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.
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General Dynamics Corp. pages available for free this week:
- Statement of Comprehensive Income
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Price to Operating Profit (P/OP) since 2005
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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 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| ROIC3 | ||||||
| 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 Click competitor name to see calculations.
The financial data over the five-year period displays some notable trends in key financial metrics.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT has shown an overall upward trajectory, increasing from $3,237 million in 2015 to $4,114 million in 2019. Despite a slight dip in 2017, the profitability recovered and reached its highest level in 2019, indicating improved operational efficiency or revenue growth over the period.
- Invested Capital
- Invested capital exhibited a steady increase from $18,175 million in 2015 to $31,608 million in 2019. Notably, after relatively modest growth between 2015 and 2017, there was a significant jump in 2018 and 2019. This sharp increase could reflect substantial investments or asset acquisitions during the latter years.
- Return on Invested Capital (ROIC)
- ROIC values peaked at 18.24% in 2016 but then declined to 12.3% in 2018, before slightly recovering to 13.02% in 2019. The decline in ROIC despite increasing NOPAT suggests that the growth in invested capital outpaced the growth in operating profits, leading to lower efficiency in capital usage in the most recent years.
Overall, while profitability as measured by NOPAT increased steadily, the faster growth rate in invested capital led to a decrease in ROIC, indicating a possible shift in capital deployment strategy or challenges in achieving higher returns from new investments in the latter period.
Decomposition of ROIC
General Dynamics Corp., decomposition of ROIC
| ROIC | = | OPM1 | × | TO2 | × | 1 – CTR3 | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × | ||||
| Dec 31, 2017 | = | × | × | ||||
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × |
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 »
- Operating Profit Margin (OPM)
- The operating profit margin showed a slight increase from 13.49% in 2015 to a peak of 14.02% in 2016. However, from 2017 onward, there was a gradual decline, reaching 12.32% in 2019. This indicates a modest reduction in profitability at the operating level over the latter part of the period.
- Turnover of Capital (TO)
- Capital turnover steadily decreased from 1.73 in 2015 to a low of 1.21 in 2018, with a negligible recovery to 1.24 in 2019. This trend suggests a diminishing efficiency in generating revenue from invested capital over time, particularly noticeable from 2016 through 2018.
- 1 – Effective Cash Tax Rate (CTR)
- The effective cash tax rate, represented as 1 minus the tax rate, demonstrated an upward trend, increasing from 76.28% in 2015 to 84.89% in 2019. This suggests a higher proportion of pre-tax income retained after cash taxes, indicating potentially improved tax management or changes in tax regulations favoring the company.
- Return on Invested Capital (ROIC)
- ROIC increased slightly from 17.81% in 2015 to 18.24% in 2016 but then declined significantly to 12.3% in 2018, with a minor recovery to 13.02% in 2019. This mirrors the pattern observed in OPM and TO, reflecting a reduction in overall capital profitability after 2016, though still maintaining returns above 12% by the end of the period.
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 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Revenue | ||||||
| Profitability Ratio | ||||||
| OPM3 | ||||||
| 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 Click competitor name to see calculations.
- Net Operating Profit Before Taxes (NOPBT)
- The net operating profit before taxes exhibited a generally positive trend over the five-year period. Starting at 4,244 million US dollars in 2015, it increased to 4,396 million in 2016, slightly declined to 4,205 million in 2017, and subsequently rose to 4,497 million in 2018 and further to 4,846 million in 2019. This indicates overall growth in profitability, with a minor dip observed in 2017.
- Revenue
- Revenue remained relatively stable during the initial three years, with values around 31,353 to 31,973 million US dollars. There was a notable increase starting in 2018, reaching 36,193 million, and this upward momentum continued into 2019 with revenue hitting 39,350 million. This reflects a significant expansion in sales or service income during the latter part of the period analyzed.
- Operating Profit Margin (OPM)
- The operating profit margin demonstrated a fluctuating yet overall declining pattern. It was 13.49% in 2015, increased marginally to 14.02% in 2016, then decreased to 13.58% in 2017, followed by a further decline to 12.43% in 2018, and slightly lowered again to 12.32% in 2019. Despite growth in absolute profit and revenue, the margin contraction suggests increased operating costs or pricing pressures affecting profitability efficiency.
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 | ||||||
| Invested capital1 | ||||||
| Efficiency Ratio | ||||||
| TO2 | ||||||
| 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
= ÷ =
3 Click competitor name to see calculations.
- Revenue
-
Revenue remained relatively stable between 2015 and 2017, with values around 31,000 million US dollars. Starting in 2018, there was a noticeable increase, reaching 36,193 million US dollars, and further rising to 39,350 million US dollars by the end of 2019. This indicates a positive growth trend in the company's top line during the last two years of the period.
- Invested Capital
-
Invested capital showed a consistent upward trend throughout the period. Beginning at 18,175 million US dollars in 2015, it progressively increased each year to reach 31,608 million US dollars by the end of 2019. The most pronounced increase occurred between 2017 and 2018, with the invested capital rising sharply from 19,772 million to 29,939 million US dollars, suggesting considerable capital allocation or asset acquisition during that time.
- Turnover of Capital (TO)
-
The turnover of capital, calculated as the ratio of revenue to invested capital, exhibited a declining trend. From 1.73 in 2015, the ratio gradually decreased to 1.24 by 2019. This decline suggests that despite revenue growth in later years, the growth in invested capital outpaced revenue increases, leading to a reduction in capital efficiency over the observed period.
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 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Tax Rate | ||||||
| CTR3 | ||||||
| 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 × ÷ =
4 Click competitor name to see calculations.
- Net Operating Profit Before Taxes (NOPBT)
- There is a generally positive trend in NOPBT over the five-year period. Starting at 4,244 million US dollars in 2015, the figure increased slightly to 4,396 million in 2016, followed by a small decline to 4,205 million in 2017. After this dip, the NOPBT rose to 4,497 million in 2018 and further to 4,846 million in 2019, indicating a recovery and growth in operating profitability before taxes.
- Cash Operating Taxes
- Cash operating taxes show a downward trend over the same period. The amount decreased from 1,007 million US dollars in 2015 to 833 million in 2016 and further declined to 811 million in 2017. It remained relatively stable in 2018 at 814 million but then dropped more notably to 732 million in 2019. This declining trend in cash taxes contrasts with the rising NOPBT.
- Effective Cash Tax Rate (CTR)
- The effective cash tax rate displays a consistent decrease over the years, reflecting a reduction in the rate at which profits are taxed in cash terms. It declined from 23.72% in 2015 down to 18.96% in 2016, stayed close at 19.29% in 2017, then further decreased to 18.1% in 2018, and reached its lowest at 15.11% in 2019. This decline in the cash tax rate provides context for the reduction in cash operating taxes despite the growth in NOPBT.
- Overall Observations
- The combined analysis suggests that the company experienced growth in operating profitability before taxes alongside a reduction in its cash tax burden over the period. The decreasing effective cash tax rate appears to be a significant factor in the reduced cash taxes paid, despite rising pre-tax profits. This could suggest improved tax efficiency, potential changes in tax policies, or strategic tax planning measures implemented over these years.