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.
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- Income Statement
- Balance Sheet: Assets
- Balance Sheet: Liabilities and Stockholders’ Equity
- Cash Flow Statement
- Common-Size Income Statement
- Analysis of Profitability Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Selected Financial Data since 2015
- Total Asset Turnover since 2015
- Price to Book Value (P/BV) since 2015
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Return on Invested Capital (ROIC)
PayPal Holdings Inc., ROIC calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| ROIC3 | ||||||
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
Based on: 10-K (reporting date: 2022-12-31), 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).
1 NOPAT. See details »
2 Invested capital. See details »
3 2022 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
- Net Operating Profit After Taxes (NOPAT)
- The net operating profit after taxes exhibited a notable increase from 2018 to 2020, rising from $1,833 million to $4,527 million. This upward trend peaked in 2020, followed by a decline in 2021 to $3,793 million and a further significant drop in 2022 to $1,747 million, nearly halving the profit compared to the previous year.
- Invested Capital
- The invested capital consistently increased over the five-year period, starting at $17,780 million in 2018 and reaching $31,496 million in 2022. The growth rate, however, slowed after 2020, with relatively smaller increments in 2021 and 2022 compared to prior years.
- Return on Invested Capital (ROIC)
- The return on invested capital showed variability over the period. It initially decreased slightly from 10.31% in 2018 to 9.66% in 2019, then improved significantly to a peak of 14.96% in 2020. After 2020, ROIC declined to 12.11% in 2021 and sharply decreased to 5.55% in 2022. The declining ROIC in the last two years indicates diminishing efficiency in generating returns from the invested capital.
- Overall Analysis
- The data reveals that although invested capital expanded steadily, the effectiveness in generating profits has diminished notably after 2020. The peak in NOPAT and ROIC in 2020 suggests that year was particularly favorable for operational profitability and capital efficiency. The subsequent downturn in 2021 and particularly in 2022 implies challenges in maintaining profitability relative to the level of invested capital. This trend highlights areas of concern regarding operational performance and capital utilization in recent years.
Decomposition of ROIC
PayPal Holdings Inc., decomposition of ROIC
| ROIC | = | OPM1 | × | TO2 | × | 1 – CTR3 | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Operating profit margin (OPM). See calculations »
2 Turnover of capital (TO). See calculations »
3 Effective cash tax rate (CTR). See calculations »
- Operating Profit Margin (OPM)
- The operating profit margin exhibited variability over the period under review. It increased from 14.93% in 2018 to a peak of 24.5% in 2020, indicating improved operational efficiency or cost management during that year. However, after 2020, the margin declined significantly, reaching 12.85% in 2022, which may suggest rising costs, pricing pressures, or other operational challenges impacting profitability.
- Turnover of Capital (TO)
- The turnover of capital showed relative stability throughout the years, fluctuating slightly between 0.71 and 0.87. Starting at 0.87 in 2018, it experienced a decrease reaching its lowest point of 0.71 in 2020, followed by a gradual recovery back to 0.87 in 2022. This trend may reflect changes in asset utilization efficiency, with a notable dip in efficiency in 2020 and improvement thereafter.
- Effective Cash Tax Rate Component (1 - CTR)
- The effective cash tax rate component, which indicates the proportion of pre-tax profit retained after taxes when viewed as (1 - tax rate), experienced considerable fluctuations. It started at 79.42% in 2018, decreasing somewhat in 2019, then sharply increased to 89.32% in 2021, implying a lower tax burden in that year. In 2022, it declined markedly to 49.39%, suggesting a substantially higher effective tax rate impacting net profitability.
- Return on Invested Capital (ROIC)
- The ROIC metric followed a generally positive but volatile trajectory. It was 10.31% in 2018 and dropped slightly to 9.66% in 2019. A recovery occurred in 2020, with ROIC peaking at 14.96%. Subsequently, it declined over the next two years, falling to 5.55% in 2022, indicating diminishing returns on capital invested, possibly influenced by the combined effects of reduced operating margins and increased tax expense.
Operating Profit Margin (OPM)
PayPal Holdings Inc., OPM calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Net revenues | ||||||
| Profitability Ratio | ||||||
| OPM3 | ||||||
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
Based on: 10-K (reporting date: 2022-12-31), 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).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2022 Calculation
OPM = 100 × NOPBT ÷ Net revenues
= 100 × ÷ =
4 Click competitor name to see calculations.
- Net operating profit before taxes (NOPBT)
- The net operating profit before taxes experienced a notable increase from 2018 through 2020, rising from $2.308 billion to $5.256 billion. However, this was followed by a decline in the subsequent years, with profits decreasing to $4.247 billion in 2021 and further to $3.537 billion in 2022. This trend indicates that despite initial strong growth, the company's operating profitability faced challenges starting from 2021.
- Net revenues
- Net revenues demonstrated consistent growth throughout the entire period analyzed. The revenues increased steadily from $15.451 billion in 2018 to $27.518 billion in 2022. This continuous upward trajectory suggests the company successfully expanded its top-line performance year over year, reflecting an increase in business activity or market demand.
- Operating profit margin (OPM)
- The operating profit margin shows significant variability over the period. It improved from 14.93% in 2018 to a peak of 24.5% in 2020, indicating enhanced operational efficiency or favorable cost management during that year. However, margins contracted afterwards, dropping to 16.74% in 2021 and further to 12.85% in 2022, falling below the initial margin in 2018. This decline suggests rising costs, reduced pricing power, or other operational challenges affecting profitability despite the increasing revenues.
Turnover of Capital (TO)
PayPal Holdings Inc., TO calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net revenues | ||||||
| Invested capital1 | ||||||
| Efficiency Ratio | ||||||
| TO2 | ||||||
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Invested capital. See details »
2 2022 Calculation
TO = Net revenues ÷ Invested capital
= ÷ =
3 Click competitor name to see calculations.
- Net Revenues
- Net revenues have shown a consistent upward trend over the five-year period. Starting at $15,451 million in 2018, revenues increased steadily each year, reaching $27,518 million in 2022. The growth indicates a strong expansion in the company's core business activities, with the highest annual increase observed between 2019 and 2020.
- Invested Capital
- Invested capital also experienced a rising pattern, increasing from $17,780 million in 2018 to $31,496 million in 2022. The largest jump occurred between 2019 and 2020, suggesting significant capital allocation during that time. After 2020, the increase in invested capital slowed down notably, indicating a stabilization or more selective investment approach.
- Turnover of Capital (TO)
- The turnover of capital ratio initially declined from 0.87 in 2018 to a low of 0.71 in 2020, implying a decrease in capital efficiency during these years. However, from 2020 onwards, the ratio recovered, rising to 0.87 by 2022, matching the 2018 level. This indicates an improvement in the utilization of invested capital in generating revenues in the latter period, returning to previous efficiency levels.
- Overall Analysis
- Overall, the company has demonstrated robust revenue growth alongside increasing invested capital. The temporary dip in capital turnover around 2020 suggests a period where investments outpaced revenue generation efficiency, possibly due to expansion or strategic investments. The subsequent recovery in turnover indicates improved operational efficiency, aligning invested capital growth with revenue increases effectively by 2022.
Effective Cash Tax Rate (CTR)
PayPal Holdings Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Tax Rate | ||||||
| CTR3 | ||||||
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Accenture PLC | ||||||
| Adobe Inc. | ||||||
| Cadence Design Systems Inc. | ||||||
| CrowdStrike Holdings Inc. | ||||||
| Fair Isaac Corp. | ||||||
| International Business Machines Corp. | ||||||
| Intuit Inc. | ||||||
| Microsoft Corp. | ||||||
| Oracle Corp. | ||||||
| Palantir Technologies Inc. | ||||||
| Palo Alto Networks Inc. | ||||||
| Salesforce Inc. | ||||||
| ServiceNow Inc. | ||||||
| Synopsys Inc. | ||||||
| Workday Inc. | ||||||
Based on: 10-K (reporting date: 2022-12-31), 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).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2022 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × ÷ =
4 Click competitor name to see calculations.
- Cash Operating Taxes
- The cash operating taxes exhibited a fluctuating trend over the five-year period. Starting at $475 million in 2018, the amount increased significantly to $796 million in 2019, then slightly decreased to $728 million in 2020. A notable decline to $454 million was observed in 2021, followed by a sharp increase to $1790 million in 2022. This pattern indicates variability in tax payments, with a substantial spike in the final year.
- Net Operating Profit Before Taxes (NOPBT)
- The net operating profit before taxes showed an overall increasing trend from 2018 to 2020, rising from $2308 million to a peak of $5256 million. However, in subsequent years, there was a decline, with figures dropping to $4247 million in 2021 and further to $3537 million in 2022. This demonstrates a rise in profitability initially, followed by a decrease in the latter two years.
- Effective Cash Tax Rate (CTR)
- The effective cash tax rate displayed considerable variability over the period. It increased from 20.58% in 2018 to 27.01% in 2019, then sharply declined to 13.86% in 2020 and further to 10.68% in 2021. There was a dramatic increase to 50.61% in 2022, indicating a substantially higher proportion of operating profits paid as cash taxes in the final year. This significant change suggests shifts in tax strategy, regulation, or profitability composition.
- Overall Analysis
- Over the five-year span, the data reflects volatility in both profitability and tax-related metrics. While net operating profit grew substantially through 2020, it declined thereafter, possibly indicating operational challenges or increased costs. The effective cash tax rate's fluctuations, particularly the marked rise in 2022, contributed to substantial increases in absolute cash tax payments despite the declining profitability. These trends suggest evolving tax environments or policy impacts, which warrant attention in planning and forecasting.