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)
Hershey Co., ROIC calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 1,821,868) | 1,600,256) | 1,432,349) | 1,243,570) | 1,303,042) | |
| Invested capital2 | 8,759,552) | 8,529,610) | 7,520,057) | 6,702,394) | 6,545,593) | |
| Performance Ratio | ||||||
| ROIC3 | 20.80% | 18.76% | 19.05% | 18.55% | 19.91% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Coca-Cola Co. | 12.66% | 13.95% | — | — | — | |
| Mondelēz International Inc. | 4.72% | 7.69% | — | — | — | |
| PepsiCo Inc. | 13.48% | 13.79% | — | — | — | |
| Philip Morris International Inc. | 20.36% | 35.03% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 NOPAT. See details »
2 Invested capital. See details »
3 2022 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × 1,821,868 ÷ 8,759,552 = 20.80%
4 Click competitor name to see calculations.
The analysis of return on invested capital over the five-year period from 2018 to 2022 reveals a trajectory of steady capital expansion accompanied by strong operational profit growth. While the efficiency of invested capital fluctuated slightly in the middle of the period, it concluded at its highest point in 2022.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated a general upward trajectory, despite a marginal decline in 2019. From a base of 1.30 billion in 2018, profit grew to 1.82 billion by 2022, indicating a robust increase in absolute operating earnings over the period.
- Invested Capital
- A consistent year-over-year increase in invested capital is observed. The capital base grew from 6.55 billion in 2018 to 8.76 billion in 2022, reflecting a sustained increase in the resources deployed to generate profit.
- Return on Invested Capital (ROIC)
- ROIC remained resilient, oscillating between a low of 18.55% in 2019 and a peak of 20.80% in 2022. The temporary decline in 2019 was driven by a decrease in NOPAT occurring simultaneously with an increase in invested capital. By 2022, the expansion of NOPAT significantly outpaced the growth of the capital base, resulting in the highest efficiency level recorded during the analyzed period.
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Decomposition of ROIC
Hershey Co., decomposition of ROIC
Based on: 10-K (reporting date: 2022-12-31), 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).
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 relative stability over the five-year period, fluctuating within a narrow range between 18.55% and 20.80%. After a slight decline from 2018 to 2019, the metric showed a general recovery, culminating in a peak of 20.80% by the end of 2022.
- Operating Profit Margin (OPM)
- Profitability margins remained robust, generally hovering around the 20% mark. A gradual upward trend was observed from 2019, reaching a peak of 21.52% in 2021 before normalizing to 20.04% in 2022. This indicates a consistent ability to convert revenue into operating profit despite external market fluctuations.
- Turnover of Capital (TO)
- Capital efficiency experienced a period of contraction between 2020 and 2021, where the turnover ratio declined from 1.19 to a low of 1.05. This suggests a temporary decrease in the efficiency of asset utilization. However, a full recovery to 1.19 was achieved in 2022, acting as a primary catalyst for the increase in total ROIC for that year.
- Effective Cash Tax Rate Influence
- The after-tax multiplier (1 – CTR) fluctuated between a low of 81.56% in 2019 and a high of 87.24% in 2022. The expansion of this multiplier in 2022 suggests a lower effective tax burden, which contributed positively to the net return on invested capital.
The decomposition of ROIC reveals that while operating margins provided a steady foundation, the volatility in the overall return was primarily driven by shifts in capital turnover and tax efficiencies. The performance in 2022 represents a convergence of recovered asset efficiency and favorable tax positioning, resulting in the highest ROIC of the analyzed period.
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Operating Profit Margin (OPM)
Hershey Co., OPM calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 1,821,868) | 1,600,256) | 1,432,349) | 1,243,570) | 1,303,042) | |
| Add: Cash operating taxes2 | 266,447) | 330,049) | 225,816) | 281,073) | 233,444) | |
| Net operating profit before taxes (NOPBT) | 2,088,315) | 1,930,305) | 1,658,165) | 1,524,643) | 1,536,486) | |
| Net sales | 10,419,294) | 8,971,337) | 8,149,719) | 7,986,252) | 7,791,069) | |
| Profitability Ratio | ||||||
| OPM3 | 20.04% | 21.52% | 20.35% | 19.09% | 19.72% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Coca-Cola Co. | 29.15% | 33.91% | — | — | — | |
| Mondelēz International Inc. | 12.76% | 20.19% | — | — | — | |
| PepsiCo Inc. | 13.92% | 14.80% | — | — | — | |
| Philip Morris International Inc. | 38.57% | 41.51% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2022 Calculation
OPM = 100 × NOPBT ÷ Net sales
= 100 × 2,088,315 ÷ 10,419,294 = 20.04%
4 Click competitor name to see calculations.
The financial performance from 2018 to 2022 is characterized by consistent top-line growth and an overall increase in absolute operating profitability, although the operating profit margin experienced periodic fluctuations.
- Revenue Trajectory
- Net sales demonstrated steady year-over-year growth throughout the analyzed period. Starting at 7.79 billion US dollars in 2018, revenue increased to 10.42 billion US dollars by 2022. The most pronounced expansion occurred between 2021 and 2022, marking a significant acceleration in sales volume or pricing power.
- Net Operating Profit Before Taxes (NOPBT)
- NOPBT grew from 1.54 billion US dollars in 2018 to 2.09 billion US dollars in 2022. While there was a slight contraction in operating profit in 2019, the subsequent three years showed a strong recovery and expansion, with the most substantial absolute increase occurring between 2020 and 2021.
- Operating Profit Margin (OPM) Analysis
- The operating profit margin exhibited a non-linear trend, starting at 19.72% in 2018 and dipping to 19.09% in 2019. A period of margin expansion followed, peaking at 21.52% in 2021. However, in 2022, the margin declined to 20.04% despite the record high in net sales and NOPBT. This indicates that operating costs grew at a higher rate than revenue during the 2022 fiscal year, resulting in a moderate compression of operating efficiency.
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Turnover of Capital (TO)
Hershey Co., TO calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net sales | 10,419,294) | 8,971,337) | 8,149,719) | 7,986,252) | 7,791,069) | |
| Invested capital1 | 8,759,552) | 8,529,610) | 7,520,057) | 6,702,394) | 6,545,593) | |
| Efficiency Ratio | ||||||
| TO2 | 1.19 | 1.05 | 1.08 | 1.19 | 1.19 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Coca-Cola Co. | 0.54 | 0.48 | — | — | — | |
| Mondelēz International Inc. | 0.49 | 0.47 | — | — | — | |
| PepsiCo Inc. | 1.24 | 1.14 | — | — | — | |
| Philip Morris International Inc. | 0.67 | 1.08 | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 Invested capital. See details »
2 2022 Calculation
TO = Net sales ÷ Invested capital
= 10,419,294 ÷ 8,759,552 = 1.19
3 Click competitor name to see calculations.
The analysis of capital efficiency over the five-year period reveals a consistent increase in revenue generation alongside a growing investment base, culminating in a recovery of capital turnover efficiency by the end of 2022.
- Net Sales Growth
- A sustained upward trend in net sales is observed, increasing from 7.79 billion USD in 2018 to 10.42 billion USD in 2022. The most significant growth occurred between 2021 and 2022, where sales increased by approximately 1.45 billion USD.
- Invested Capital Expansion
- Invested capital grew steadily from 6.55 billion USD in 2018 to 8.76 billion USD in 2022. This indicates a continuous commitment of resources to support the company's operational expansion.
- Turnover of Capital Dynamics
- The turnover of capital ratio remained stable at 1.19 through 2019, followed by a decline to 1.08 in 2020 and a further decrease to 1.05 in 2021. This contraction suggests that during the 2020-2021 period, the growth in invested capital exceeded the growth in net sales. However, a strong recovery is noted in 2022, as the ratio returned to 1.19, indicating that revenue growth significantly outpaced the increase in invested capital in the final year of the period.
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Effective Cash Tax Rate (CTR)
Hershey Co., CTR calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 1,821,868) | 1,600,256) | 1,432,349) | 1,243,570) | 1,303,042) | |
| Add: Cash operating taxes2 | 266,447) | 330,049) | 225,816) | 281,073) | 233,444) | |
| Net operating profit before taxes (NOPBT) | 2,088,315) | 1,930,305) | 1,658,165) | 1,524,643) | 1,536,486) | |
| Tax Rate | ||||||
| CTR3 | 12.76% | 17.10% | 13.62% | 18.44% | 15.19% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Coca-Cola Co. | 19.26% | 14.55% | — | — | — | |
| Mondelēz International Inc. | 24.96% | 18.38% | — | — | — | |
| PepsiCo Inc. | 22.12% | 18.12% | — | — | — | |
| Philip Morris International Inc. | 21.27% | 21.67% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2022 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × 266,447 ÷ 2,088,315 = 12.76%
4 Click competitor name to see calculations.
The financial performance from 2018 to 2022 indicates a consistent expansion in operational profitability contrasted by a volatile effective cash tax burden. While the company successfully grew its operating earnings, the actual cash outflows for taxes did not follow a linear progression, leading to significant fluctuations in the effective cash tax rate.
- Net Operating Profit Before Taxes (NOPBT)
- A sustained upward trend in operational profitability is observed. NOPBT rose from 1,536,486 thousand USD in 2018 to 2,088,315 thousand USD in 2022, representing a total increase of approximately 35.9% over the five-year period. This suggests a robust growth in core business operations.
- Cash Operating Taxes
- Cash tax payments exhibited instability, peaking at 330,049 thousand USD in 2021 before declining to 266,447 thousand USD in 2022. This volatility indicates that cash tax obligations were influenced by factors other than purely current-year operating profit.
- Effective Cash Tax Rate (CTR)
- The CTR fluctuated significantly, with a high of 18.44% in 2019 and a low of 12.76% in 2022. A notable inverse relationship is observed in 2022, where the company achieved its highest NOPBT of the period while simultaneously recording its lowest effective cash tax rate. This divergence suggests an increase in tax efficiency or the utilization of tax benefits during a period of peak operational performance.
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