Return on capital (ROC) is after tax rate of return on net business assets. ROIC is unaffected by changes in interest rates or company’s debt and equity structure. It measures business productivity performance.

Return on Invested Capital (ROIC)
Decomposition of ROIC
Operating Profit Margin (OPM)
Turnover of Capital (TO)
Effective Cash Tax Rate (CTR)

Illinois Tool Works Inc., 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	2,672	2,774	1,924	1,924	1,971
Invested capital²	13,033	12,895	14,406	14,140	14,601
Performance Ratio
ROIC³	20.50%	21.51%	13.36%	13.61%	13.50%
Benchmarks
ROIC, Competitors⁴
Caterpillar Inc.	11.78%	12.15%	4.56%	-1.90%	3.70%

Based on: 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12).

¹ NOPAT. See details »

² Invested capital. See details »

³ 2019 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × 2,672 ÷ 13,033 = 20.50%

⁴ Click competitor name to see calculations.

Performance ratio	Description	The company
ROIC	A measure of the periodic, after tax, cash-on-cash yield earned in the business.	Illinois Tool Works Inc.’s ROIC improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Illinois Tool Works Inc., decomposition of ROIC


	ROIC	=	OPM¹	×	TO²	×	1 – CTR³
Dec 31, 2019	20.50%	=	24.49%	×	1.08	×	77.49%
Dec 31, 2018	21.51%	=	24.49%	×	1.15	×	76.65%
Dec 31, 2017	13.36%	=	24.56%	×	1.00	×	54.64%
Dec 31, 2016	13.61%	=	23.02%	×	0.96	×	61.41%
Dec 31, 2015	13.50%	=	21.41%	×	0.92	×	68.77%

Based on: 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12).

¹ Operating profit margin (OPM). See calculations »

² Turnover of capital (TO). See calculations »

³ Effective cash tax rate (CTR). See calculations »

The primary reason for the decrease in return on invested capital (ROIC) over 2019 year is the decrease in efficiency measured by turnover of capital (TO) ratio.

Illinois Tool Works Inc., 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	2,672	2,774	1,924	1,924	1,971
Add: Cash operating taxes²	776	845	1,597	1,209	895
Net operating profit before taxes (NOPBT)	3,449	3,619	3,522	3,133	2,865

Operating revenue	14,109	14,768	14,314	13,599	13,405
Add: Increase (decrease) in deferred revenue and customer deposits	(27)	10	25	11	(25)
Adjusted operating revenue	14,082	14,778	14,339	13,610	13,380
Profitability Ratio
OPM³	24.49%	24.49%	24.56%	23.02%	21.41%
Benchmarks
OPM, Competitors⁴
Caterpillar Inc.	16.21%	15.43%	10.76%	-0.56%	8.20%

Based on: 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12).

¹ NOPAT. See details »

² Cash operating taxes. See details »

³ 2019 Calculation
OPM = 100 × NOPBT ÷ Adjusted operating revenue
= 100 × 3,449 ÷ 14,082 = 24.49%

⁴ Click competitor name to see calculations.

Profitability ratio	Description	The company
OPM	The operating profit margin (OPM) is the ratio of pretax economic earnings, or NOPBT, to sales.	Illinois Tool Works Inc.’s OPM deteriorated from 2017 to 2018 but then slightly improved from 2018 to 2019.

Illinois Tool Works Inc., 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)
Operating revenue	14,109	14,768	14,314	13,599	13,405
Add: Increase (decrease) in deferred revenue and customer deposits	(27)	10	25	11	(25)
Adjusted operating revenue	14,082	14,778	14,339	13,610	13,380

Invested capital¹	13,033	12,895	14,406	14,140	14,601
Efficiency Ratio
TO²	1.08	1.15	1.00	0.96	0.92
Benchmarks
TO, Competitors³
Caterpillar Inc.	0.92	0.97	0.84	0.69	0.73

Based on: 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12).

¹ Invested capital. See details »

² 2019 Calculation
TO = Adjusted operating revenue ÷ Invested capital
= 14,082 ÷ 13,033 = 1.08

³ Click competitor name to see calculations.

Efficiency ratio	Description	The company
TO	The turnover of capital (TO) is the ratio of sales to invested capital. Capital turnover is a function of the efficiency of working capital management and of net fixed assets.	Illinois Tool Works Inc.’s TO improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Illinois Tool Works Inc., 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	2,672	2,774	1,924	1,924	1,971
Add: Cash operating taxes²	776	845	1,597	1,209	895
Net operating profit before taxes (NOPBT)	3,449	3,619	3,522	3,133	2,865
Tax Rate
CTR³	22.51%	23.35%	45.36%	38.59%	31.23%
Benchmarks
CTR, Competitors⁴
Caterpillar Inc.	21.39%	19.19%	49.63%	—	38.31%

Based on: 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12).

¹ NOPAT. See details »

² Cash operating taxes. See details »

³ 2019 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × 776 ÷ 3,449 = 22.51%

⁴ Click competitor name to see calculations.

Tax rate	Description	The company
CTR	Effective cash tax rate on operating income.	Illinois Tool Works Inc.’s CTR decreased from 2017 to 2018 and from 2018 to 2019.

Illinois Tool Works Inc. (NYSE:ITW)

Return on Capital (ROC)

Return on Invested Capital (ROIC)

Decomposition of ROIC

Operating Profit Margin (OPM)

Turnover of Capital (TO)

Effective Cash Tax Rate (CTR)