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)
Ecolab 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 | 1,348,902) | 1,206,880) | 1,736,725) | 1,771,309) | 1,369,555) | |
| Invested capital2 | 18,430,300) | 15,595,900) | 18,090,500) | 17,830,002) | 17,388,578) | |
| Performance Ratio | ||||||
| ROIC3 | 7.32% | 7.74% | 9.60% | 9.93% | 7.88% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Linde plc | 5.24% | — | — | — | — | |
| Sherwin-Williams Co. | 14.91% | — | — | — | — | |
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 × 1,348,902 ÷ 18,430,300 = 7.32%
4 Click competitor name to see calculations.
The analysis of return on invested capital from 2017 to 2021 reveals a period of initial efficiency gains followed by a gradual contraction in capital productivity. The return on invested capital reached a peak in 2018 before entering a downward trajectory, ending the period at its lowest level despite a recovery in absolute operating profits.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant volatility over the five-year period. A sharp increase was observed between 2017 and 2018, with profit rising from approximately 1.37 billion to 1.77 billion. This growth was followed by a steady decline, reaching a period low of 1.21 billion in 2020. While 2021 showed a recovery to 1.35 billion, the figure remained below the levels achieved in 2018 and 2019.
- Invested Capital Dynamics
- Invested capital remained relatively stable between 2017 and 2019, moving from 17.39 billion to 18.09 billion. A significant contraction occurred in 2020, where invested capital dropped to 15.60 billion. This was followed by a substantial increase in 2021, reaching a five-year peak of 18.43 billion, indicating a significant expansion of the capital base in the final year.
- Return on Invested Capital (ROIC) Interpretation
- The ROIC trajectory demonstrates a decline in the efficiency of capital deployment over time. The peak ROIC of 9.93% in 2018 was the result of strong NOPAT growth outpacing the growth of invested capital. Conversely, the decline to 7.32% by 2021 indicates that the expansion of the capital base has outpaced the recovery in operating profits. Although NOPAT increased between 2020 and 2021, the simultaneous and more aggressive increase in invested capital led to a reduction in the overall rate of return.
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Decomposition of ROIC
Ecolab 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) exhibited a cyclical trajectory over the five-year period, peaking in 2018 at 9.93% before entering a steady decline to 7.32% by December 31, 2021.
- Operating Profit Margin (OPM)
- A general contraction in operational profitability is observed, as the margin decreased from 14.90% in 2017 to 13.10% in 2021. A notable trough occurred in 2020, where the margin fell to 12.61%, followed by a partial recovery in the final year.
- Turnover of Capital (TO)
- Capital efficiency remained relatively stable between 2017 and 2019, maintaining a range between 0.80 and 0.82. However, a pronounced downward trend emerged in the latter period, with the ratio declining to 0.76 in 2020 and further to 0.69 by 2021, indicating a reduction in the revenue-generating capacity of the invested capital.
- Effective Cash Tax Rate Retention (1 – CTR)
- The after-tax retention rate experienced a significant increase from 66.41% in 2017 to 84.30% in 2018. Following this initial surge, the rate remained highly stable, fluctuating minimally between 80.85% and 81.16% through 2021.
The decomposition of ROIC indicates that the performance peak in 2018 was primarily driven by a substantial improvement in the tax retention rate, which mitigated the impact of slightly declining operating margins. The subsequent deterioration of ROIC through 2021 resulted from the simultaneous erosion of both operating profit margins and capital turnover, reflecting a combined decline in operational efficiency and asset productivity.
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Operating Profit Margin (OPM)
Ecolab 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 | 1,348,902) | 1,206,880) | 1,736,725) | 1,771,309) | 1,369,555) | |
| Add: Cash operating taxes2 | 319,507) | 280,171) | 405,411) | 329,842) | 692,614) | |
| Net operating profit before taxes (NOPBT) | 1,668,409) | 1,487,051) | 2,142,136) | 2,101,150) | 2,062,169) | |
| Net sales | 12,733,100) | 11,790,200) | 14,906,300) | 14,668,200) | 13,838,300) | |
| Profitability Ratio | ||||||
| OPM3 | 13.10% | 12.61% | 14.37% | 14.32% | 14.90% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Linde plc | 17.33% | — | — | — | — | |
| Sherwin-Williams Co. | 14.56% | — | — | — | — | |
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 ÷ Net sales
= 100 × 1,668,409 ÷ 12,733,100 = 13.10%
4 Click competitor name to see calculations.
The operating profit margin exhibited a period of relative stability followed by a significant contraction and a subsequent partial recovery between 2017 and 2021. While the business maintained consistent margins in the early part of the period, a sharp decline in profitability occurred in 2020, coinciding with a substantial reduction in both net sales and net operating profit before taxes.
- Operating Profit Margin Trends
- A gradual compression of the operating profit margin is observed from 2017 to 2019, moving from 14.90% to 14.37%. This stability was interrupted in 2020, when the margin fell to its lowest point in the five-year period at 12.61%. By 2021, a modest recovery was recorded, with the margin rising to 13.10%, although this remains below the levels maintained prior to 2020.
- Correlation Between Sales and Profitability
- The data indicates a strong correlation between net sales volume and operating efficiency. Between 2017 and 2019, net sales grew from 13.8 billion to 14.9 billion US dollars, supporting a stable NOPBT. However, the sharp decline in net sales to 11.8 billion US dollars in 2020 led to a disproportionate drop in NOPBT to 1.49 billion US dollars, suggesting that fixed costs may have exerted pressure on the operating margin during the sales contraction.
- Recovery Dynamics
- The 2021 fiscal year demonstrates a trend of recovery, as net sales increased to 12.7 billion US dollars and NOPBT rose to 1.67 billion US dollars. This growth resulted in a 49 basis point improvement in the operating profit margin compared to 2020, indicating a partial restoration of operational efficiency, though the margin has not yet returned to the 14% threshold seen in 2017-2019.
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Turnover of Capital (TO)
Ecolab 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) | ||||||
| Net sales | 12,733,100) | 11,790,200) | 14,906,300) | 14,668,200) | 13,838,300) | |
| Invested capital1 | 18,430,300) | 15,595,900) | 18,090,500) | 17,830,002) | 17,388,578) | |
| Efficiency Ratio | ||||||
| TO2 | 0.69 | 0.76 | 0.82 | 0.82 | 0.80 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Linde plc | 0.42 | — | — | — | — | |
| Sherwin-Williams Co. | 1.26 | — | — | — | — | |
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 = Net sales ÷ Invested capital
= 12,733,100 ÷ 18,430,300 = 0.69
3 Click competitor name to see calculations.
Between 2017 and 2021, capital efficiency experienced a period of initial stability followed by a notable decline. The turnover of capital reached its peak in 2018 and 2019 before trending downward, reflecting a divergence between the growth of the invested capital base and the generation of net sales.
- Net Sales Performance
- Revenue exhibited moderate growth from 2017 to 2019, reaching a peak of 14.9 billion USD. A significant contraction occurred in 2020, where sales fell to 11.8 billion USD, followed by a partial recovery to 12.7 billion USD in 2021. Despite this recovery, 2021 revenue remained below 2017 levels.
- Invested Capital Dynamics
- The capital base grew steadily from 2017 through 2019. While there was a reduction in invested capital in 2020 to 15.6 billion USD, this was followed by a sharp increase in 2021 to 18.4 billion USD, marking the highest capital investment level within the analyzed period.
- Turnover of Capital Analysis
- The turnover ratio remained stable and improved slightly to 0.82 between 2017 and 2019. A downward trend emerged in 2020, with the ratio falling to 0.76. The most significant deterioration was observed in 2021, where the ratio declined to 0.69. This contraction is primarily attributed to the sharp increase in invested capital in 2021, which significantly outpaced the recovery in net sales, thereby reducing the efficiency of capital utilization.
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Effective Cash Tax Rate (CTR)
Ecolab 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 | 1,348,902) | 1,206,880) | 1,736,725) | 1,771,309) | 1,369,555) | |
| Add: Cash operating taxes2 | 319,507) | 280,171) | 405,411) | 329,842) | 692,614) | |
| Net operating profit before taxes (NOPBT) | 1,668,409) | 1,487,051) | 2,142,136) | 2,101,150) | 2,062,169) | |
| Tax Rate | ||||||
| CTR3 | 19.15% | 18.84% | 18.93% | 15.70% | 33.59% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Linde plc | 28.80% | — | — | — | — | |
| Sherwin-Williams Co. | 18.79% | — | — | — | — | |
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 × 319,507 ÷ 1,668,409 = 19.15%
4 Click competitor name to see calculations.
The analysis of the effective cash tax rate (CTR) from 2017 to 2021 indicates a sharp reduction in the tax burden relative to operating profits, followed by a stabilization phase. A significant deviation is observed between the first and second years of the period, after which the tax rate maintained a consistent range despite notable fluctuations in net operating profit before taxes (NOPBT).
- Effective Cash Tax Rate (CTR) Trends
- The CTR experienced a substantial decrease from 33.59% in 2017 to 15.70% in 2018. From 2019 through 2021, the rate stabilized, fluctuating minimally between 18.84% and 19.15%. This suggests that after the initial sharp decline, cash tax obligations as a percentage of operating profit reached a steady state.
- Net Operating Profit Before Taxes (NOPBT) Performance
- NOPBT showed a gradual increase from 2017 to 2019, peaking at US$ 2,142,136 thousand. A significant contraction occurred in 2020, with profit falling to US$ 1,487,051 thousand, the lowest point in the observed period. A partial recovery was recorded in 2021, with NOPBT rising to US$ 1,668,409 thousand.
- Cash Operating Tax Volume
- Cash operating taxes decreased sharply from US$ 692,614 thousand in 2017 to US$ 329,842 thousand in 2018. Despite the volatility in NOPBT between 2020 and 2021, cash tax payments remained relatively stable, ranging between US$ 280,171 thousand and US$ 319,507 thousand. The alignment between the movement of NOPBT and cash taxes in the final two years accounts for the stability of the CTR during that interval.
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