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Sycamore Networks Inc  (OTCPK:SCMR) ROC %: -528.11% (As of Jan. 2013)

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 %. Sycamore Networks Inc's annualized return on capital (ROC) for the quarter that ended in Jan. 2013 was -528.11%.

As of today, Sycamore Networks Inc's WACC % is 0.00%. Sycamore Networks Inc's return on capital is 0.00% (calculated using TTM income statement data). Sycamore Networks Inc earns returns that do not match up to its cost of capital. It will destroy value as it grows.


Historical Data

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

* Premium members only.

Sycamore Networks Inc Annual Data

Jul03 Jul04 Jul05 Jul06 Jul07 Jul08 Jul09 Jul10 Jul11 Jul12
ROC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 7.80 -29.44 -9.93 -28.07 -22.85

Sycamore Networks Inc Quarterly Data

Apr08 Jul08 Oct08 Jan09 Apr09 Jul09 Oct09 Jan10 Apr10 Jul10 Oct10 Jan11 Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 Oct12 Jan13
ROC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -25.86 -24.53 -13.44 -76.78 -528.11

Calculation

Sycamore Networks Inc's annualized Return on Capital (ROC) for the fiscal year that ended in Jul. 2012 is calculated as:

Return on Capital (ROC)(A: Jul. 2012 )
=NOPAT/Average Invested Capital
=Operating Income*(1-Tax Rate)/( (Invested Capital (A: Jul. 2011 ) + Invested Capital (A: Jul. 2012 ))/2)
=-13.958 * ( 1 - -0.5% )/( (52.145 + 70.612)/2)
=-14.02779/61.3785
=-22.85 %

Invested Capital(A: Jul. 2011 )
=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
=0 + 0 + 0 + 448.757 - 396.612
=52.145

Invested Capital(A: Jul. 2012 )
=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
=0 + 0 + 0 + 442.231 - 371.619
=70.612

Sycamore Networks Inc's annualized Return on Capital (ROC) for the quarter that ended in Jan. 2013 is calculated as:

Return on Capital (ROC)(Q: Jan. 2013 )
=NOPAT/Average Invested Capital
=Operating Income*(1-Tax Rate)/( (Invested Capital (Q: Oct. 2012 ) + Invested Capital (Q: Jan. 2013 ))/2)
=-16.168 * ( 1 - -30.77% )/( (1.936 + 6.071)/2)
=-21.1428936/4.0035
=-528.11 %

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
=0 + 0 + 0 + 147.482 - 145.546
=1.936

Invested Capital(Q: Jan. 2013 )
=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
=0 + 0 + 0 + 70.555 - 64.484
=6.071

Note: The Operating Income data used here is four times the quarterly (Jan. 2013) 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, Sycamore Networks Inc's WACC % is 0.00%. Sycamore Networks Inc's return on capital is {stock_data.stock.roic}}% (calculated using TTM income statement data). Sycamore Networks Inc earns returns that do not match up to its cost of capital. It will destroy value as it grows.


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.


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