate after 2017, which favorably impacts the net return on capital.
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