Switch to:
TIBCO Software Inc (NAS:TIBX)
Return on Capital
2.18% (As of Aug. 2014)

Return on capital measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called Return on Invested Capital (ROIC). TIBCO Software Inc's annualized return on capital (ROC) for the quarter that ended in Aug. 2014 was 2.18%.

As of today, TIBCO Software Inc's weighted average cost Of capital is 2.34%. TIBCO Software Inc's return on capital is 9.68%. TIBCO Software Inc generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


Definition

TIBCO Software Inc's annualized Return on Capital (ROC) for the fiscal year that ended in Nov. 2013 is calculated as:

Return on Capital (ROC)(A: Nov. 2013 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (A: Nov. 2012 ) + Invested Capital (A: Nov. 2013 ))/2)
=144.417 * ( 1 - 23.87% )/( (703.631 + 746.288)/2)
=109.9446621/724.9595
=15.17 %

where

Invested Capital(A: Nov. 2012 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=524.466 + 35.711 + 905.174 - 761.72
=703.631

Invested Capital(A: Nov. 2013 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=540.022 + 0 + 952.217 - 745.951
=746.288

TIBCO Software Inc's annualized Return on Capital (ROC) for the quarter that ended in Aug. 2014 is calculated as:

Return on Capital (ROC)(Q: Aug. 2014 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: May. 2014 ) + Invested Capital (Q: Aug. 2014 ))/2)
=70.544 * ( 1 - 71.51% )/( (913.577 + 934.005)/2)
=20.0979856/923.791
=2.18 %

where

Invested Capital(Q: May. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=548.123 + 0 + 946.474 - 581.02
=913.577

Invested Capital(Q: Aug. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=552.266 + 0 + 914.193 - 532.454
=934.005

Note: The Operating Income data used here is four times the quarterly (Aug. 2014) operating income data.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Explanation

Return on Capital measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called Return on Invested Capital. The reason book values of debt and equity are used is because the book values are the capital the company received when issuing the debt or receiving the equity investments.

There are four key components to this definition. The first is the use of operating income rather than net income in the numerator. The second is the tax adjustment to this operating income, computed as a hypothetical tax based on an effective or marginal tax rate. The third is the use of book values for invested capital, rather than market values. The final is the timing difference; the capital invested is from the end of the prior year whereas the operating income is the current year’s number.

Why is Return on Capital important?

Because it costs money to raise capital. A firm that generates higher returns on investment than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, TIBCO Software Inc's weighted average cost Of capital is 2.34%. TIBCO Software Inc's return on capital is 9.68%. TIBCO Software Inc generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.


Be Aware

Like ROE and ROA, ROC is calculated with only 12 months of data. Fluctuations in the company’s earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective.


Related Terms

Return on Invested Capital, Return on Equity, Return on Assets, Return on Capital (Joel Greenblatt), Weighted Average Cost Of Capital


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

TIBCO Software Inc Annual Data

Nov04Nov05Nov06Nov07Nov08Nov09Nov10Nov11Nov12Nov13
ROC 14.1314.8712.927.758.4411.6114.1819.1521.3115.17

TIBCO Software Inc Quarterly Data

May12Aug12Nov12Feb13May13Aug13Nov13Feb14May14Aug14
ROC 18.0719.4331.7011.129.2015.7227.579.982.222.18
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK