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)
Trane Technologies plc, 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 | 2,138,919) | 1,673,718) | 1,265,645) | 1,640,972) | 1,451,904) | |
| Invested capital2 | 13,518,500) | 13,354,600) | 13,835,000) | 15,640,000) | 13,684,819) | |
| Performance Ratio | ||||||
| ROIC3 | 15.82% | 12.53% | 9.15% | 10.49% | 10.61% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Boeing Co. | -5.72% | -5.35% | — | — | — | |
| Caterpillar Inc. | 13.41% | 12.58% | — | — | — | |
| Eaton Corp. plc | 8.00% | 7.84% | — | — | — | |
| GE Aerospace | 2.73% | -2.53% | — | — | — | |
| Honeywell International Inc. | 11.54% | 12.33% | — | — | — | |
| Lockheed Martin Corp. | 21.60% | 22.51% | — | — | — | |
| RTX Corp. | 4.24% | 4.52% | — | — | — | |
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 × 2,138,919 ÷ 13,518,500 = 15.82%
4 Click competitor name to see calculations.
The financial trajectory from 2018 to 2022 reflects a period of volatility followed by significant expansion in capital efficiency. While the organization experienced a contraction in profitability during 2020, the subsequent recovery was robust, resulting in a substantial increase in the return generated on invested capital by the end of the period.
- Net Operating Profit After Taxes (NOPAT)
- A fluctuating trend is observed in NOPAT, which grew from 1,451,904 thousand USD in 2018 to a peak of 2,138,919 thousand USD in 2022. A notable decline occurred in 2020, where profits dropped to 1,265,645 thousand USD, representing the lowest point in the five-year sequence. However, a strong recovery followed, with a sharp increase in 2021 and a further acceleration in 2022, indicating a significant strengthening of operating profitability.
- Invested Capital
- Invested capital remained relatively stable over the analyzed period, fluctuating within a range of approximately 13.3 billion to 15.6 billion USD. After an increase to 15,640,000 thousand USD in 2019, the capital base contracted and stabilized around 13.5 billion USD between 2020 and 2022. This stability suggests that the growth in profitability was not driven by aggressive capital expansion but rather by improved utilization of existing assets.
- Return on Invested Capital (ROIC)
- The ROIC trend demonstrates a marked improvement in operational efficiency. The ratio remained stable near 10.5% in 2018 and 2019 before dipping to a low of 9.15% in 2020. Following this trough, ROIC climbed rapidly to 12.53% in 2021 and reached 15.82% in 2022. This progression indicates that the organization successfully increased its profit margins relative to its capital base, achieving a peak efficiency level by the end of 2022.
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Decomposition of ROIC
Trane Technologies plc, 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 a V-shaped trajectory over the analyzed five-year period, declining from 10.61% in 2018 to a minimum of 9.15% in 2020, before accelerating to a period peak of 15.82% in 2022. This overall improvement in capital productivity is the result of simultaneous positive movements in operating profitability, asset turnover, and tax efficiency.
- Operating Profit Margin (OPM)
- A sustained upward trend in profitability is observed starting in 2020. The margin expanded from 12.80% in 2020 to 15.60% in 2022, indicating a significant improvement in operational efficiency and a stronger ability to convert revenue into operating profit.
- Turnover of Capital (TO)
- Capital efficiency experienced a notable contraction in 2020, dropping to 0.90. However, a robust recovery followed, with the ratio increasing to 1.18 by 2022. This recovery suggests a more effective utilization of the invested capital base to generate sales, eventually exceeding the 2018 level of 1.14.
- Tax Efficiency (1 – Effective Cash Tax Rate)
- The after-tax retention component improved from 75.34% in 2018 to 85.73% in 2022. This trend indicates a decrease in the effective cash tax burden over time, which served as a secondary catalyst in amplifying the net return on invested capital.
- ROIC Decomposition Synthesis
- The substantial growth in ROIC between 2020 and 2022 was driven by the convergence of all three decomposition factors. While the 2020 dip was primarily caused by a decline in capital turnover, the subsequent recovery was powered by aggressive margin expansion and improved tax positioning, leading to a significantly higher capital return profile by the end of 2022.
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Operating Profit Margin (OPM)
Trane Technologies plc, 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 | 2,138,919) | 1,673,718) | 1,265,645) | 1,640,972) | 1,451,904) | |
| Add: Cash operating taxes2 | 356,060) | 409,078) | 328,760) | 391,918) | 475,262) | |
| Net operating profit before taxes (NOPBT) | 2,494,979) | 2,082,796) | 1,594,405) | 2,032,890) | 1,927,166) | |
| Net revenues | 15,991,700) | 14,136,400) | 12,454,700) | 16,598,900) | 15,668,200) | |
| Add: Increase (decrease) in deferred revenue | 6,000) | 7,300) | 1,600) | 11,900) | (800) | |
| Adjusted net revenues | 15,997,700) | 14,143,700) | 12,456,300) | 16,610,800) | 15,667,400) | |
| Profitability Ratio | ||||||
| OPM3 | 15.60% | 14.73% | 12.80% | 12.24% | 12.30% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Boeing Co. | -3.49% | -3.17% | — | — | — | |
| Caterpillar Inc. | 17.42% | 19.09% | — | — | — | |
| Eaton Corp. plc | 14.81% | 15.90% | — | — | — | |
| GE Aerospace | 4.46% | -2.35% | — | — | — | |
| Honeywell International Inc. | 19.83% | 21.58% | — | — | — | |
| Lockheed Martin Corp. | 11.60% | 11.85% | — | — | — | |
| RTX Corp. | 10.88% | 9.65% | — | — | — | |
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 ÷ Adjusted net revenues
= 100 × 2,494,979 ÷ 15,997,700 = 15.60%
4 Click competitor name to see calculations.
An analysis of the financial performance from 2018 to 2022 reveals a period of volatility followed by a strong recovery and significant margin expansion. While both net operating profit and revenues experienced a sharp contraction in 2020, the subsequent years show a consistent trajectory of growth and improved operational efficiency.
- Net Operating Profit Before Taxes (NOPBT)
- NOPBT grew steadily from 2018 to 2019, before experiencing a decline to 1.59 billion in 2020. A robust recovery followed, with profit levels reaching 2.08 billion in 2021 and peaking at 2.49 billion in 2022. This represents a cumulative increase of approximately 29.4% from the 2018 baseline.
- Adjusted Net Revenues
- Revenues followed a pattern similar to operating profit, increasing in 2019 before dropping to 12.46 billion in 2020. The recovery phase saw revenues climb to 14.14 billion in 2021 and 15.99 billion in 2022, effectively returning the company to its pre-2020 revenue levels.
- Operating Profit Margin (OPM)
- The operating profit margin demonstrates a consistent upward trend, particularly from 2020 onward. Despite the decline in absolute revenue and profit in 2020, the OPM actually increased slightly to 12.80%, suggesting effective cost management during the downturn. This expansion accelerated in 2021 to 14.73% and further increased to 15.60% by 2022. The widening gap between revenue growth and profit growth indicates significant improvements in operational leverage and productivity.
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Turnover of Capital (TO)
Trane Technologies plc, 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 revenues | 15,991,700) | 14,136,400) | 12,454,700) | 16,598,900) | 15,668,200) | |
| Add: Increase (decrease) in deferred revenue | 6,000) | 7,300) | 1,600) | 11,900) | (800) | |
| Adjusted net revenues | 15,997,700) | 14,143,700) | 12,456,300) | 16,610,800) | 15,667,400) | |
| Invested capital1 | 13,518,500) | 13,354,600) | 13,835,000) | 15,640,000) | 13,684,819) | |
| Efficiency Ratio | ||||||
| TO2 | 1.18 | 1.06 | 0.90 | 1.06 | 1.14 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Boeing Co. | 1.31 | 1.26 | — | — | — | |
| Caterpillar Inc. | 1.03 | 0.87 | — | — | — | |
| Eaton Corp. plc | 0.67 | 0.67 | — | — | — | |
| GE Aerospace | 1.10 | 0.99 | — | — | — | |
| Honeywell International Inc. | 0.76 | 0.72 | — | — | — | |
| Lockheed Martin Corp. | 2.48 | 2.34 | — | — | — | |
| RTX Corp. | 0.61 | 0.58 | — | — | — | |
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 = Adjusted net revenues ÷ Invested capital
= 15,997,700 ÷ 13,518,500 = 1.18
3 Click competitor name to see calculations.
The analysis of capital turnover from 2018 to 2022 reveals a cyclical trajectory in operational efficiency, characterized by a significant contraction in 2020 followed by a robust recovery that culminated in a five-year peak by the end of the period.
- Revenue Volatility and Turnover Correlation
- Adjusted net revenues exhibited a sharp decline from US$ 16.6 billion in 2019 to US$ 12.5 billion in 2020, causing the turnover of capital to drop to its lowest point of 0.90. The subsequent recovery of revenues to US$ 16.0 billion by 2022 served as the primary driver for the restoration of capital productivity.
- Invested Capital Trends
- Invested capital peaked in 2019 at US$ 15.6 billion before undergoing a corrective decline. By 2022, the capital base had stabilized at US$ 13.5 billion. The reduction in the capital base during the period of revenue contraction helped prevent a more severe collapse in the turnover ratio.
- Capital Efficiency Gains
- A notable improvement in the efficiency of capital utilization is observed between 2020 and 2022. The turnover of capital increased from 0.90 to 1.18, indicating that the organization is generating more revenue per unit of invested capital than at any other point in the analyzed timeframe. This suggests an optimized alignment between the asset base and revenue-generating activities.
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Effective Cash Tax Rate (CTR)
Trane Technologies plc, 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 | 2,138,919) | 1,673,718) | 1,265,645) | 1,640,972) | 1,451,904) | |
| Add: Cash operating taxes2 | 356,060) | 409,078) | 328,760) | 391,918) | 475,262) | |
| Net operating profit before taxes (NOPBT) | 2,494,979) | 2,082,796) | 1,594,405) | 2,032,890) | 1,927,166) | |
| Tax Rate | ||||||
| CTR3 | 14.27% | 19.64% | 20.62% | 19.28% | 24.66% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 25.42% | 24.06% | — | — | — | |
| Eaton Corp. plc | 19.89% | 26.02% | — | — | — | |
| GE Aerospace | 44.47% | — | — | — | — | |
| Honeywell International Inc. | 23.25% | 20.13% | — | — | — | |
| Lockheed Martin Corp. | 24.95% | 18.89% | — | — | — | |
| RTX Corp. | 36.10% | 18.64% | — | — | — | |
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 × 356,060 ÷ 2,494,979 = 14.27%
4 Click competitor name to see calculations.
The effective cash tax rate (CTR) exhibits a significant downward trajectory over the five-year period ending December 31, 2022. While operating profits experienced mid-period volatility, the actual cash outflows for taxes decreased relative to earnings, resulting in a marked improvement in tax efficiency.
- Net Operating Profit Before Taxes (NOPBT) Trends
- NOPBT demonstrated a general upward trend, rising from 1,927,166 thousand USD in 2018 to 2,494,979 thousand USD in 2022. A notable contraction occurred in 2020, where profit fell to 1,594,405 thousand USD, before recovering strongly in the subsequent two years to reach a period peak in 2022.
- Cash Operating Taxes Analysis
- Cash tax payments showed an inverse relationship with profit growth over the long term. From a peak of 475,262 thousand USD in 2018, cash taxes declined to 356,060 thousand USD by 2022. Despite the recovery in NOPBT during 2021 and 2022, cash tax outflows remained substantially lower than the 2018 baseline.
- Effective Cash Tax Rate (CTR) Evolution
- The CTR decreased from 24.66% in 2018 to 14.27% in 2022. Following an initial reduction to 19.28% in 2019, the rate remained relatively stable, fluctuating between 19.64% and 20.62% through 2021. A sharp decline occurred in 2022, where the rate reached its minimum of 14.27%, coinciding with the highest NOPBT recorded in the period.
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