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)
SolarEdge Technologies 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 thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 249,862) | 253,512) | 154,600) | 278,986) | 203,920) | |
| Invested capital2 | 2,608,920) | 1,700,638) | 1,734,649) | 909,829) | 559,312) | |
| Performance Ratio | ||||||
| ROIC3 | 9.58% | 14.91% | 8.91% | 30.66% | 36.46% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Advanced Micro Devices Inc. | -0.24% | 56.77% | — | — | — | |
| Analog Devices Inc. | 5.76% | 2.37% | 6.95% | — | — | |
| Applied Materials Inc. | 46.34% | 41.96% | 29.68% | — | — | |
| Broadcom Inc. | 20.75% | 10.98% | 4.78% | — | — | |
| Intel Corp. | 4.14% | 22.03% | — | — | — | |
| KLA Corp. | 42.51% | 31.64% | — | — | — | |
| Lam Research Corp. | 41.68% | 37.13% | — | — | — | |
| Marvell Technology Inc. | -1.91% | -2.75% | — | — | — | |
| Micron Technology Inc. | 17.39% | 13.01% | — | — | — | |
| NVIDIA Corp. | 53.12% | 33.44% | — | — | — | |
| Qualcomm Inc. | 45.12% | 42.56% | 27.48% | — | — | |
| Texas Instruments Inc. | 49.74% | 48.28% | — | — | — | |
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 × 249,862 ÷ 2,608,920 = 9.58%
4 Click competitor name to see calculations.
A significant downward trend in the Return on Invested Capital (ROIC) is observed between 2018 and 2022, with the ratio declining from a peak of 36.46% to 9.58%. Although a brief recovery occurred in 2021, the overall period is characterized by a substantial erosion of capital efficiency.
- Invested Capital Expansion
- The capital base underwent aggressive expansion, growing from US$ 559.3 million in 2018 to US$ 2.61 billion by the end of 2022. This represents a total increase of approximately 368% over the five-year period, with the most acute surge occurring between 2019 and 2020, where invested capital nearly doubled.
- Net Operating Profit After Taxes (NOPAT) Performance
- NOPAT exhibited volatility without a corresponding upward trend to match capital growth. After reaching a peak of US$ 278.9 million in 2019, profit levels dropped sharply to US$ 154.6 million in 2020. While a recovery was noted in 2021 and 2022, ending at US$ 249.9 million, the final profit figure remained below the 2019 peak despite the significantly larger capital investment.
- ROIC Compression Drivers
- The decline in ROIC is primarily driven by the disproportionate growth of the invested capital base relative to operating profits. The sharpest decline occurred in 2020, when ROIC fell to 8.91% due to the simultaneous occurrence of a NOPAT contraction and a surge in invested capital. The inability of NOPAT to scale in tandem with the capital deployed resulted in a sustained reduction in the efficiency of capital utilization.
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Decomposition of ROIC
SolarEdge Technologies Inc., decomposition of ROIC
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 »
Return on invested capital (ROIC) experienced a significant overall decline between 2018 and 2022, falling from 36.46% to 9.58%. This contraction was characterized by a severe drop in 2020, followed by a partial recovery in 2021, and a subsequent decline in 2022. The decomposition of this metric reveals that the deterioration in ROIC was driven by simultaneous declines in operating profitability, capital efficiency, and tax-adjusted returns.
- Operating Profit Margin (OPM)
- A consistent downward trend is observed in operating margins, which decreased from 22.46% in 2018 to 10.93% in 2022. The most substantial compression occurred in 2020, where the margin dropped to 12.71%. While a marginal improvement to 14.30% was recorded in 2021, the margin fell again in 2022, indicating a systemic erosion of operational profitability over the five-year period.
- Turnover of Capital (TO)
- Capital efficiency showed high volatility, starting at 1.75 in 2018 and reaching a low of 0.83 in 2020. This sharp decline suggests a period of significant underutilization of invested capital or a substantial increase in the capital base relative to revenue generation. Although turnover recovered steadily to 1.21 by 2022, it remained well below the levels observed in 2018 and 2019, contributing to the lower overall ROIC.
- Tax Efficiency (1 – Effective Cash Tax Rate)
- The tax-adjusted component remained relatively stable between 2018 and 2021, fluctuating between 84.54% and 92.80%. However, a notable decrease to 72.44% occurred in 2022. This decline indicates a higher effective cash tax rate in the final year of the period, which further constrained the net return on invested capital.
The convergence of diminishing operating margins and lower capital turnover since 2018 explains the sharp reduction in ROIC. The partial recovery in 2021 was primarily supported by a temporary rise in both operating margins and capital turnover, but these gains were offset in 2022 by further margin compression and an increased tax burden.
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Operating Profit Margin (OPM)
SolarEdge Technologies 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 thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 249,862) | 253,512) | 154,600) | 278,986) | 203,920) | |
| Add: Cash operating taxes2 | 95,076) | 31,486) | 28,279) | 40,084) | 15,810) | |
| Net operating profit before taxes (NOPBT) | 344,938) | 284,999) | 182,879) | 319,070) | 219,730) | |
| Revenues | 3,110,279) | 1,963,865) | 1,459,271) | 1,425,660) | 937,237) | |
| Add: Increase (decrease) in deferred revenues | 44,232) | 29,325) | (20,777) | 85,776) | 41,009) | |
| Adjusted revenues | 3,154,511) | 1,993,190) | 1,438,494) | 1,511,436) | 978,246) | |
| Profitability Ratio | ||||||
| OPM3 | 10.93% | 14.30% | 12.71% | 21.11% | 22.46% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Advanced Micro Devices Inc. | 5.31% | 22.70% | — | — | — | |
| Analog Devices Inc. | 27.59% | 20.52% | 26.98% | — | — | |
| Applied Materials Inc. | 30.32% | 30.54% | 25.67% | — | — | |
| Broadcom Inc. | 42.94% | 30.96% | 17.06% | — | — | |
| Intel Corp. | 13.58% | 28.05% | — | — | — | |
| KLA Corp. | 41.73% | 36.39% | — | — | — | |
| Lam Research Corp. | 35.59% | 34.25% | — | — | — | |
| Marvell Technology Inc. | -7.16% | -8.08% | — | — | — | |
| Micron Technology Inc. | 31.43% | 23.10% | — | — | — | |
| NVIDIA Corp. | 37.99% | 28.45% | — | — | — | |
| Qualcomm Inc. | 35.06% | 30.10% | 24.17% | — | — | |
| Texas Instruments Inc. | 51.22% | 49.60% | — | — | — | |
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 ÷ Adjusted revenues
= 100 × 344,938 ÷ 3,154,511 = 10.93%
4 Click competitor name to see calculations.
The financial period from 2018 to 2022 is characterized by substantial revenue expansion coupled with a persistent decline in operating efficiency. While adjusted revenues grew from US$ 978.2 million in 2018 to US$ 3.15 billion in 2022, the operating profit margin failed to maintain its initial levels, indicating a decoupling of top-line growth and operational profitability.
- Revenue Trajectory
- Adjusted revenues exhibited a strong upward trend, increasing more than threefold over the five-year period. Despite a marginal contraction in 2020, growth accelerated sharply between 2021 and 2022, reaching a peak of US$ 3.15 billion.
- Operating Profit Margin (OPM) Dynamics
- A significant downward trend is observed in the OPM, which decreased from 22.46% in 2018 to 10.93% in 2022. The most pronounced decline occurred in 2020, where the margin fell to 12.71%. Although a slight recovery to 14.30% was noted in 2021, the margin reached its lowest point of the period in 2022.
- Net Operating Profit Before Taxes (NOPBT)
- Absolute NOPBT grew from US$ 219.7 million in 2018 to US$ 344.9 million in 2022. However, the rate of profit growth did not keep pace with revenue growth. For instance, while revenues between 2018 and 2022 grew by approximately 222%, NOPBT grew by only 57% over the same interval.
- Operational Efficiency Correlation
- The divergence between increasing revenues and a falling operating margin suggests that the costs associated with generating additional sales grew disproportionately. The 2022 fiscal year represents the most acute example of this trend, as the company achieved its highest absolute NOPBT and revenue while reporting its lowest operating margin.
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Turnover of Capital (TO)
SolarEdge Technologies 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 thousands) | ||||||
| Revenues | 3,110,279) | 1,963,865) | 1,459,271) | 1,425,660) | 937,237) | |
| Add: Increase (decrease) in deferred revenues | 44,232) | 29,325) | (20,777) | 85,776) | 41,009) | |
| Adjusted revenues | 3,154,511) | 1,993,190) | 1,438,494) | 1,511,436) | 978,246) | |
| Invested capital1 | 2,608,920) | 1,700,638) | 1,734,649) | 909,829) | 559,312) | |
| Efficiency Ratio | ||||||
| TO2 | 1.21 | 1.17 | 0.83 | 1.66 | 1.75 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Advanced Micro Devices Inc. | 0.40 | 2.65 | — | — | — | |
| Analog Devices Inc. | 0.27 | 0.16 | 0.31 | — | — | |
| Applied Materials Inc. | 1.73 | 1.57 | 1.31 | — | — | |
| Broadcom Inc. | 0.53 | 0.42 | 0.36 | — | — | |
| Intel Corp. | 0.71 | 0.89 | — | — | — | |
| KLA Corp. | 1.18 | 1.01 | — | — | — | |
| Lam Research Corp. | 1.35 | 1.24 | — | — | — | |
| Marvell Technology Inc. | 0.22 | 0.33 | — | — | — | |
| Micron Technology Inc. | 0.59 | 0.61 | — | — | — | |
| NVIDIA Corp. | 1.49 | 1.28 | — | — | — | |
| Qualcomm Inc. | 1.50 | 1.66 | 1.33 | — | — | |
| Texas Instruments Inc. | 1.14 | 1.12 | — | — | — | |
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 = Adjusted revenues ÷ Invested capital
= 3,154,511 ÷ 2,608,920 = 1.21
3 Click competitor name to see calculations.
The period from 2018 to 2022 is characterized by a significant expansion in both operational scale and the capital base, although the efficiency of capital utilization experienced a notable period of volatility.
- Adjusted Revenue Growth
- A strong upward trajectory in adjusted revenues is observed, increasing from 978,246 thousand US$ in 2018 to 3,154,511 thousand US$ by 2022. While growth was consistent for most of the period, a slight contraction occurred in 2020, followed by an accelerated increase in 2021 and 2022.
- Invested Capital Expansion
- Invested capital grew substantially over the five-year period, rising from 559,312 thousand US$ in 2018 to 2,608,920 thousand US$ in 2022. The most significant increase occurred between 2019 and 2020, where the capital base nearly doubled, indicating a phase of aggressive investment in the company's asset base or operational capacity.
- Turnover of Capital (TO) Dynamics
- The turnover of capital ratio exhibits a U-shaped trend. High efficiency was recorded in 2018 and 2019 with ratios of 1.75 and 1.66, respectively. A sharp decline to 0.83 in 2020 coincides with the rapid increase in invested capital and a simultaneous dip in revenues, suggesting that capital deployment initially outpaced revenue generation. However, a recovery trend is evident in the subsequent years, with the ratio improving to 1.17 in 2021 and 1.21 in 2022.
In summary, the data indicates a strategic shift toward heavy capital investment around 2020, which temporarily suppressed capital turnover. The subsequent recovery in the turnover ratio suggests that the company has begun to successfully leverage this expanded capital base to drive higher revenue volumes.
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Effective Cash Tax Rate (CTR)
SolarEdge Technologies 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 thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 249,862) | 253,512) | 154,600) | 278,986) | 203,920) | |
| Add: Cash operating taxes2 | 95,076) | 31,486) | 28,279) | 40,084) | 15,810) | |
| Net operating profit before taxes (NOPBT) | 344,938) | 284,999) | 182,879) | 319,070) | 219,730) | |
| Tax Rate | ||||||
| CTR3 | 27.56% | 11.05% | 15.46% | 12.56% | 7.20% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Advanced Micro Devices Inc. | 111.01% | 5.73% | — | — | — | |
| Analog Devices Inc. | 21.73% | 25.70% | 16.31% | — | — | |
| Applied Materials Inc. | 11.76% | 12.33% | 12.01% | — | — | |
| Broadcom Inc. | 9.59% | 16.50% | 22.68% | — | — | |
| Intel Corp. | 57.13% | 12.07% | — | — | — | |
| KLA Corp. | 13.88% | 14.30% | — | — | — | |
| Lam Research Corp. | 13.55% | 12.57% | — | — | — | |
| Marvell Technology Inc. | — | — | — | — | — | |
| Micron Technology Inc. | 6.35% | 6.93% | — | — | — | |
| NVIDIA Corp. | 6.28% | 8.10% | — | — | — | |
| Qualcomm Inc. | 14.27% | 14.84% | 14.19% | — | — | |
| Texas Instruments Inc. | 14.83% | 12.93% | — | — | — | |
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 × 95,076 ÷ 344,938 = 27.56%
4 Click competitor name to see calculations.
The effective cash tax rate (CTR) displays a marked upward trajectory over the observed five-year period, evolving from a low of 7.20% in 2018 to a peak of 27.56% in 2022. This trend indicates a substantial increase in the cash tax burden relative to operating profitability over the medium term.
- Cash Operating Taxes Trend
- Cash operating taxes exhibited significant growth, rising from US$ 15.8 million in 2018 to US$ 95.1 million in 2022. The most pronounced increase occurred between 2021 and 2022, where cash tax payments more than tripled, increasing from US$ 31.5 million to US$ 95.1 million.
- Net Operating Profit Before Taxes (NOPBT) Behavior
- NOPBT demonstrated volatility throughout the period, reaching an initial peak of US$ 319.1 million in 2019 before declining to US$ 182.9 million in 2020. A subsequent recovery phase followed, with profits increasing steadily to reach a period high of US$ 344.9 million by the end of 2022.
- Effective Cash Tax Rate (CTR) Dynamics
- The CTR increased steadily from 2018 through 2020, rising from 7.20% to 15.46%. A temporary contraction to 11.05% was observed in 2021, despite an increase in NOPBT. The period concluded with a sharp escalation in 2022 to 27.56%, which represents a significant spike in tax intensity, suggesting that the growth in cash tax obligations far outpaced the growth in operating profits during the final year of the analysis.
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