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Coca-Cola Co (NYSE:KO)
ROIC %
13.54% (As of Mar. 2017)

Return on invested 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 Capital (ROC). Coca-Cola Co's annualized return on invested capital (ROIC) for the quarter that ended in Mar. 2017 was 13.54%.

As of today, Coca-Cola Co's weighted average cost Of capital is 5.32%. Coca-Cola Co's return on invested capital is 14.48% (calculated using TTM income statement data). Coca-Cola Co 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

Coca-Cola Co's annualized Return on Invested Capital (ROIC) for the fiscal year that ended in Dec. 2016 is calculated as:

Return on Invested Capital(A: Dec. 2016 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (A: Dec. 2015 ) + Invested Capital (A: Dec. 2016 ))/2)
=8626 * ( 1 - 19.49% )/( (49980 + 46728)/2)
=6944.7926/48354
=14.36 %

where

Invested Capital(A: Dec. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Minority Interest + Total Equity - Cash
=28311 + 15805 + 210 + 25554 - 19900
=49980

Invested Capital(A: Dec. 2016 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Minority Interest + Total Equity - Cash
=29684 + 16025 + 158 + 23062 - 22201
=46728

Coca-Cola Co's annualized Return on Invested Capital (ROIC) for the quarter that ended in Mar. 2017 is calculated as:

Return on Invested Capital(Q: Mar. 2017 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: Dec. 2016 ) + Invested Capital (Q: Mar. 2017 ))/2)
=7928 * ( 1 - 21.43% )/( (46728 + 45311)/2)
=6229.0296/46019.5
=13.54 %

where

Invested Capital(Q: Dec. 2016 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Minority Interest + Total Equity - Cash
=29684 + 16025 + 158 + 23062 - 22201
=46728

Invested Capital(Q: Mar. 2017 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Minority Interest + Total Equity - Cash
=31538 + 15911 + 191 + 22876 - 25205
=45311

Note: The Operating Income data used here is four times the quarterly (Mar. 2017) operating income data.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.


Explanation

Return on Invested 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 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, Coca-Cola Co's weighted average cost Of capital is 5.32%. Coca-Cola Co's return on invested capital is 14.48% (calculated using TTM income statement data). Coca-Cola Co 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 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 local exchange's currency.

Coca-Cola Co Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
ROIC 24.1225.4423.8919.6417.0917.3415.4614.7013.3114.36

Coca-Cola Co Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
ROIC 8.1214.2113.9715.769.7913.5418.3013.5312.1713.54
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