Calculating ROIC and the Effect of Excess Cash on Invested Capital

# How to Calculate ROIC (Return on Invested Capital)


# How to Calculate ROIC (Return on Invested Capital)












I am trying to calculate ROIC based on data I receive from Yahoo Financials. A comprehensive output of what I receive from the site is below, which elements of this can I put together to get ROIC?

```
{'balanceSheetHistoryQuarterly': {'AAPL': [{'2019-12-28': {
     'accountsPayable': 45111000000,
     'cash': 39771000000,
     'commonStock': 45972000000,
     'inventory': 4097000000,
     'longTermDebt': 93078000000,
     'longTermInvestments': 99899000000,
     'netReceivables': 39946000000,
     'netTangibleAssets': 89531000000,
     'otherAssets': 33195000000,
     'otherCurrentAssets': 12026000000,
     'otherCurrentLiab': 40577000000,
     'otherLiab': 48648000000,
     'otherStockholderEquity': -418000000,
     'propertyPlantEquipment': 44293000000,
     'retainedEarnings': 43977000000,
     'shortLongTermDebt': 10224000000,
     'shortTermInvestments': 67391000000,
     'totalAssets': 340618000000,
     'totalCurrentAssets': 163231000000,
     'totalCurrentLiabilities': 102161000000,
     'totalLiab': 251087000000,
     'totalStockholderEquity': 89531000000,
     'treasuryStock': -418000000}},
   {'2019-09-28': {
     'accountsPayable': 46236000000,
     'cash': 48844000000,
     'commonStock': 45174000000,
     'inventory': 4106000000,
     'longTermDebt': 91807000000,
     'longTermInvestments': 105341000000,
     'netReceivables': 45804000000,
     'netTangibleAssets': 90488000000,
     'otherAssets': 32978000000,
     'otherCurrentAssets': 12352000000,
     'otherCurrentLiab': 43242000000,
     'otherLiab': 50503000000,
     'otherStockholderEquity': -584000000,
     'propertyPlantEquipment': 37378000000,
     'retainedEarnings': 45898000000,
     'shortLongTermDebt': 10260000000,
     'shortTermInvestments': 51713000000,
     'totalAssets': 338516000000,
     'totalCurrentAssets': 162819000000,
     'totalCurrentLiabilities': 105718000000,
     'totalLiab': 248028000000,
     'totalStockholderEquity': 90488000000,
     'treasuryStock': -584000000}},
   {'2019-06-29': {
     'accountsPayable': 29115000000,
     'cash': 50530000000,
     'commonStock': 43371000000,
     'inventory': 3355000000,
     'longTermDebt': 84936000000,
     'longTermInvestments': 115996000000,
     'netReceivables': 26474000000,
     'netTangibleAssets': 96456000000,
     'otherAssets': 33634000000,
     'otherCurrentAssets': 10530000000,
     'otherCurrentLiab': 37107000000,
     'otherLiab': 51143000000,
     'otherStockholderEquity': -639000000,
     'propertyPlantEquipment': 37636000000,
     'retainedEarnings': 53724000000,
     'shortLongTermDebt': 13529000000,
     'shortTermInvestments': 44084000000,
     'totalAssets': 322239000000,
     'totalCurrentAssets': 134973000000,
     'totalCurrentLiabilities': 89704000000,
     'totalLiab': 225783000000,
     'totalStockholderEquity': 96456000000,
     'treasuryStock': -639000000}},
   {'2019-03-30': {
     'accountsPayable': 30443000000,
     'cash': 37988000000,
     'commonStock': 42801000000,
     'inventory': 4884000000,
     'longTermDebt': 90201000000,
     'longTermInvestments': 145319000000,
     'netReceivables': 26278000000,
     'netTangibleAssets': 105860000000,
     'otherAssets': 34587000000,
     'otherCurrentAssets': 12092000000,
     'otherCurrentLiab': 40900000000,
     'otherLiab': 52165000000,
     'otherStockholderEquity': -1499000000,
     'propertyPlantEquipment': 38746000000,
     'retainedEarnings': 64558000000,
     'shortLongTermDebt': 10505000000,
     'shortTermInvestments': 42104000000,
     'totalAssets': 341998000000,
     'totalCurrentAssets': 123346000000,
     'totalCurrentLiabilities': 93772000000,
     'totalLiab': 236138000000,
     'totalStockholderEquity': 105860000000,
     'treasuryStock': -1499000000}}]},
 'cashflowStatementHistoryQuarterly': {'AAPL': [{'2019-12-28':
    {'capitalExpenditures': -2107000000,
     'changeInCash': -8559000000,
     'changeToAccountReceivables': 2015000000,
     'changeToInventory': -28000000,
     'changeToLiabilities': -104000000,
     'changeToNetincome': 1219000000,
     'changeToOperatingActivities': 2362000000,
     'depreciation': 2816000000,
     'dividendsPaid': -3539000000,
     'investments': -10473000000,
     'issuanceOfStock': 2000000,
     'netBorrowings': 231000000,
     'netIncome': 22236000000,
     'otherCashflowsFromFinancingActivities': -16000000,
     'otherCashflowsFromInvestingActivities': -130000000,
     'repurchaseOfStock': -22085000000,
     'totalCashFromFinancingActivities': -25407000000,
     'totalCashFromOperatingActivities': 30516000000,
     'totalCashflowsFromInvestingActivities': -13668000000}},
   {'2019-09-28': {
     'capitalExpenditures': -2777000000,
     'changeInCash': -1927000000,
     'changeToAccountReceivables': -8768000000,
     'changeToInventory': -785000000,
     'changeToLiabilities': 18032000000,
     'changeToNetincome': 885000000,
     'changeToOperatingActivities': -6319000000,
     'depreciation': 3179000000,
     'dividendsPaid': -3479000000,
     'investments': 2802000000,
     'issuanceOfStock': 390000000,
     'netBorrowings': -293000000,
     'netIncome': 13686000000,
     'otherCashflowsFromFinancingActivities': -22000000,
     'otherCashflowsFromInvestingActivities': -810000000,
     'repurchaseOfStock': -17635000000,
     'totalCashFromFinancingActivities': -21039000000,
     'totalCashFromOperatingActivities': 19910000000,
     'totalCashflowsFromInvestingActivities': -798000000}},
   {'2019-06-29': {
     'capitalExpenditures': -2000000000,
     'changeInCash': 12334000000,
     'changeToAccountReceivables': 919000000,
     'changeToInventory': 1502000000,
     'changeToLiabilities': -16000000,
     'changeToNetincome': 1457000000,
     'changeToOperatingActivities': -5203000000,
     'depreciation': 2933000000,
     'dividendsPaid': -3629000000,
     'investments': 30120000000,
     'issuanceOfStock': 1000000,
     'netBorrowings': -5026000000,
     'netIncome': 10044000000,
     'otherCashflowsFromFinancingActivities': 4000000,
     'otherCashflowsFromInvestingActivities': -298000000,
     'repurchaseOfStock': -18154000000,
     'totalCashFromFinancingActivities': -26804000000,
     'totalCashFromOperatingActivities': 11636000000,
     'totalCashflowsFromInvestingActivities': 27502000000}},
   {'2019-03-30': {
     'capitalExpenditures': -2363000000,
     'changeInCash': -4954000000,
     'changeToAccountReceivables': 2964000000,
     'changeToInventory': 70000000,
     'changeToLiabilities': -11693000000,
     'changeToNetincome': 1176000000,
     'changeToOperatingActivities': 4037000000,
     'depreciation': 3040000000,
     'dividendsPaid': -3443000000,
     'investments': 15749000000,
     'issuanceOfStock': 390000000,
     'netBorrowings': -2506000000,
     'netIncome': 11561000000,
     'otherCashflowsFromFinancingActivities': -87000000,
     'otherCashflowsFromInvestingActivities': 86000000,
     'repurchaseOfStock': -23811000000,
     'totalCashFromFinancingActivities': -29457000000,
     'totalCashFromOperatingActivities': 11155000000,
     'totalCashflowsFromInvestingActivities': 13348000000}}]},
 'incomeStatementHistoryQuarterly': {'AAPL': [{'2019-12-28': {
     'costOfRevenue': 56602000000,
     'discontinuedOperations': None,
     'ebit': 25569000000,
     'effectOfAccountingCharges': None,
     'extraordinaryItems': None,
     'grossProfit': 35217000000,
     'incomeBeforeTax': 25918000000,
     'incomeTaxExpense': 3682000000,
     'interestExpense': -785000000,
     'minorityInterest': None,
     'netIncome': 22236000000,
     'netIncomeApplicableToCommonShares': 22236000000,
     'netIncomeFromContinuingOps': 22236000000,
     'nonRecurring': None,
     'operatingIncome': 25569000000,
     'otherItems': None,
     'otherOperatingExpenses': None,
     'researchDevelopment': 4451000000,
     'sellingGeneralAdministrative': 5197000000,
     'totalOperatingExpenses': 66250000000,
     'totalOtherIncomeExpenseNet': 349000000,
     'totalRevenue': 91819000000}},
   {'2019-09-28': {
     'costOfRevenue': 39727000000,
     'discontinuedOperations': None,
     'ebit': 15625000000,
     'effectOfAccountingCharges': None,
     'extraordinaryItems': None,
     'grossProfit': 24313000000,
     'incomeBeforeTax': 16127000000,
     'incomeTaxExpense': 2441000000,
     'interestExpense': -810000000,
     'minorityInterest': None,
     'netIncome': 13686000000,
     'netIncomeApplicableToCommonShares': 13686000000,
     'netIncomeFromContinuingOps': 13686000000,
     'nonRecurring': None,
     'operatingIncome': 15625000000,
     'otherItems': None,
     'otherOperatingExpenses': None,
     'researchDevelopment': 4110000000,
     'sellingGeneralAdministrative': 4578000000,
     'totalOperatingExpenses': 48415000000,
     'totalOtherIncomeExpenseNet': 502000000,
     'totalRevenue': 64040000000}},
   {'2019-06-29': {
     'costOfRevenue': 33582000000,
     'discontinuedOperations': None,
     'ebit': 11544000000,
     'effectOfAccountingCharges': None,
     'extraordinaryItems': None,
     'grossProfit': 20227000000,
     'incomeBeforeTax': 11911000000,
     'incomeTaxExpense': 1867000000,
     'interestExpense': -866000000,
     'minorityInterest': None,
     'netIncome': 10044000000,
     'netIncomeApplicableToCommonShares': 10044000000,
     'netIncomeFromContinuingOps': 10044000000,
     'nonRecurring': None,
     'operatingIncome': 11544000000,
     'otherItems': None,
     'otherOperatingExpenses': None,
     'researchDevelopment': 4257000000,
     'sellingGeneralAdministrative': 4426000000,
     'totalOperatingExpenses': 42265000000,
     'totalOtherIncomeExpenseNet': 367000000,
     'totalRevenue': 53809000000}},
   {'2019-03-30': {
     'costOfRevenue': 36194000000,
     'discontinuedOperations': None,
     'ebit': 13415000000,
     'effectOfAccountingCharges': None,
     'extraordinaryItems': None,
     'grossProfit': 21821000000,
     'incomeBeforeTax': 13793000000,
     'incomeTaxExpense': 2232000000,
     'interestExpense': -1010000000,
     'minorityInterest': None,
     'netIncome': 11561000000,
     'netIncomeApplicableToCommonShares': 11561000000,
     'netIncomeFromContinuingOps': 11561000000,
     'nonRecurring': None,
     'operatingIncome': 13415000000,
     'otherItems': None,
     'otherOperatingExpenses': None,
     'researchDevelopment': 3948000000,
     'sellingGeneralAdministrative': 4458000000,
     'totalOperatingExpenses': 44600000000,
     'totalOtherIncomeExpenseNet': 378000000,
     'totalRevenue': 58015000000}}]}}
```

I saw an excerpt here, which says

> ROIC is calculated by dividing net operating profit after tax over average invested capital. Invested capital is simply total equity + debt - cash. NOPAT (Operating Income * (1 - Tax Rate)) / Average Invested Capital (Total Shareholder's Equity + Debt - Cash).

I have data for all quarters of 2019. Operating Income seems to be a sum, annual number. All else I took to be 2019 Q4.

```
operatingIncome = 13415000000 + 11544000000 + 15625000000 + 25569000000

totalStockholderEquity = 89531000000  # Q4

debt = 10224000000 # shortlongtermdebt (Q4)

cash = 39771000000  # Q4

nopat = operatingIncome * (1.0-0.2575)
nopat / (totalStockholderEquity + debt - cash)
```

I get

ROIC = 0.81 = 81%.

Does this look right? I googled for AAPL 2019 ROIC, it says 93.03%. It is not too far.

What I did not do was taking averages for the Total Shareholder's Equity + Debt - Cash computation. The article used two quarters YoY, maybe that is the difference.

Thanks,

## Answer by SmurfAcco (score 0, accepted)

https://quant.stackexchange.com/a/51447

I venture a guess and say

\begin{align*} \text{ROIC} &= \text{Net Income / Invested Capital (Total Shareholder's Equity + Debt - Cash)} \\ &= \text{'net income' / ('totalStockholderEquity + 'totalLiab' - 'cash')} \\ & = 118773000 / (8704386000 + 3999003000 - 1799082000)\\ & = 0.0108923 \end{align*}

Please feel free to suggest any changes here.

## Answer by Alper (score 0)

https://quant.stackexchange.com/a/75628

One can calculate the annual ROIC for a company based on the above data as I describe below; there is no need to take misleading shortcuts such as using net income instead of operating income or EBIT or using total liabilities instead of total debt like in the accepted answer to your question as of yet. Also note that the ROIC of a company at a given time depends on how the invested capital as well as the return is exactly defined and the results may vary significantly accordingly as I also demonstrate below.

For the sake of simplicity, I assume the end-2019 numbers are used when calculating the invested capital, but they can easily be swapped with the annual averages. The figures related with the income statement are the quarterly totals.

```
ROIC = Operating Income * (1 - Tax Rate) / Invested Capital
     = EBIT * (1 - Tax Rate) / (Equity + Debt - Cash)
     = EBIT * (1 - Tax Expense / EBT) / (Equity + Debt - Cash)
     = 'ebit' * (1 - 'incomeTaxExpense' / 'incomeBeforeTax') 
       / (totalStockholderEquity + 'shortLongTermDebt' + `longTermDebt` - 'cash' - 'shortTermInvestments' - 'longTermInvestments')
     = 66153000000 * (1 - 10222000000 / 67749000000)
       / (89531000000 + 10224000000 + 93078000000 - 39771000000 - 67391000000 - 99899000000)
     = -3.94797618832281
```

where EBT stands for earnings before taxes.

At first, it may look like there is something wrong with the calculation or data because the result is negative (-395%) but there is not.

The reason the number comes out to be negative because Apple had immense amount of cash & securities (US\$207 billion) on its balance sheet at the end of 2019, even more than its equity and debt combined (US\$193 billion) which is uncommon among the companies. This leads to its invested capital coming out as negative at the end of 2019 as well as its ROIC despite its being a highly profitable company. This also implies Apple could afford to and should pay out more dividends or buy more stock back because it does not need so much liquid assets to operate.

On the other hand, one may prefer excluding the short and long term investments figures from the invested capital calculation with Apple. This is because the company has been carrying large amounts of liquid assets on its balance sheet for a number of years and the management seem intent on continuing to carry them, making them kind of Apple's standard operating procedure.

In that case, the formula would be revised as follows and the year-end 2019 ROIC for Apple would be 36.7% as shown below:

```
ROIC = 'ebit' * (1 - 'incomeTaxExpense' / 'incomeBeforeTax') 
       / (totalStockholderEquity + 'shortLongTermDebt' + `longTermDebt` - 'cash')
     = 66153000000 * (1 - 10222000000 / 67749000000)
       / (89531000000 + 10224000000 + 93078000000 - 39771000000)
     = 0.3669872679532277
```

This is perhaps more inline with what is reported by other sources but I think it understates the actual return Apple generates on its capital and hides the inefficiencies in its capital structure.