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)
Edwards Lifesciences Corp., 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 | 1,468,252) | 768,464) | 1,050,298) | 704,251) | 615,066) | |
| Invested capital2 | 3,791,600) | 3,937,900) | 3,697,400) | 2,904,204) | 2,855,739) | |
| Performance Ratio | ||||||
| ROIC3 | 38.72% | 19.51% | 28.41% | 24.25% | 21.54% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Abbott Laboratories | 11.30% | — | — | — | — | |
| Elevance Health Inc. | 11.26% | — | — | — | — | |
| Intuitive Surgical Inc. | 37.63% | — | — | — | — | |
| Medtronic PLC | 5.59% | — | — | — | — | |
| UnitedHealth Group Inc. | 13.51% | — | — | — | — | |
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 × 1,468,252 ÷ 3,791,600 = 38.72%
4 Click competitor name to see calculations.
The financial trajectory from 2017 to 2021 is characterized by an overall expansion in operational profitability and capital efficiency. Despite a notable contraction in performance during 2020, the period concluded with a significant surge in returns, indicating a strong recovery and improved scalability of the business model.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a strong upward trend over the five-year period, growing from 615,066 thousand US$ in 2017 to 1,468,252 thousand US$ in 2021. A temporary decline was observed in 2020, where NOPAT fell to 768,464 thousand US$ from a 2019 high of 1,050,298 thousand US$. The subsequent increase in 2021 represents the most substantial year-over-year growth in the analyzed period.
- Invested Capital
- Invested capital increased steadily from 2,855,739 thousand US$ in 2017 to a peak of 3,937,900 thousand US$ in 2020. In 2021, a slight reduction to 3,791,600 thousand US$ was observed. This suggests that the company was able to generate record profits in 2021 while simultaneously optimizing or reducing its capital base.
- Return on Invested Capital (ROIC)
- ROIC showed a general positive correlation with NOPAT, beginning at 21.54% in 2017 and rising to 28.41% by 2019. A sharp decline to 19.51% occurred in 2020, mirroring the dip in operating profit. However, efficiency reached a five-year peak in 2021 at 38.72%, indicating a highly effective deployment of capital to generate operational earnings.
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Decomposition of ROIC
Edwards Lifesciences Corp., 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 »
Return on invested capital (ROIC) exhibited a general upward trajectory over the five-year period, increasing from 21.54% in 2017 to a peak of 38.72% in 2021. Despite this overall growth, a significant contraction is observed in 2020, where ROIC declined to 19.51%, marking the lowest point in the analyzed timeframe before a sharp recovery in 2021.
- Operating Profit Margin (OPM)
- Operating margins demonstrated notable volatility, fluctuating between a low of 20.56% in 2018 and a high of 32.75% in 2021. The margin experienced a decline in 2018 and again in 2020, suggesting periods of increased operating costs or revenue pressure. However, the substantial increase to 32.75% in 2021 served as a primary driver for the expansion of the overall return on capital.
- Turnover of Capital (TO)
- Capital efficiency remained relatively stable but showed a slight downward trend between 2018 and 2020, reaching a minimum ratio of 1.11. This decline coincided with the dip in ROIC. A significant improvement occurred in 2021, with the turnover ratio rising to 1.38, indicating a more efficient utilization of invested capital to generate revenue.
- Effective Cash Tax Rate Factor (1 – CTR)
- A substantial shift in the tax impact occurred between 2017 and 2018, where the factor increased from 59.03% to 92.01%. Following this initial spike, the ratio remained relatively stable, fluctuating between 84.17% and 90.73%. This shift suggests a significant reduction in the effective cash tax burden, which provided a structural boost to the after-tax ROIC from 2018 onwards.
The decomposition of the returns indicates that the 2020 decline in ROIC was a result of a simultaneous compression in both operating profit margins and capital turnover. Conversely, the record high ROIC achieved in 2021 was driven by the convergence of the highest observed operating margin and the highest capital turnover ratio within the five-year period, supported by a consistently low effective cash tax rate.
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Operating Profit Margin (OPM)
Edwards Lifesciences Corp., 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 | 1,468,252) | 768,464) | 1,050,298) | 704,251) | 615,066) | |
| Add: Cash operating taxes2 | 245,413) | 144,533) | 107,265) | 61,158) | 426,820) | |
| Net operating profit before taxes (NOPBT) | 1,713,665) | 912,997) | 1,157,563) | 765,409) | 1,041,886) | |
| Net sales | 5,232,500) | 4,386,300) | 4,348,000) | 3,722,800) | 3,435,300) | |
| Profitability Ratio | ||||||
| OPM3 | 32.75% | 20.81% | 26.62% | 20.56% | 30.33% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Abbott Laboratories | 20.37% | — | — | — | — | |
| Elevance Health Inc. | 6.58% | — | — | — | — | |
| Intuitive Surgical Inc. | 33.56% | — | — | — | — | |
| Medtronic PLC | 16.48% | — | — | — | — | |
| UnitedHealth Group Inc. | 8.33% | — | — | — | — | |
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 × 1,713,665 ÷ 5,232,500 = 32.75%
4 Click competitor name to see calculations.
The financial performance between 2017 and 2021 is characterized by consistent top-line growth coupled with significant fluctuations in operational efficiency. While net sales increased steadily every year, the net operating profit before taxes (NOPBT) and the resulting operating profit margin (OPM) exhibited a cyclical pattern of contraction and expansion.
- Revenue Growth Trend
- Net sales demonstrated a continuous upward trajectory, increasing from 3,435,300 thousand US dollars in 2017 to 5,232,500 thousand US dollars by 2021. This indicates a steady expansion of scale over the five-year period.
- Operating Profit Margin Volatility
- The operating profit margin experienced notable instability. From a high of 30.33% in 2017, the margin declined sharply to 20.56% in 2018. A recovery to 26.62% was observed in 2019, followed by a subsequent drop to 20.81% in 2020. The period concluded with a significant peak in 2021, where the margin reached 32.75%.
- Net Operating Profit Before Taxes (NOPBT) Analysis
- NOPBT mirrored the volatility of the operating margin, characterized by two distinct troughs in 2018 and 2020. However, a substantial surge occurred in 2021, with NOPBT rising to 1,713,665 thousand US dollars. This sharp increase, coinciding with the highest recorded OPM, suggests a strong optimization of operating expenses or a favorable shift in product mix during the final year of the analyzed period.
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Turnover of Capital (TO)
Edwards Lifesciences Corp., 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 | 5,232,500) | 4,386,300) | 4,348,000) | 3,722,800) | 3,435,300) | |
| Invested capital1 | 3,791,600) | 3,937,900) | 3,697,400) | 2,904,204) | 2,855,739) | |
| Efficiency Ratio | ||||||
| TO2 | 1.38 | 1.11 | 1.18 | 1.28 | 1.20 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Abbott Laboratories | 0.69 | — | — | — | — | |
| Elevance Health Inc. | 2.14 | — | — | — | — | |
| Intuitive Surgical Inc. | 1.27 | — | — | — | — | |
| Medtronic PLC | 0.42 | — | — | — | — | |
| UnitedHealth Group Inc. | 2.04 | — | — | — | — | |
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
= 5,232,500 ÷ 3,791,600 = 1.38
3 Click competitor name to see calculations.
The analysis of capital turnover between 2017 and 2021 reveals a trajectory of expansion followed by a significant improvement in asset productivity. While net sales grew consistently over the period, the efficiency with which invested capital was utilized to generate those sales experienced volatility, reaching a five-year peak in 2021.
- Net Sales Growth
- Revenue demonstrated a strong overall upward trend, increasing from 3.44 billion in 2017 to 5.23 billion in 2021. A notable deceleration occurred in 2020, where growth remained nearly flat compared to 2019, before accelerating sharply in 2021.
- Invested Capital Dynamics
- Invested capital grew steadily from 2017 through 2020, with a substantial increase observed between 2018 and 2019. This suggests a period of strategic resource allocation and expansion. However, 2021 marked a reversal in this trend, as invested capital decreased to 3.79 billion, indicating a contraction or optimization of the capital base.
- Turnover of Capital (TO) Performance
- The capital turnover ratio fluctuated, starting at 1.20 in 2017 and peaking at 1.38 in 2021. A downward trend was observed between 2018 and 2020, where the ratio declined to a low of 1.11. This compression was primarily driven by the fact that invested capital grew at a faster rate than net sales during that window. The significant recovery in 2021 resulted from the simultaneous increase in net sales and a reduction in the total capital base, leading to the highest capital efficiency of the analyzed period.
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Effective Cash Tax Rate (CTR)
Edwards Lifesciences Corp., 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 | 1,468,252) | 768,464) | 1,050,298) | 704,251) | 615,066) | |
| Add: Cash operating taxes2 | 245,413) | 144,533) | 107,265) | 61,158) | 426,820) | |
| Net operating profit before taxes (NOPBT) | 1,713,665) | 912,997) | 1,157,563) | 765,409) | 1,041,886) | |
| Tax Rate | ||||||
| CTR3 | 14.32% | 15.83% | 9.27% | 7.99% | 40.97% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Abbott Laboratories | 20.05% | — | — | — | — | |
| Elevance Health Inc. | 20.22% | — | — | — | — | |
| Intuitive Surgical Inc. | 11.76% | — | — | — | — | |
| Medtronic PLC | 18.59% | — | — | — | — | |
| UnitedHealth Group Inc. | 20.32% | — | — | — | — | |
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 × 245,413 ÷ 1,713,665 = 14.32%
4 Click competitor name to see calculations.
The analysis of the effective cash tax rate (CTR) and net operating profit before taxes (NOPBT) reveals a significant structural shift in the tax burden starting after 2017. A sharp contraction in the cash tax rate is evident between 2017 and 2018, followed by a period of relative stabilization at lower levels despite substantial growth in operating profits by 2021.
- Effective Cash Tax Rate (CTR) Volatility
- A substantial decline in the CTR is observed from 40.97% in 2017 to 7.99% in 2018. Following this drop, the rate experienced a gradual increase, peaking at 15.83% in 2020 before slightly receding to 14.32% in 2021. The most notable characteristic of this trend is that the tax rate remained significantly lower in the four-year period following 2017, suggesting a change in tax efficiency or the impact of regulatory tax adjustments.
- Correlation Between NOPBT and Cash Operating Taxes
- While NOPBT fluctuated throughout the period—dropping in 2018 and 2020 before reaching a peak of 1,713,665 thousand US$ in 2021—cash operating taxes followed a different trajectory. After the 2017 peak of 426,820 thousand US$, cash taxes plummeted to 61,158 thousand US$ in 2018. From 2018 to 2021, cash operating taxes showed a consistent year-over-year increase, rising to 245,413 thousand US$, even though this figure remained lower than the 2017 level despite the higher NOPBT in 2021.
- Operational Profitability and Tax Efficiency
- The divergence between the growth in NOPBT and the cash tax rate indicates an improvement in cash tax efficiency. By 2021, the company generated significantly higher net operating profit than in 2017, yet the cash tax expenditure was approximately 42% lower and the CTR was reduced by more than half. This pattern suggests that the increase in operating profitability was not matched by a proportional increase in cash tax outflows.
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