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)
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 | 6,935) | 2,912) | 1,432) | 2,217) | 1,384) | |
| Invested capital2 | 44,972) | 45,105) | 9,728) | 10,479) | 10,375) | |
| Performance Ratio | ||||||
| ROIC3 | 15.42% | 6.46% | 14.72% | 21.16% | 13.34% | |
| 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 × 6,935 ÷ 44,972 = 15.42%
4 Click competitor name to see calculations.
The analysis of return on invested capital (ROIC) between 2012 and 2016 reveals significant volatility, characterized by a period of stability followed by a substantial expansion of the capital base and a subsequent recovery in profitability.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a general upward trajectory, increasing from $1,384 million in 2012 to $6,935 million by 2016. While a temporary contraction occurred in 2014, the most substantial growth is observed between 2015 and 2016, where NOPAT more than doubled.
- Invested Capital
- The capital base remained relatively stable from 2012 through 2014, fluctuating around $10 billion. A critical shift occurred in 2015, with invested capital surging to $45,105 million. This represents a more than fourfold increase in the capital employed, which remained largely consistent into 2016.
- Return on Invested Capital (ROIC)
- ROIC peaked at 21.16% in 2013 but fell to a period low of 6.46% in 2015. This decline is attributable to the rapid expansion of invested capital which outpaced profit growth during that window. A recovery is observed in 2016, with ROIC rising to 15.42%, driven by the sharp increase in NOPAT against a stabilized capital investment.
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Decomposition of ROIC
Reynolds American Inc., decomposition of ROIC
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 »
The analysis of return on invested capital (ROIC) from 2012 to 2016 reveals a period of significant structural transition. While ROIC fluctuated, peaking at 21.16% in 2013 and hitting a trough of 6.46% in 2015, the underlying drivers show a stark divergence between profitability margins and capital efficiency.
- Operating Profit Margin (OPM)
- A strong and accelerating upward trend is observed in the operating profit margin, which rose from 17.91% in 2012 to 61.42% by 2016. The most substantial growth occurred between 2014 and 2016, where the margin more than tripled, indicating a significant increase in operational profitability per unit of revenue.
- Turnover of Capital (TO)
- Capital turnover remained relatively stable between 1.14 and 1.24 from 2012 through 2014. However, a sharp contraction occurred in 2015, with the ratio falling to 0.33, followed by a slight recovery to 0.38 in 2016. This precipitous decline suggests a massive expansion of the invested capital base that far outpaced the growth in revenue during this period.
- Effective Cash Tax Rate (1 – CTR)
- The after-tax retention component exhibited volatility throughout the period. The value peaked at 73.46% in 2013 and reached its lowest point of 42.21% in 2015. The recovery to 66.74% in 2016 contributed positively to the restoration of the overall return on capital.
- ROIC Decomposition and Synthesis
- The decline in ROIC to 6.46% in 2015 was primarily driven by the collapse in capital turnover and a simultaneous dip in the after-tax retention rate, which outweighed the gains made in operating margins. By 2016, ROIC recovered to 15.42%, as the exceptional growth in operating profit margins (61.42%) compensated for the diminished capital efficiency and a rebounding tax position.
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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 | 6,935) | 2,912) | 1,432) | 2,217) | 1,384) | |
| Add: Cash operating taxes2 | 3,456) | 3,988) | 1,096) | 801) | 805) | |
| Net operating profit before taxes (NOPBT) | 10,391) | 6,900) | 2,528) | 3,018) | 2,190) | |
| Net sales, includes excise taxes | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Add: Increase (decrease) in deferred revenue, related party | 72) | 1) | (16) | 6) | —) | |
| Adjusted net sales, includes excise taxes | 16,918) | 14,885) | 12,080) | 11,972) | 12,227) | |
| Profitability Ratio | ||||||
| OPM3 | 61.42% | 46.36% | 20.93% | 25.21% | 17.91% | |
| 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 × 10,391 ÷ 16,918 = 61.42%
4 Click competitor name to see calculations.
The financial performance from 2012 to 2016 is characterized by a substantial expansion in operational efficiency and profitability. While the initial period exhibited moderate volatility, the latter years saw an exponential increase in the operating profit margin.
- Operating Profit Margin (OPM) Trend
- A consistent upward trajectory is observed in the OPM, which rose from 17.91% in 2012 to 61.42% by 2016. The most significant acceleration occurred between 2014 and 2015, where the margin increased by 25.43 percentage points, rising from 20.93% to 46.36%.
- Net Operating Profit Before Taxes (NOPBT) Growth
- NOPBT demonstrated aggressive growth, increasing from US$ 2,190 million in 2012 to US$ 10,391 million in 2016. This growth significantly outpaced the increase in adjusted net sales, indicating that profit growth was driven more by margin expansion than by volume increases alone.
- Revenue Correlation and Operational Efficiency
- Adjusted net sales remained relatively stagnant between 2012 and 2014, hovering around the US$ 12 billion range. However, a subsequent increase in sales to US$ 16,918 million by 2016 coincided with the sharp rise in OPM, suggesting a successful optimization of the cost structure or a shift toward higher-margin revenue streams.
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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 | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Add: Increase (decrease) in deferred revenue, related party | 72) | 1) | (16) | 6) | —) | |
| Adjusted net sales, includes excise taxes | 16,918) | 14,885) | 12,080) | 11,972) | 12,227) | |
| Invested capital1 | 44,972) | 45,105) | 9,728) | 10,479) | 10,375) | |
| Efficiency Ratio | ||||||
| TO2 | 0.38 | 0.33 | 1.24 | 1.14 | 1.18 | |
| 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
= 16,918 ÷ 44,972 = 0.38
3 Click competitor name to see calculations.
An analysis of the financial performance from 2012 to 2016 reveals a significant shift in capital efficiency. While revenue growth accelerated in the latter part of the period, a substantial increase in the capital base led to a sharp decline in the turnover of capital.
- Adjusted Net Sales Trends
- Between 2012 and 2014, adjusted net sales remained relatively stable, fluctuating between 11.97 billion and 12.23 billion US$. A period of accelerated growth commenced in 2015, with sales rising to 14.89 billion US$, and further increasing to 16.92 billion US$ by the end of 2016.
- Invested Capital Dynamics
- Invested capital exhibited stability from 2012 through 2014, averaging approximately 10.2 billion US$. A critical inflection point occurred in 2015, where invested capital surged to 45.11 billion US$, representing an increase of over 360% compared to the previous year. This elevated capital level remained consistent through 2016 at 44.97 billion US$.
- Turnover of Capital Analysis
- The turnover of capital ratio remained robust from 2012 to 2014, peaking at 1.24 in 2014, indicating high efficiency in generating sales from the invested capital base. The massive expansion of invested capital in 2015 resulted in a sharp contraction of the turnover ratio to 0.33. A marginal recovery to 0.38 was observed in 2016, driven by continued sales growth against a stable capital base, although the efficiency remains significantly lower than the pre-2015 levels.
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Effective Cash Tax Rate (CTR)
Reynolds American Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | 6,935) | 2,912) | 1,432) | 2,217) | 1,384) | |
| Add: Cash operating taxes2 | 3,456) | 3,988) | 1,096) | 801) | 805) | |
| Net operating profit before taxes (NOPBT) | 10,391) | 6,900) | 2,528) | 3,018) | 2,190) | |
| Tax Rate | ||||||
| CTR3 | 33.26% | 57.79% | 43.37% | 26.54% | 36.78% | |
| 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 × 3,456 ÷ 10,391 = 33.26%
4 Click competitor name to see calculations.
The financial trajectory between 2012 and 2016 is characterized by a substantial expansion in Net Operating Profit Before Taxes (NOPBT) accompanied by significant volatility in the effective cash tax rate (CTR). While operating profitability grew consistently, cash tax outflows exhibited non-linear fluctuations, suggesting a decoupling between accounting profit and actual tax disbursements during this period.
- Net Operating Profit Before Taxes (NOPBT) Growth
- A strong upward trend in NOPBT is observed, with values rising from 2,190 million US$ in 2012 to 10,391 million US$ by 2016. The most pronounced acceleration occurred after 2014, where the profit more than quadrupled within two fiscal years.
- Cash Operating Taxes Behavior
- Cash tax payments remained relatively stable from 2012 to 2014, staying between 801 million and 1,096 million US$. However, a significant spike occurred in 2015, reaching a peak of 3,988 million US$, followed by a slight contraction to 3,456 million US$ in 2016.
- Effective Cash Tax Rate (CTR) Analysis
- The CTR demonstrated considerable instability, fluctuating from a minimum of 26.54% in 2013 to a maximum of 57.79% in 2015. A notable divergence is evident in 2016, where the CTR dropped to 33.26% despite NOPBT reaching its period high. This indicates that while profitability reached its peak, the cash tax burden as a percentage of profit decreased significantly from the previous year.
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