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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Northrop Grumman Corp. pages available for free this week:
- Balance Sheet: Assets
- Analysis of Solvency Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Return on Assets (ROA) since 2005
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
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Return on Invested Capital (ROIC)
Northrop Grumman Corp., 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 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: 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 × ÷ =
4 Click competitor name to see calculations.
- Net Operating Profit After Taxes (NOPAT)
- The NOPAT exhibited a fluctuating trend over the five-year period. It decreased significantly from 3933 million USD in 2018 to 2243 million USD in 2019, indicating a substantial decline in operating profitability. However, the metric rebounded to 3992 million USD in 2020. The year 2021 saw a pronounced surge, with NOPAT reaching 8020 million USD, more than doubling the previous year's figure. In 2022, NOPAT retreated to 4975 million USD but remained higher than the values recorded from 2018 to 2020.
- Invested Capital
- Invested capital showed a generally increasing trend across the period, rising from 24076 million USD in 2018 to 30111 million USD in 2022. There was a slight decrease in 2019 to 23507 million USD, but the capital base expanded steadily thereafter, with moderate growth each year, indicating ongoing investment in long-term assets or operations.
- Return on Invested Capital (ROIC)
- ROIC followed a pattern similar to NOPAT but exhibited notably higher volatility. It started at 16.34% in 2018, dropped to a low of 9.54% in 2019, then increased substantially to 14.98% in 2020. A sharp peak occurred in 2021, with ROIC reaching 29.02%, reflecting an exceptionally efficient use of capital that year. In 2022, ROIC decreased appreciably to 16.52%, yet still surpassed most previous years except the peak in 2021.
- Overall Insights
- The financial data reveals a period marked by volatility in profitability and capital efficiency. After a challenging 2019, improvements in NOPAT and ROIC suggest successful operational and capital management initiatives. The spike in 2021, both in absolute profitability and efficiency, could indicate a one-off event or operational windfall, as subsequent year metrics moderated. The steady rise in invested capital may reflect a strategic choice to support growth, though the returns on this increased investment varied notably year to year.
Decomposition of ROIC
Northrop Grumman Corp., decomposition of ROIC
| ROIC | = | OPM1 | × | TO2 | × | 1 – CTR3 | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × | ||||
| Dec 31, 2020 | = | × | × | ||||
| Dec 31, 2019 | = | × | × | ||||
| Dec 31, 2018 | = | × | × |
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 »
- Operating Profit Margin (OPM)
- The operating profit margin exhibited significant variability over the observed period. It declined from 14.5% in 2018 to a low of 9.26% in 2019, followed by a moderate recovery to 11.89% in 2020. A pronounced increase occurred in 2021, reaching 26.78%, before decreasing again to 17.45% in 2022. This fluctuation suggests periods of changing operational efficiency or cost structure adjustments affecting profitability.
- Turnover of Capital (TO)
- The turnover of capital ratio showed a generally declining trend after an initial increase. It rose from 1.25 in 2018 to 1.44 in 2019, marking the highest point in the period, then steadily decreased to 1.38 in 2020, 1.29 in 2021, and finally 1.22 in 2022. This declining trend may indicate reduced efficiency in utilizing capital to generate sales or revenue over time.
- One minus Effective Cash Tax Rate (1 – CTR)
- This metric, representing the proportion of earnings retained after cash taxes, exhibited considerable volatility. Starting at 90.13% in 2018, it dropped sharply to 71.56% in 2019, rose again to 91.2% in 2020, then declined to 83.95% in 2021, and further to 77.87% in 2022. These fluctuations reflect significant changes in the effective cash tax rate impacting net earnings available to reinvest.
- Return on Invested Capital (ROIC)
- ROIC displayed marked changes across the years. Beginning at 16.34% in 2018, it declined to 9.54% in 2019, rebounded to 14.98% in 2020, peaked at 29.02% in 2021, and then declined to 16.52% in 2022. The sharp increase in 2021 suggests a period of particularly high capital efficiency or profitability, though the subsequent decline signals a return to a more moderate level.
Operating Profit Margin (OPM)
Northrop Grumman Corp., 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 millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Sales | ||||||
| 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: 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 ÷ Sales
= 100 × ÷ =
4 Click competitor name to see calculations.
- Net Operating Profit Before Taxes (NOPBT)
- The NOPBT exhibits notable fluctuations across the five-year period. The figure decreased from $4,363 million in 2018 to $3,135 million in 2019, indicating a decline in profitability. Subsequently, it rebounded to $4,377 million in 2020, followed by a substantial increase to a peak of $9,553 million in 2021. However, in 2022, NOPBT declined again to $6,388 million, remaining above the levels observed in 2018-2020 but well below the 2021 peak.
- Sales
- The sales figures show a generally upward trend over the period, rising from $30,095 million in 2018 to $36,602 million in 2022. Annual growth, however, is uneven. Notably, sales increased steadily through 2019 and 2020, reaching $36,799 million, but then declined slightly to $35,667 million in 2021 before recovering marginally in 2022.
- Operating Profit Margin (OPM)
- The operating profit margin reflects significant volatility over the five years. Starting at 14.5% in 2018, OPM dropped sharply to 9.26% in 2019, suggesting a compression of operating efficiency or increased costs. It then improved moderately to 11.89% in 2020. The margin surged dramatically to 26.78% in 2021, indicating highly improved profitability relative to sales. However, this was followed by a decline to 17.45% in 2022, still representing a strong margin compared to the earlier years but a notable decrease from the 2021 peak.
- General Observations
- Overall, the data display a pattern of volatility in profitability metrics, with a particularly strong performance in 2021 as evidenced by both NOPBT and OPM peaking in that year. Sales growth is positive but less volatile, suggesting that variations in profit margins are more likely attributable to changes in operating efficiency, cost structure, or pricing strategies rather than revenue fluctuations alone. The decrease in profitability measures in 2022 relative to 2021, despite slightly higher sales compared to 2021, may warrant further analysis of expense management or market conditions during that year.
Turnover of Capital (TO)
Northrop Grumman Corp., TO calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Sales | ||||||
| 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: 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 = Sales ÷ Invested capital
= ÷ =
3 Click competitor name to see calculations.
- Sales Trends
- Sales exhibited a consistent upward trend from 2018 through 2020, increasing from 30,095 million US dollars in 2018 to 36,799 million US dollars in 2020. In 2021, sales experienced a slight decline, decreasing to 35,667 million US dollars. Subsequently, there was a modest recovery in 2022, with sales rising again to 36,602 million US dollars, though not surpassing the 2020 peak.
- Invested Capital Trends
- Invested capital showed a downward movement between 2018 and 2019, declining from 24,076 million US dollars to 23,507 million US dollars. However, from 2019 onwards, invested capital increased steadily each year, reaching 30,111 million US dollars in 2022. This reflects an overall growth in invested capital during the observed period.
- Turnover of Capital (TO) Trends
- The turnover of capital ratio rose from 1.25 in 2018 to a peak of 1.44 in 2019, indicating improved efficiency in utilizing invested capital to generate sales. Subsequently, the ratio declined gradually over the next three years, reaching 1.22 in 2022, which suggests a reduction in capital efficiency over that timeframe.
- Overall Analysis
- While sales generally increased over these years, the growth exhibited some volatility with a dip in 2021. The invested capital demonstrated a recovery and continuous growth after an initial decline. Meanwhile, the turnover of capital ratio's decline after 2019 suggests that despite increased invested capital and higher sales, the efficiency of capital utilization has diminished somewhat. This may indicate that the company is investing more capital but not achieving proportional sales growth in the later years.
Effective Cash Tax Rate (CTR)
Northrop Grumman Corp., 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 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: 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 × ÷ =
4 Click competitor name to see calculations.
- Cash Operating Taxes
- The cash operating taxes exhibit a fluctuating pattern over the five-year period. Beginning at 431 million USD in 2018, the value more than doubled to 891 million USD in 2019. This was followed by a sharp decline to 385 million USD in 2020. Subsequently, there was a significant recovery in 2021, reaching 1,533 million USD, before slightly decreasing to 1,413 million USD in 2022. Overall, the cash operating taxes show considerable variability, with the highest level recorded in 2021.
- Net Operating Profit Before Taxes (NOPBT)
- The net operating profit before taxes demonstrates notable volatility throughout the analyzed period. It started at 4,363 million USD in 2018, declined to 3,135 million USD in 2019, then rebounded to 4,377 million USD in 2020. In 2021, there was a substantial increase to 9,553 million USD, representing the peak value, followed by a decrease to 6,388 million USD in 2022. This trend indicates one particularly strong year in 2021, with profits more than doubling compared to the previous year, before moderating in 2022.
- Effective Cash Tax Rate (CTR)
- The effective cash tax rate fluctuated significantly between 2018 and 2022. Initially, the rate was relatively low at 9.87% in 2018, then rose sharply to 28.44% in 2019. It decreased markedly again to 8.8% in 2020, followed by an increase to 16.05% in 2021 and a further rise to 22.13% in 2022. This pattern suggests that the tax burden relative to operating profits was volatile, with the lowest rates occurring in 2018 and 2020 and higher rates seen in the other years, especially in 2019 and 2022.
- Overall Insights
- The financial data reveals a cyclical pattern in both taxes paid and operating profits before taxes. The company experienced significant profit growth in 2021, which aligns with the highest cash operating taxes in the same year. Tax rates did not consistently move in line with profits or taxes paid, indicating possible changes in tax planning, legislation, or profit mix across years. The volatility in both tax expense and profit margins warrants further investigation to understand the underlying operational or external factors influencing these fluctuations.