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)
EMC Corp., ROIC calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 2,862) | 3,737) | 4,442) | 4,279) | 4,267) | |
| Invested capital2 | 33,788) | 32,268) | 31,439) | 27,392) | 24,594) | |
| Performance Ratio | ||||||
| ROIC3 | 8.47% | 11.58% | 14.13% | 15.62% | 17.35% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Advanced Micro Devices Inc. | — | — | — | — | — | |
| Analog Devices Inc. | — | — | — | — | — | |
| Applied Materials Inc. | — | — | — | — | — | |
| Broadcom Inc. | — | — | — | — | — | |
| Intel Corp. | — | — | — | — | — | |
| KLA Corp. | — | — | — | — | — | |
| Lam Research Corp. | — | — | — | — | — | |
| Marvell Technology Inc. | — | — | — | — | — | |
| Micron Technology Inc. | — | — | — | — | — | |
| NVIDIA Corp. | — | — | — | — | — | |
| Qualcomm Inc. | — | — | — | — | — | |
| Texas Instruments Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2015 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × 2,862 ÷ 33,788 = 8.47%
4 Click competitor name to see calculations.
A comprehensive analysis of the financial performance from 2011 to 2015 reveals a consistent deterioration in capital efficiency, characterized by a steady and significant decline in the Return on Invested Capital (ROIC).
- Net Operating Profit After Taxes (NOPAT)
- Operating profitability exhibited modest growth in the early part of the period, peaking at 4,442 million in 2013. However, a sharp downward trend followed, with NOPAT falling to 3,737 million in 2014 and further contracting to 2,862 million by 2015. This decline indicates a weakening ability to generate operating earnings from the business activities.
- Invested Capital
- The capital base expanded continuously throughout the five-year duration. Invested capital rose from 24,594 million in 2011 to 33,788 million in 2015. This steady increase reflects a persistent allocation of additional resources into the company's operations.
- Return on Invested Capital (ROIC)
- ROIC experienced a monotonic decrease, falling from 17.35% in 2011 to 8.47% in 2015. The compression of this ratio is driven by the simultaneous occurrence of increasing invested capital and decreasing NOPAT after 2013. The result is a marked reduction in the yield generated per unit of capital employed, signaling a substantial decline in investment productivity over the period.
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Decomposition of ROIC
EMC Corp., decomposition of ROIC
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Operating profit margin (OPM). See calculations »
2 Turnover of capital (TO). See calculations »
3 Effective cash tax rate (CTR). See calculations »
Between 2011 and 2015, the Return on Invested Capital (ROIC) exhibited a consistent downward trajectory, decreasing from 17.35% to 8.47%. This erosion in capital returns is the result of a simultaneous decline across all three primary components of the ROIC decomposition: operating profitability, capital turnover, and the after-tax multiplier.
- Operating Profit Margin (OPM)
- Operational profitability experienced a steady decline, starting at 23.26% in 2011 and falling to 15.21% by 2015. The most significant contraction occurred between 2013 and 2015, indicating a substantial reduction in the ability to convert revenue into operating profit.
- Turnover of Capital (TO)
- Capital efficiency deteriorated over the period, with the turnover ratio decreasing from 0.87 to 0.75. This trend suggests that progressively less revenue was generated for every unit of invested capital, reflecting a decline in asset productivity.
- Effective Cash Tax Rate Component (1 – CTR)
- The tax-adjusted multiplier decreased from 85.24% in 2011 to 74.27% in 2015. While this metric showed minor fluctuations, the overall downward trend indicates that a smaller proportion of operating profit was retained after taxes, further compounding the decline in the final ROIC.
The cumulative effect of these trends resulted in a significant compression of the return on invested capital. The acceleration of the decline in operating margins during the latter part of the analyzed period served as the primary catalyst for the overall reduction in ROIC.
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Operating Profit Margin (OPM)
EMC Corp., OPM calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 2,862) | 3,737) | 4,442) | 4,279) | 4,267) | |
| Add: Cash operating taxes2 | 992) | 1,309) | 1,038) | 1,085) | 739) | |
| Net operating profit before taxes (NOPBT) | 3,854) | 5,046) | 5,481) | 5,364) | 5,005) | |
| Revenues | 24,704) | 24,440) | 23,222) | 21,714) | 20,008) | |
| Add: Increase (decrease) in deferred revenue | 637) | 1,186) | 1,428) | 1,377) | 1,510) | |
| Adjusted revenues | 25,341) | 25,626) | 24,650) | 23,091) | 21,518) | |
| Profitability Ratio | ||||||
| OPM3 | 15.21% | 19.69% | 22.23% | 23.23% | 23.26% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Advanced Micro Devices Inc. | — | — | — | — | — | |
| Analog Devices Inc. | — | — | — | — | — | |
| Applied Materials Inc. | — | — | — | — | — | |
| Broadcom Inc. | — | — | — | — | — | |
| Intel Corp. | — | — | — | — | — | |
| KLA Corp. | — | — | — | — | — | |
| Lam Research Corp. | — | — | — | — | — | |
| Marvell Technology Inc. | — | — | — | — | — | |
| Micron Technology Inc. | — | — | — | — | — | |
| NVIDIA Corp. | — | — | — | — | — | |
| Qualcomm Inc. | — | — | — | — | — | |
| Texas Instruments Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2015 Calculation
OPM = 100 × NOPBT ÷ Adjusted revenues
= 100 × 3,854 ÷ 25,341 = 15.21%
4 Click competitor name to see calculations.
The operational performance between 2011 and 2015 is characterized by an initial period of revenue expansion followed by a significant contraction in operational efficiency. While the top line grew for most of the period, the profitability of operations experienced a consistent and accelerating decline.
- Adjusted Revenues
- Revenues demonstrated a steady upward trajectory from December 31, 2011, through December 31, 2014, increasing from US$ 21,518 million to a peak of US$ 25,626 million. This growth trend reversed in 2015, with revenues declining to US$ 25,341 million.
- Net Operating Profit Before Taxes (NOPBT)
- Net operating profit grew moderately in the early stages of the period, peaking at US$ 5,481 million in 2013. Following this peak, NOPBT declined to US$ 5,046 million in 2014 and experienced a sharp reduction to US$ 3,854 million by the end of 2015.
- Operating Profit Margin (OPM)
- A continuous downward trend in the operating profit margin is observed throughout the five-year period. The margin remained relatively stable at approximately 23.2% between 2011 and 2012, before beginning a gradual decline to 22.23% in 2013. This erosion accelerated significantly in the final two years, falling to 19.69% in 2014 and reaching a period low of 15.21% in 2015. This indicates that operating expenses grew at a rate that significantly outpaced revenue growth, leading to a substantial compression of margins.
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Turnover of Capital (TO)
EMC Corp., TO calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Revenues | 24,704) | 24,440) | 23,222) | 21,714) | 20,008) | |
| Add: Increase (decrease) in deferred revenue | 637) | 1,186) | 1,428) | 1,377) | 1,510) | |
| Adjusted revenues | 25,341) | 25,626) | 24,650) | 23,091) | 21,518) | |
| Invested capital1 | 33,788) | 32,268) | 31,439) | 27,392) | 24,594) | |
| Efficiency Ratio | ||||||
| TO2 | 0.75 | 0.79 | 0.78 | 0.84 | 0.87 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Advanced Micro Devices Inc. | — | — | — | — | — | |
| Analog Devices Inc. | — | — | — | — | — | |
| Applied Materials Inc. | — | — | — | — | — | |
| Broadcom Inc. | — | — | — | — | — | |
| Intel Corp. | — | — | — | — | — | |
| KLA Corp. | — | — | — | — | — | |
| Lam Research Corp. | — | — | — | — | — | |
| Marvell Technology Inc. | — | — | — | — | — | |
| Micron Technology Inc. | — | — | — | — | — | |
| NVIDIA Corp. | — | — | — | — | — | |
| Qualcomm Inc. | — | — | — | — | — | |
| Texas Instruments Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 Invested capital. See details »
2 2015 Calculation
TO = Adjusted revenues ÷ Invested capital
= 25,341 ÷ 33,788 = 0.75
3 Click competitor name to see calculations.
An analysis of capital efficiency from 2011 to 2015 reveals a consistent decline in the turnover of capital, indicating that the expansion of the invested capital base outpaced the growth in adjusted revenues.
- Adjusted Revenue Performance
- Adjusted revenues demonstrated a steady upward trend between 2011 and 2014, increasing from US$ 21,518 million to a peak of US$ 25,626 million. This growth phase concluded in 2015, when revenues experienced a slight contraction to US$ 25,341 million.
- Invested Capital Growth
- The invested capital base grew consistently year-over-year throughout the period. Starting at US$ 24,594 million in 2011, the capital increased to US$ 33,788 million by 2015. The continuous rise in invested capital suggests an ongoing commitment to resource expansion or acquisition.
- Turnover of Capital (TO) Analysis
- The turnover of capital ratio decreased from 0.87 in 2011 to 0.75 in 2015. Although a marginal recovery was noted in 2014 (0.79), the overall trajectory is downward. This pattern indicates a reduction in asset productivity, as the company required progressively more capital to generate each unit of revenue over the five-year duration.
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Effective Cash Tax Rate (CTR)
EMC Corp., CTR calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 2,862) | 3,737) | 4,442) | 4,279) | 4,267) | |
| Add: Cash operating taxes2 | 992) | 1,309) | 1,038) | 1,085) | 739) | |
| Net operating profit before taxes (NOPBT) | 3,854) | 5,046) | 5,481) | 5,364) | 5,005) | |
| Tax Rate | ||||||
| CTR3 | 25.73% | 25.94% | 18.94% | 20.23% | 14.76% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Advanced Micro Devices Inc. | — | — | — | — | — | |
| Analog Devices Inc. | — | — | — | — | — | |
| Applied Materials Inc. | — | — | — | — | — | |
| Broadcom Inc. | — | — | — | — | — | |
| Intel Corp. | — | — | — | — | — | |
| KLA Corp. | — | — | — | — | — | |
| Lam Research Corp. | — | — | — | — | — | |
| Marvell Technology Inc. | — | — | — | — | — | |
| Micron Technology Inc. | — | — | — | — | — | |
| NVIDIA Corp. | — | — | — | — | — | |
| Qualcomm Inc. | — | — | — | — | — | |
| Texas Instruments Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2015 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × 992 ÷ 3,854 = 25.73%
4 Click competitor name to see calculations.
The effective cash tax rate (CTR) exhibited a general upward trajectory between 2011 and 2015, indicating an increasing proportion of net operating profit before taxes (NOPBT) being allocated to cash tax payments over the period.
- Effective Cash Tax Rate Trends
- The CTR began at 14.76% in 2011 and climbed to a peak of 25.94% by 2014, before stabilizing slightly at 25.73% in 2015. This represents a significant increase in the cash tax burden relative to operating profits over the five-year window.
- Net Operating Profit Before Taxes (NOPBT) Performance
- NOPBT demonstrated moderate growth in the early part of the period, rising from 5,005 million US dollars in 2011 to a peak of 5,481 million US dollars in 2013. However, a contraction followed, with profits falling to 5,046 million US dollars in 2014 and experiencing a sharp decline to 3,854 million US dollars by 2015.
- Cash Operating Tax Volatility
- Cash operating taxes fluctuated throughout the period, increasing from 739 million US dollars in 2011 to a high of 1,309 million US dollars in 2014. A decrease to 992 million US dollars was noted in 2015, which coincided with the significant drop in NOPBT.
- Correlation Between Profitability and Tax Rate
- A divergence is observed between profit trends and the tax rate. While NOPBT declined significantly in 2014 and 2015, the CTR remained at its highest levels (above 25%), suggesting that the decrease in operating profit was not accompanied by a proportional decrease in the effective cash tax rate.
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