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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Reynolds American Inc. pages available for free this week:
- Cash Flow Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Long-term (Investment) Activity Ratios
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Capital Asset Pricing Model (CAPM)
- Operating Profit Margin since 2005
- Debt to Equity since 2005
- Total Asset Turnover since 2005
- Price to Sales (P/S) since 2005
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Return on Invested Capital (ROIC)
Reynolds American Inc., ROIC calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| ROIC3 | ||||||
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2016 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The financial data reveals notable fluctuations in key performance indicators over the five-year period from 2012 to 2016.
- Net Operating Profit After Taxes (NOPAT)
- This metric initially increased substantially from 1,384 million USD in 2012 to 2,217 million USD in 2013. However, it declined to 1,432 million USD in 2014 before experiencing a significant rise in the subsequent years, reaching 2,912 million USD in 2015 and peaking at 6,935 million USD in 2016. This trend indicates strong profit growth particularly in the final two years.
- Invested Capital
- The invested capital remained relatively stable between 2012 and 2014, fluctuating slightly around the 10,000 million USD mark (10,375 million USD in 2012, 10,479 million USD in 2013, and 9,728 million USD in 2014). However, there was a dramatic increase in 2015 and 2016, surging to 45,105 million USD and 44,972 million USD respectively. This suggests a major expansion or acquisition during that period which significantly increased the asset base.
- Return on Invested Capital (ROIC)
- ROIC followed a volatile pattern. It rose sharply from 13.34% in 2012 to 21.16% in 2013, indicating improved efficiency in generating returns on invested capital. In 2014, ROIC decreased to 14.72%, followed by a steep decline to 6.46% in 2015, coinciding with the large increase in invested capital. By 2016, it improved again to 15.42%, though it remained below the peak levels observed in 2013. This suggests that the company faced challenges in maintaining return efficiency immediately after the capital expansion but partially recovered by 2016.
Decomposition of ROIC
Reynolds American Inc., decomposition of ROIC
| ROIC | = | OPM1 | × | TO2 | × | 1 – CTR3 | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2016 | = | × | × | ||||
| Dec 31, 2015 | = | × | × | ||||
| Dec 31, 2014 | = | × | × | ||||
| Dec 31, 2013 | = | × | × | ||||
| Dec 31, 2012 | = | × | × |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
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 demonstrates a notable upward trend over the period analyzed. Starting from 17.91% at the end of 2012, it increased to 25.21% in 2013, then saw a slight decline to 20.93% in 2014. Following this dip, there was a substantial rise to 46.36% in 2015 and further to 61.42% in 2016. This pattern reflects a significant improvement in operational efficiency and profitability, especially in the latter two years.
- Turnover of Capital (TO)
- The turnover of capital ratio remained relatively stable at around 1.18 and 1.14 in 2012 and 2013 respectively, followed by a marginal increase to 1.24 in 2014. However, a marked decrease occurred in 2015, dropping sharply to 0.33 and then slightly rising to 0.38 in 2016. This downward shift suggests a reduced efficiency in using invested capital to generate sales during the latter years.
- Effective Cash Tax Rate (CTR)
- The effective cash tax rate, calculated as one minus the CTR, exhibited considerable volatility throughout the period. It increased from 63.22% in 2012 to a peak of 73.46% in 2013, then decreased sharply to 56.63% in 2014, further dropping to 42.21% in 2015, before rising again to 66.74% in 2016. This fluctuation indicates variable tax impacts on cash flows, which may be influenced by changes in tax regulation or tax planning strategies.
- Return on Invested Capital (ROIC)
- The return on invested capital started at 13.34% at the end of 2012, rose significantly to 21.16% in 2013, then experienced a decline to 14.72% in 2014. A more pronounced drop occurred in 2015 down to 6.46%, followed by a recovery to 15.42% in 2016. This trend mirrors the fluctuations seen in the turnover of capital, evidencing variations in how effectively the company is generating returns on its invested capital over time.
Operating Profit Margin (OPM)
Reynolds American Inc., OPM calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Net sales, includes excise taxes | ||||||
| Add: Increase (decrease) in deferred revenue, related party | ||||||
| Adjusted net sales, includes excise taxes | ||||||
| Profitability Ratio | ||||||
| OPM3 | ||||||
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2016 Calculation
OPM = 100 × NOPBT ÷ Adjusted net sales, includes excise taxes
= 100 × ÷ =
4 Click competitor name to see calculations.
Analysis of the financial data reveals several notable trends over the five-year period examined. There is a marked upward trajectory in net operating profit before taxes (NOPBT), which increased substantially from 2,190 million US dollars in 2012 to 10,391 million US dollars in 2016. This represents an almost fivefold increase, indicating improving profitability at the operating level before tax considerations.
Adjusted net sales, inclusive of excise taxes, display moderate growth with minor fluctuations. Sales figures decreased slightly from 12,227 million US dollars in 2012 to 11,972 million in 2013 but subsequently rose each year to reach 16,918 million by the end of 2016. This growth pattern suggests a resilient sales performance with an overall positive trend after an initial dip.
The operating profit margin (OPM) demonstrates a significant improvement over the period. Starting at 17.91% in 2012, the margin peaked at 61.42% in 2016. Although a decrease was noted in 2014 to 20.93%, the margin surged dramatically in 2015 to 46.36% and continued its upward momentum in 2016. This sharp increase implies enhanced cost control, operational efficiency, or a favorable sales mix that substantially improved profitability at the operating level.
- Summary of key trends:
- - Net operating profit before taxes showed strong growth, nearly quintupling from 2012 to 2016.
- - Adjusted net sales, after a slight decline in 2013, exhibited steady increases, achieving a considerable rise by 2016.
- - Operating profit margin improved markedly, especially after 2014, indicating enhanced operational leverage and profitability.
Overall, the data reflects a company with improving operational performance and profitability, supported by growing sales and expanding profit margins over the analyzed period.
Turnover of Capital (TO)
Reynolds American Inc., TO calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net sales, includes excise taxes | ||||||
| Add: Increase (decrease) in deferred revenue, related party | ||||||
| Adjusted net sales, includes excise taxes | ||||||
| Invested capital1 | ||||||
| Efficiency Ratio | ||||||
| TO2 | ||||||
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 Invested capital. See details »
2 2016 Calculation
TO = Adjusted net sales, includes excise taxes ÷ Invested capital
= ÷ =
3 Click competitor name to see calculations.
- Adjusted Net Sales
- The adjusted net sales exhibit an overall upward trend during the observed period. Starting at $12,227 million in 2012, the sales marginally declined in 2013 to $11,972 million. However, from 2014 onwards, a steady increase is evident, with values rising to $12,080 million in 2014, escalating sharply to $14,885 million in 2015, and reaching $16,918 million in 2016. This progression indicates enhanced revenue generation capacity over these years.
- Invested Capital
- Invested capital remained relatively stable between 2012 and 2014, fluctuating slightly around the $10,000 million mark, with amounts of $10,375 million in 2012, $10,479 million in 2013, and a decrease to $9,728 million in 2014. A significant increase occurred in 2015, with invested capital surging substantially to $45,105 million and remaining nearly constant at $44,972 million in 2016. This sharp rise may suggest a large acquisition, capital expenditure, or change in accounting classification during that period.
- Turnover of Capital (TO)
- The turnover of capital ratio demonstrates a declining trend over the years. It was relatively stable between 2012 and 2014, with values of 1.18, 1.14, and 1.24 respectively, implying a consistent efficiency in utilizing invested capital to generate sales. In 2015 and 2016, the ratio dropped significantly to 0.33 and 0.38, respectively, correlating with the pronounced increase in invested capital. The reduction in this ratio signals a decrease in capital utilization efficiency, likely influenced by the sharp expansion in invested capital that has not yet proportionally translated into increased sales.
Effective Cash Tax Rate (CTR)
Reynolds American Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ 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 | ||||||
| Coca-Cola Co. | ||||||
| Mondelēz International Inc. | ||||||
| PepsiCo Inc. | ||||||
| Philip Morris International Inc. | ||||||
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2016 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × ÷ =
4 Click competitor name to see calculations.
Analyzing the financial data over the five-year period reveals several key trends and observations regarding operating profit, taxes, and tax rates.
- Cash Operating Taxes
- The cash operating taxes showed variability over the observed years. From 2012 to 2013, the taxes slightly decreased from 805 million USD to 801 million USD. In 2014, there was a noticeable increase to 1096 million USD. The most significant jump occurred in 2015 when cash operating taxes surged to 3988 million USD, before declining in 2016 to 3456 million USD. This pattern indicates substantial fluctuations in tax payments, with a peak in 2015 potentially driven by changes in profit or tax policies.
- Net Operating Profit Before Taxes (NOPBT)
- Net operating profit before taxes showed a generally upward trend during the period. Starting at 2190 million USD in 2012, it increased to 3018 million USD in 2013, followed by a decline to 2528 million USD in 2014. After this dip, a significant rise occurred in 2015 reaching 6900 million USD, with the highest value recorded in 2016 at 10391 million USD. This indicates robust growth in profitability, especially notable from 2014 onwards.
- Effective Cash Tax Rate (CTR)
- The effective cash tax rate displayed considerable fluctuation. Beginning at 36.78% in 2012, it decreased to 26.54% in 2013, suggesting improved tax efficiency or favorable tax conditions. In 2014, the rate rose sharply to 43.37%, followed by an even higher peak in 2015 at 57.79%. In 2016, the tax rate declined to 33.26%. These swings could reflect changes in tax legislation, timing differences between book and tax expenses, or recognition of deferred tax assets or liabilities.
Overall, the increase in net operating profit before taxes from 2014 onwards likely contributed to the higher cash tax payments seen particularly in 2015 and 2016. The variability in the effective cash tax rate suggests that tax strategies or external tax environment changes influenced the company’s tax burden year over year. The substantial growth in profitability combined with fluctuating tax rates underscores the importance of monitoring tax policies and their impact on post-tax earnings.