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)
General Dynamics Corp., ROIC calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 4,114) | 3,683) | 3,393) | 3,563) | 3,237) | |
| Invested capital2 | 31,608) | 29,939) | 19,772) | 19,539) | 18,175) | |
| Performance Ratio | ||||||
| ROIC3 | 13.02% | 12.30% | 17.16% | 18.24% | 17.81% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2019 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × 4,114 ÷ 31,608 = 13.02%
4 Click competitor name to see calculations.
The financial performance between 2015 and 2019 is characterized by a steady increase in absolute profitability contrasted with a significant expansion of the capital base, leading to a compression in overall capital efficiency.
- Net Operating Profit After Taxes (NOPAT)
- A general upward trajectory in NOPAT is observed, rising from 3,237 million US dollars in 2015 to 4,114 million US dollars in 2019. While a slight contraction occurred in 2017, the overall growth indicates a consistent increase in the company's ability to generate operating earnings after tax.
- Invested Capital
- Invested capital exhibited a marked increase over the five-year period. Growth remained gradual between 2015 and 2017, moving from 18,175 million US dollars to 19,772 million US dollars. However, a substantial surge occurred in 2018, where invested capital rose to 29,939 million US dollars, eventually reaching 31,608 million US dollars by 2019. This represents a significant expansion of the asset base used to generate profits.
- Return on Invested Capital (ROIC)
- The ROIC remained relatively stable and strong between 2015 and 2017, peaking at 18.24% in 2016. A notable decline is evident starting in 2018, where the ratio dropped to 12.30%, before a slight recovery to 13.02% in 2019. This downward trend in ROIC is directly correlated with the sharp increase in invested capital, which outpaced the growth in NOPAT during the 2018 and 2019 periods, thereby reducing the efficiency of the capital deployed.
AI Ask an analyst for more
Decomposition of ROIC
General Dynamics Corp., decomposition of ROIC
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Operating profit margin (OPM). See calculations »
2 Turnover of capital (TO). See calculations »
3 Effective cash tax rate (CTR). See calculations »
An analysis of the return on invested capital (ROIC) from 2015 to 2019 reveals a general downward trajectory, with a significant contraction occurring between 2017 and 2018. While the ROIC peaked in 2016 at 18.24%, it declined to 13.02% by the end of 2019, indicating a reduction in the overall efficiency of capital deployment over the five-year period.
- Operating Profit Margin (OPM)
- The operating profit margin remained relatively stable during the first three years, peaking at 14.02% in 2016 before entering a period of decline. By 2019, the margin had compressed to 12.32%, suggesting a gradual erosion of operational profitability.
- Turnover of Capital (TO)
- A consistent downward trend is observed in the turnover of capital, which fell from 1.73 in 2015 to 1.21 in 2018, with a marginal recovery to 1.24 in 2019. This decline represents the most significant drag on the ROIC, reflecting a diminished capacity to generate revenue relative to the invested capital base.
- Effective Cash Tax Rate (CTR) Impact
- The after-tax retention component (1 minus the effective cash tax rate) demonstrated a steady upward trend, increasing from 76.28% in 2015 to 84.89% in 2019. This improvement indicates a lowering of the effective tax burden, which served as a mitigating factor that partially offset the declines in operational and capital efficiency.
- ROIC Decomposition Summary
- The decomposition of ROIC highlights a divergence between tax efficiency and operational performance. The sharp decrease in ROIC from 17.16% in 2017 to 12.30% in 2018 was primarily driven by the simultaneous deterioration of both the operating profit margin and the turnover of capital. The slight recovery in ROIC to 13.02% in 2019 was supported by continued improvements in the effective cash tax rate and a stabilization of capital turnover.
AI Ask an analyst for more
Operating Profit Margin (OPM)
General Dynamics Corp., OPM calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 4,114) | 3,683) | 3,393) | 3,563) | 3,237) | |
| Add: Cash operating taxes2 | 732) | 814) | 811) | 833) | 1,007) | |
| Net operating profit before taxes (NOPBT) | 4,846) | 4,497) | 4,205) | 4,396) | 4,244) | |
| Revenue | 39,350) | 36,193) | 30,973) | 31,353) | 31,469) | |
| Profitability Ratio | ||||||
| OPM3 | 12.32% | 12.43% | 13.58% | 14.02% | 13.49% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2019 Calculation
OPM = 100 × NOPBT ÷ Revenue
= 100 × 4,846 ÷ 39,350 = 12.32%
4 Click competitor name to see calculations.
The financial performance between 2015 and 2019 is characterized by a significant expansion in total scale accompanied by a gradual compression in operating efficiency.
- Revenue and Profitability Growth
- Revenue remained relatively stagnant between 2015 and 2017, fluctuating around the $31 billion mark, before experiencing a sharp increase to $36.19 billion in 2018 and $39.35 billion in 2019. Net operating profit before taxes (NOPBT) exhibited a similar overall upward trend, rising from $4.24 billion in 2015 to a peak of $4.85 billion in 2019, despite a brief dip in 2017.
- Operating Profit Margin (OPM) Trend
- The operating profit margin reached its highest point in 2016 at 14.02%. Following this peak, a consistent downward trend is observed, with the margin declining to 13.58% in 2017, 12.43% in 2018, and finally 12.32% in 2019.
- Analysis of Operational Efficiency
- An inverse relationship is noted between revenue growth and margin percentage during the 2017 to 2019 period. While the company successfully scaled its operations and increased absolute operating profit, the operational costs grew at a faster rate than revenue. This resulted in a reduction of the operating profit margin, indicating that the expansion in business volume was achieved at the cost of lower per-unit profitability.
AI Ask an analyst for more
Turnover of Capital (TO)
General Dynamics Corp., TO calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Revenue | 39,350) | 36,193) | 30,973) | 31,353) | 31,469) | |
| Invested capital1 | 31,608) | 29,939) | 19,772) | 19,539) | 18,175) | |
| Efficiency Ratio | ||||||
| TO2 | 1.24 | 1.21 | 1.57 | 1.60 | 1.73 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 Invested capital. See details »
2 2019 Calculation
TO = Revenue ÷ Invested capital
= 39,350 ÷ 31,608 = 1.24
3 Click competitor name to see calculations.
Between 2015 and 2019, a general decline in capital efficiency was observed, as the turnover of capital ratio decreased despite an overall increase in total revenue. The trend indicates that the growth in the capital base outpaced the growth in revenue generation during this period.
- Revenue Trends
- Revenue remained relatively stagnant from 2015 to 2017, fluctuating slightly around 31 billion US$. However, a significant growth phase began in 2018, with revenue increasing to 36,193 million US$, and continuing upward to 39,350 million US$ by the end of 2019.
- Invested Capital Growth
- Invested capital showed a steady increase from 2015 to 2017. A substantial escalation occurred in 2018, where invested capital jumped from 19,772 million US$ to 29,939 million US$, representing a sharp increase in the resource base. This upward trajectory continued into 2019, reaching 31,608 million US$.
- Turnover of Capital (TO) Analysis
- The turnover of capital ratio experienced a continuous decline for most of the period, dropping from 1.73 in 2015 to 1.21 in 2018. This decline suggests a reduction in the efficiency with which invested capital was utilized to generate sales. While a slight recovery to 1.24 occurred in 2019, the ratio remained significantly lower than the 2015 level, reflecting a fundamental shift in the relationship between the company's asset base and its revenue output.
AI Ask an analyst for more
Effective Cash Tax Rate (CTR)
General Dynamics Corp., CTR calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 4,114) | 3,683) | 3,393) | 3,563) | 3,237) | |
| Add: Cash operating taxes2 | 732) | 814) | 811) | 833) | 1,007) | |
| Net operating profit before taxes (NOPBT) | 4,846) | 4,497) | 4,205) | 4,396) | 4,244) | |
| Tax Rate | ||||||
| CTR3 | 15.11% | 18.10% | 19.29% | 18.96% | 23.72% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2019 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × 732 ÷ 4,846 = 15.11%
4 Click competitor name to see calculations.
The analysis of the financial period from 2015 to 2019 reveals a significant divergence between the growth of operating profits and the actual cash tax outflows. While net operating profit before taxes (NOPBT) exhibited an overall upward trajectory, the actual cash taxes paid decreased, resulting in a consistent decline in the effective cash tax rate (CTR).
- Net Operating Profit Before Taxes (NOPBT)
- A general growth pattern is observed in NOPBT, rising from 4,244 million US dollars in 2015 to 4,846 million US dollars in 2019. Although a slight contraction occurred in 2017, the profit levels recovered and peaked in the final year of the analyzed period, indicating a strengthening of core operating performance.
- Cash Operating Taxes
- Cash tax payments demonstrated a downward trend over the five-year span. Outflows decreased from 1,007 million US dollars in 2015 to 732 million US dollars in 2019. This reduction occurred despite the simultaneous increase in operating profits, suggesting a decoupling of taxable income and actual cash tax payments.
- Effective Cash Tax Rate (CTR)
- The effective cash tax rate experienced a marked decline, falling from 23.72% in 2015 to 15.11% in 2019. The most significant reduction occurred between 2015 and 2016, where the rate dropped by 4.76 percentage points. The rate remained relatively stable between 2016 and 2018, before declining further to its period low in 2019.
The combined effect of rising operating profits and a falling effective cash tax rate indicates an improvement in cash flow retention. The reduction in the CTR from 23.72% to 15.11% suggests that a smaller proportion of operating profit is being consumed by cash tax obligations, which inherently enhances the after-tax return on capital.
AI Ask an analyst for more