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)
3M Co., 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 millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 6,058) | 5,797) | 4,679) | 5,630) | 5,388) | |
| Invested capital2 | 39,156) | 38,880) | 38,698) | 31,616) | 32,308) | |
| Performance Ratio | ||||||
| ROIC3 | 15.47% | 14.91% | 12.09% | 17.81% | 16.68% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Boeing Co. | -5.35% | — | — | — | — | |
| Caterpillar Inc. | 12.58% | — | — | — | — | |
| Eaton Corp. plc | 7.84% | — | — | — | — | |
| GE Aerospace | -2.53% | — | — | — | — | |
| Honeywell International Inc. | 12.33% | — | — | — | — | |
| Lockheed Martin Corp. | 22.51% | — | — | — | — | |
| RTX Corp. | 4.52% | — | — | — | — | |
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 × 6,058 ÷ 39,156 = 15.47%
4 Click competitor name to see calculations.
The analysis of the five-year period from 2017 to 2021 reveals a fluctuating trend in capital efficiency, characterized by a significant contraction in 2019 followed by a gradual recovery in the subsequent two years.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited volatility over the period, initially rising from 5,388 million USD in 2017 to 5,630 million USD in 2018. A notable decline occurred in 2019, where earnings dropped to 4,679 million USD. However, a strong recovery followed, with NOPAT increasing to 5,797 million USD in 2020 and reaching a period peak of 6,058 million USD by the end of 2021.
- Invested Capital
- The capital base remained relatively stable between 2017 and 2018, slightly decreasing from 32,308 million USD to 31,616 million USD. A substantial increase was observed in 2019, with invested capital rising to 38,698 million USD. This elevated capital level persisted through 2020 and 2021, ending the period at 39,156 million USD.
- Return on Invested Capital (ROIC)
- ROIC performance reflects the combined impact of profit volatility and capital expansion. The ratio peaked at 17.81% in 2018, coinciding with the lowest level of invested capital and strong NOPAT. In 2019, ROIC declined sharply to 12.09%, driven by the simultaneous occurrence of decreased NOPAT and a surge in invested capital. From 2020 onward, a recovery trend is evident, with ROIC improving to 14.91% in 2020 and further increasing to 15.47% in 2021, as profit growth outpaced the marginal increases in the invested capital base.
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Decomposition of ROIC
3M Co., 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 »
Between 2017 and 2021, the Return on Invested Capital (ROIC) exhibited a volatile trajectory, characterized by a peak in 2018 followed by a significant contraction in 2019 and a subsequent gradual recovery through 2021.
- Operating Profit Margin (OPM)
- A notable decline in operational profitability occurred between 2017 and 2019, with the margin falling from 25.01% to a period low of 18.87%. While a recovery was observed in 2020, the margin stabilized at 21.52% by 2021, indicating that profitability levels did not fully return to the highs seen at the start of the analysis period.
- Turnover of Capital (TO)
- Capital efficiency peaked in 2018 at a ratio of 1.04 before experiencing a sharp decline to 0.83 in 2019 and 2020. A modest improvement to 0.90 was recorded in 2021, suggesting a slow recovery in the asset utilization rate, although efficiency remained below the 2017 and 2018 benchmarks.
- Effective Cash Tax Rate (CTR) Impact
- The component representing (1 – Effective Cash Tax Rate) demonstrated a consistent and linear upward trend, rising from 68.10% in 2017 to 79.55% in 2021. This steady increase reflects a decreasing effective cash tax burden, which acted as a persistent positive driver for the overall return on capital.
- ROIC Synthesis
- The contraction of ROIC to 12.09% in 2019 was driven by the simultaneous convergence of lower operating margins and diminished capital turnover. The subsequent rebound to 15.47% by 2021 was facilitated by the partial recovery of the operating profit margin and the cumulative positive effect of a decreasing effective tax rate, which partially offset the lagging capital turnover ratio.
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Operating Profit Margin (OPM)
3M Co., 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 millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 6,058) | 5,797) | 4,679) | 5,630) | 5,388) | |
| Add: Cash operating taxes2 | 1,557) | 1,585) | 1,349) | 1,811) | 2,524) | |
| Net operating profit before taxes (NOPBT) | 7,615) | 7,383) | 6,028) | 7,442) | 7,912) | |
| Net sales | 35,355) | 32,184) | 32,136) | 32,765) | 31,657) | |
| Add: Increase (decrease) in deferred revenue | 31) | 68) | (187) | 104) | (16) | |
| Adjusted net sales | 35,386) | 32,252) | 31,949) | 32,869) | 31,641) | |
| Profitability Ratio | ||||||
| OPM3 | 21.52% | 22.89% | 18.87% | 22.64% | 25.01% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Boeing Co. | -3.17% | — | — | — | — | |
| Caterpillar Inc. | 19.09% | — | — | — | — | |
| Eaton Corp. plc | 15.90% | — | — | — | — | |
| GE Aerospace | -2.35% | — | — | — | — | |
| Honeywell International Inc. | 21.58% | — | — | — | — | |
| Lockheed Martin Corp. | 11.85% | — | — | — | — | |
| RTX Corp. | 9.65% | — | — | — | — | |
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 net sales
= 100 × 7,615 ÷ 35,386 = 21.52%
4 Click competitor name to see calculations.
Between 2017 and 2021, the operating profit margin exhibited a volatile trend, characterized by a significant contraction reaching a trough in 2019, followed by a partial recovery. While adjusted net sales grew over the five-year period, the ability to convert these revenues into operating profit fluctuated, indicating varying levels of operational efficiency.
- Net Operating Profit Before Taxes (NOPBT)
- NOPBT showed a downward trend in the first three years, falling from 7,912 million US dollars in 2017 to a period low of 6,028 million US dollars in 2019. This was followed by a recovery phase, with profits rising to 7,383 million US dollars in 2020 and reaching 7,615 million US dollars by 2021, although the final value remained below the 2017 baseline.
- Adjusted Net Sales
- Sales demonstrated general growth over the analyzed timeframe, increasing from 31,641 million US dollars in 2017 to 35,386 million US dollars in 2021. A temporary decline occurred in 2019, where sales dropped to 31,949 million US dollars, before accelerating sharply in 2021.
- Operating Profit Margin (OPM)
- The OPM experienced a sharp decline from 25.01% in 2017 to 18.87% in 2019, representing the lowest efficiency point in the sequence. A substantial rebound occurred in 2020, with the margin increasing to 22.89%, before slightly moderating to 21.52% in 2021. This suggests that the recovery in NOPBT in 2021 was driven more by sales volume growth than by margin expansion, as the margin slightly decreased despite higher overall profits.
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Turnover of Capital (TO)
3M Co., 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 millions) | ||||||
| Net sales | 35,355) | 32,184) | 32,136) | 32,765) | 31,657) | |
| Add: Increase (decrease) in deferred revenue | 31) | 68) | (187) | 104) | (16) | |
| Adjusted net sales | 35,386) | 32,252) | 31,949) | 32,869) | 31,641) | |
| Invested capital1 | 39,156) | 38,880) | 38,698) | 31,616) | 32,308) | |
| Efficiency Ratio | ||||||
| TO2 | 0.90 | 0.83 | 0.83 | 1.04 | 0.98 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Boeing Co. | 1.26 | — | — | — | — | |
| Caterpillar Inc. | 0.87 | — | — | — | — | |
| Eaton Corp. plc | 0.67 | — | — | — | — | |
| GE Aerospace | 0.99 | — | — | — | — | |
| Honeywell International Inc. | 0.72 | — | — | — | — | |
| Lockheed Martin Corp. | 2.34 | — | — | — | — | |
| RTX Corp. | 0.58 | — | — | — | — | |
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 net sales ÷ Invested capital
= 35,386 ÷ 39,156 = 0.90
3 Click competitor name to see calculations.
The turnover of capital exhibits a volatile trend between 2017 and 2021, characterized by an initial peak in efficiency followed by a significant contraction and a subsequent partial recovery.
- Adjusted Net Sales Performance
- Net sales demonstrated a non-linear growth pattern. After increasing from 31,641 million in 2017 to 32,869 million in 2018, a contraction occurred in 2019. However, a strong upward trajectory resumed in 2021, with sales reaching a period high of 35,386 million.
- Invested Capital Dynamics
- A substantial increase in invested capital was observed in 2019, rising from 31,616 million in 2018 to 38,698 million. Following this surge, the capital base remained relatively stable, ending the period at 39,156 million in 2021.
- Turnover of Capital Analysis
- The capital turnover ratio reached its maximum efficiency of 1.04 in 2018, supported by rising sales and a simultaneous decrease in invested capital. A sharp decline to 0.83 occurred in 2019 and persisted through 2020, primarily driven by the significant expansion of the invested capital base which outpaced revenue growth. By 2021, the ratio improved to 0.90, reflecting an increase in sales volume against a stabilized capital investment level.
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Effective Cash Tax Rate (CTR)
3M Co., 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 millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 6,058) | 5,797) | 4,679) | 5,630) | 5,388) | |
| Add: Cash operating taxes2 | 1,557) | 1,585) | 1,349) | 1,811) | 2,524) | |
| Net operating profit before taxes (NOPBT) | 7,615) | 7,383) | 6,028) | 7,442) | 7,912) | |
| Tax Rate | ||||||
| CTR3 | 20.45% | 21.47% | 22.38% | 24.34% | 31.90% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 24.06% | — | — | — | — | |
| Eaton Corp. plc | 26.02% | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | 20.13% | — | — | — | — | |
| Lockheed Martin Corp. | 18.89% | — | — | — | — | |
| RTX Corp. | 18.64% | — | — | — | — | |
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 × 1,557 ÷ 7,615 = 20.45%
4 Click competitor name to see calculations.
Between 2017 and 2021, a consistent reduction in the tax burden relative to operating profits is observed. While nominal tax payments and operating profits experienced periodic volatility, the efficiency of cash tax management improved steadily throughout the five-year interval.
- Effective Cash Tax Rate (CTR) Trend
- A persistent downward trajectory is evident in the CTR, which declined from 31.90% in 2017 to 20.45% in 2021. This represents a total reduction of 1,145 basis points. The decline is continuous and linear, suggesting a systemic shift in the tax environment or the sustained impact of tax optimization strategies.
- Correlation Between NOPBT and Cash Taxes
- Net Operating Profit Before Taxes (NOPBT) exhibited fluctuations, peaking at 7,912 million USD in 2017, dropping to a trough of 6,028 million USD in 2019, and recovering to 7,615 million USD by 2021. Despite this recovery in profitability, cash operating taxes did not return to previous levels. Taxes decreased from 2,524 million USD in 2017 to 1,557 million USD in 2021, indicating that the lower tax rate remained effective regardless of the fluctuations in operating profit.
- Impact on After-Tax Cash Retention
- The compression of the CTR suggests an improvement in the conversion of operating profit to after-tax cash. In 2017, approximately 31.9% of NOPBT was utilized for cash taxes; by 2021, this requirement had fallen to approximately 20.5%, thereby increasing the proportion of operating profit retained within the organization.
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