Switch to:
Nike Inc  (NYSE:NKE) ROC %: 38.59% (As of Aug. 2017)

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 ROIC %. Nike Inc's annualized return on capital (ROC) for the quarter that ended in Aug. 2017 was 38.59%.

As of today, Nike Inc's WACC % is 5.21%. Nike Inc's return on capital is 39.21% (calculated using TTM income statement data). Nike 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.

Historical Data

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

Nike Inc Annual Data

 May08 May09 May10 May11 May12 May13 May14 May15 May16 May17 ROC % 36.14 41.32 43.05 43.38 43.68

Nike Inc Quarterly Data

 Nov12 Feb13 May13 Aug13 Nov13 Feb14 May14 Aug14 Nov14 Feb15 May15 Aug15 Nov15 Feb16 May16 Aug16 Nov16 Feb17 May17 Aug17 ROC % 52.32 34.71 43.30 39.79 38.59

Calculation

Nike Inc's annualized Return on Capital (ROC) for the fiscal year that ended in May. 2017 is calculated as:

 Return on Capital (ROC) (A: May. 2017 ) = NOPAT / Average Invested Capital = Operating Income*(1-Tax Rate) / ( (Invested Capital (A: May. 2016 ) + Invested Capital (A: May. 2017 )) /2) = 4749 * ( 1 - 13.22% ) / ( (8839 + 10030) /2) = 4121.1822 / 9434.5 = 43.68 %

 Invested Capital (A: May. 2016 ) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 1993 + 45 + 0 + 12258 - 5457 = 8839

 Invested Capital (A: May. 2017 ) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 3471 + 331 + 0 + 12407 - 6179 = 10030

Nike Inc's annualized Return on Capital (ROC) for the quarter that ended in Aug. 2017 is calculated as:

 Return on Capital (ROC) (Q: Aug. 2017 ) = NOPAT / Average Invested Capital = Operating Income*(1-Tax Rate) / ( (Invested Capital (Q: May. 2017 ) + Invested Capital (Q: Aug. 2017 )) /2) = 4424 * ( 1 - 11.38% ) / ( (10030 + 10288) /2) = 3920.5488 / 10159 = 38.59 %

where

 Invested Capital (Q: {Q2}) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 3471 + 331 + 0 + 12407 - 6179 = 10030

 Invested Capital (Q: Aug. 2017 ) = Book Value of Debt + Book Value of Equity - Cash = Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Minority Interest + Total Equity - Cash = 3472 + 342 + 0 + 11993 - 5519 = 10288

Note: The Operating Income data used here is four times the quarterly (Aug. 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 Capital measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called ROIC %. 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, Nike Inc's WACC % is 5.21%. Nike Inc's return on capital is {stock_data.stock.roic}}% (calculated using TTM income statement data). Nike 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

From the Internet

###### In the Age of E-Commerce, Why Is Starbucks Closing Its Online Store?

- Fool 2017-10-17 06:47:00

###### Nike Just Buy Portfolio Analysis

- Seekingalpha 2017-10-16 21:56:57

###### Nike Growth Discount

- Seekingalpha 2017-10-16 15:25:45

###### These stocks have popped more than 75% since Trump was elected

- MarketWatch 2017-10-16 10:58:00

###### Death Foot Locker Buying Opportunity

- Seekingalpha 2017-10-16 10:53:02

###### Rumors Suburban Demise Greatly Exaggerated

- Seekingalpha 2017-10-16 10:01:31

###### The Zacks Analyst Blog Highlights: NIKE, Cisco Systems, Gilead Sciences, Las Vegas Sands and Aon

- Zacks 2017-10-16 08:31:00

###### Is Nike Inc. a Buy?

- Fool 2017-10-16 08:30:00

###### Amazon Brand Building

- Seekingalpha 2017-10-16 08:18:46

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)