United Parcel Service Inc. (NYSE:UPS)

A consistent decline in Return on Invested Capital (ROIC) is evident over the five-year period. While initially strong, profitability relative to capital employed has diminished significantly. Net operating profit after taxes (NOPAT) and invested capital both experienced fluctuations, but the decrease in NOPAT appears to be the primary driver of the declining ROIC.

Net Operating Profit After Taxes (NOPAT)

NOPAT decreased substantially from US$15,125 million in 2021 to US$12,726 million in 2022, representing a notable reduction. This decline continued in subsequent years, reaching US$7,622 million in 2023, and further decreasing to US$6,582 million in 2024 and stabilizing at US$6,540 million in 2025. The consistent reduction in NOPAT suggests potential challenges in maintaining operational profitability.

Invested Capital

Invested capital remained relatively stable between 2021 and 2023, fluctuating around US$44-45 billion. A moderate increase was observed in 2024, reaching US$48,150 million, and continued into 2025 with a value of US$50,644 million. The growth in invested capital, coupled with declining NOPAT, exacerbates the downward trend in ROIC.

Return on Invested Capital (ROIC)

ROIC began at 34.07% in 2021, indicating a strong return on capital employed. However, it decreased to 28.42% in 2022, and then experienced a more pronounced decline to 16.77% in 2023. This downward trajectory continued, with ROIC reaching 13.67% in 2024 and 12.91% in 2025. The consistent reduction in ROIC suggests a diminishing ability to generate profits from invested capital.

The observed trends indicate a weakening of the relationship between profitability and capital employed. While invested capital has increased modestly, the substantial decrease in NOPAT has had a disproportionately negative impact on ROIC. Further investigation into the factors driving the decline in NOPAT is warranted.

The period under review demonstrates a declining trend in overall financial performance as measured by return on invested capital. This decline appears to be driven by decreases in both profitability and efficiency, partially offset by changes in the effective cash tax rate. A decomposition of return on invested capital, based on operating profit margin, capital turnover, and the impact of taxes, reveals the specific factors contributing to this trend.

Operating Profit Margin (OPM)

The operating profit margin experienced a consistent decrease over the five-year period, moving from 17.83% in 2021 to 9.46% in 2025. The most significant decline occurred between 2021 and 2023, falling from 17.83% to 10.43%. While the rate of decline slowed between 2023 and 2025, it remained negative, indicating diminishing profitability from core operations.

Turnover of Capital (TO)

The turnover of capital, a measure of efficiency in utilizing assets to generate revenue, also exhibited a downward trend. Starting at 2.19 in 2021, it decreased to 1.75 in 2025. The decline was relatively steady, suggesting a gradual reduction in the company’s ability to generate sales from its invested capital. The largest decrease occurred between 2022 and 2023.

Effective Cash Tax Rate Adjustment (1 – CTR)

The adjustment for the effective cash tax rate showed a moderate decline over the period, moving from 87.20% in 2021 to 77.97% in 2025. This indicates a decreasing benefit from tax savings. However, the impact of this change is less pronounced than the declines observed in operating profit margin and capital turnover.

Return on Invested Capital (ROIC)

The return on invested capital decreased substantially from 34.07% in 2021 to 12.91% in 2025. This decline mirrors the combined effect of the decreasing operating profit margin and capital turnover, partially mitigated by the change in the effective cash tax rate. The most substantial decrease in ROIC occurred between 2021 and 2023, followed by a more gradual decline through 2025.

In summary, the observed decline in return on invested capital is primarily attributable to decreasing profitability and efficiency. While the effective cash tax rate provides a partial offset, it is insufficient to counteract the negative trends in operating profit margin and capital turnover. Continued monitoring of these key performance indicators is warranted.

The period under review demonstrates a declining trend in net operating profit before taxes, coupled with fluctuations in revenue, ultimately impacting the operating profit margin. A consistent decrease in the operating profit margin is observed over the five-year period.

Net Operating Profit Before Taxes (NOPBT)

NOPBT decreased from US$17,344 million in 2021 to US$9,484 million in 2023, representing a substantial decline. While the decrease slowed between 2023 and 2024, falling to US$8,471 million, it remained relatively stable through 2025 at US$8,388 million. This suggests a potential stabilization at a lower profit level, but still significantly below the 2021 figure.

Revenue

Revenue experienced an initial increase from US$97,287 million in 2021 to US$100,338 million in 2022. However, it subsequently declined to US$90,958 million in 2023. Revenue showed minimal growth between 2023 and 2024, reaching US$91,070 million, and continued to decrease in 2025 to US$88,661 million. The revenue trend indicates a weakening top line performance, particularly after 2022.

Operating Profit Margin (OPM)

The operating profit margin exhibited a consistent downward trajectory. Starting at 17.83% in 2021, it decreased to 15.59% in 2022, then to 10.43% in 2023, and further to 9.30% in 2024. A slight recovery was noted in 2025, with the OPM increasing to 9.46%, but it remained considerably lower than the levels observed in 2021 and 2022. The decline in OPM suggests increasing cost pressures relative to revenue, or a shift in sales mix towards lower-margin products or services.

The combined effect of declining NOPBT and fluctuating revenue resulted in a significant reduction in the operating profit margin. While revenue stabilized somewhat in the later years, the margin did not recover substantially, indicating that cost management or pricing strategies may require attention.

The period under review demonstrates a declining trend in the turnover of capital. While revenue experienced initial growth, it has subsequently decreased, and this, coupled with increasing invested capital, has resulted in a consistent reduction in the ratio.

Revenue Trend

Revenue increased from US$97,287 million in 2021 to US$100,338 million in 2022, representing a growth of approximately 3.1%. However, revenue then decreased to US$90,958 million in 2023, and continued to decline to US$91,070 million in 2024 and US$88,661 million in 2025. This indicates a weakening ability to generate sales from its resources over time.

Invested Capital Trend

Invested capital exhibited a consistent upward trend throughout the period. It rose from US$44,396 million in 2021 to US$44,780 million in 2022, then to US$45,460 million in 2023, US$48,150 million in 2024, and finally to US$50,644 million in 2025. This suggests ongoing investment in the business, despite declining revenue.

Turnover of Capital (TO) Analysis

The turnover of capital ratio, which measures how efficiently invested capital is used to generate revenue, decreased steadily. It began at 2.19 in 2021, increased slightly to 2.24 in 2022, then declined to 2.00 in 2023, 1.89 in 2024, and further to 1.75 in 2025. This decline signifies that the company is generating less revenue for each dollar of invested capital. The combination of increasing invested capital and decreasing revenue is the primary driver of this trend.

The decreasing turnover of capital warrants further investigation to determine the underlying causes. Potential factors could include decreased operational efficiency, increased competition, or ineffective capital allocation strategies. The continued investment in capital without a corresponding increase in revenue raises concerns about the return on those investments.

The effective cash tax rate exhibited an increasing trend over the five-year period. Simultaneously, net operating profit before taxes demonstrated a decline, particularly from 2021 to 2023, before stabilizing in the subsequent two years. Cash operating taxes fluctuated, but generally remained within a relatively narrow range after 2022.

Effective Cash Tax Rate (CTR)

The effective cash tax rate increased from 12.80% in 2021 to 18.63% in 2022, representing a substantial rise. This upward trajectory continued, reaching 19.63% in 2023 and peaking at 22.30% in 2024. The rate experienced a slight decrease in 2025, settling at 22.03%. This consistent increase suggests a growing proportion of taxable income is being paid as cash taxes.

Net Operating Profit Before Taxes (NOPBT)

Net operating profit before taxes decreased from US$17,344 million in 2021 to US$15,640 million in 2022, a decline of approximately 10.4%. A more significant decrease occurred between 2022 and 2023, with NOPBT falling to US$9,484 million. From 2023 to 2025, NOPBT remained relatively stable, fluctuating between US$8,388 million and US$8,471 million. This stabilization occurred despite the continued increase in the effective cash tax rate.

Cash Operating Taxes

Cash operating taxes were US$2,219 million in 2021, increasing to US$2,913 million in 2022. A notable decrease was observed in 2023, with cash operating taxes falling to US$1,861 million. The subsequent two years saw relatively consistent values, with US$1,889 million in 2024 and US$1,848 million in 2025. The fluctuations in cash operating taxes appear to be correlated with changes in NOPBT, though the increasing CTR suggests a greater proportion of profit is being taxed even at lower profit levels.

The combination of a rising effective cash tax rate and fluctuating, ultimately stabilizing net operating profit before taxes suggests a changing tax landscape and potential shifts in profitability. Further investigation into the factors driving the increase in the effective cash tax rate would be beneficial.