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Time Warner Inc (NYSE:TWX)
Return on Capital
10.92% (As of Mar. 2015)

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). Time Warner Inc's annualized return on capital (ROC) for the quarter that ended in Mar. 2015 was 10.92%.

As of today, Time Warner Inc's weighted average cost Of capital is 9.58%. Time Warner Inc's return on capital is 10.99%. Time Warner 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

Time Warner Inc's annualized Return on Capital (ROC) for the fiscal year that ended in Dec. 2014 is calculated as:

Return on Capital (ROC)(A: Dec. 2014 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (A: Dec. 2013 ) + Invested Capital (A: Dec. 2014 ))/2)
=5975 * ( 1 - 16.78% )/( (48215 + 44352)/2)
=4972.395/46283.5
=10.74 %

where

Invested Capital(A: Dec. 2013 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=20061 + 66 + 29904 - 1816
=48215

Invested Capital(A: Dec. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=21376 + 1118 + 24476 - 2618
=44352

Time Warner Inc's annualized Return on Capital (ROC) for the quarter that ended in Mar. 2015 is calculated as:

Return on Capital (ROC)(Q: Mar. 2015 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: Dec. 2014 ) + Invested Capital (Q: Mar. 2015 ))/2)
=7144 * ( 1 - 32.15% )/( (44352 + 44409)/2)
=4847.204/44380.5
=10.92 %

where

Invested Capital(Q: Dec. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=21376 + 1118 + 24476 - 2618
=44352

Invested Capital(Q: Mar. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=21172 + 1299 + 24198 - 2260
=44409

Note: The Operating Income data used here is four times the quarterly (Mar. 2015) 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, Time Warner Inc's weighted average cost Of capital is 9.58%. Time Warner Inc's return on capital is 10.99%. Time Warner 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.

Time Warner Inc Annual Data

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
ROC 3.526.636.04-4.465.337.858.358.388.9010.74

Time Warner Inc Quarterly Data

Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15
ROC 12.097.987.989.939.7913.289.1216.028.1710.92
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