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British American Tobacco ROIC %

: 5.89% (As of Jun. 2019)
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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 ROC %. British American Tobacco's annualized return on invested capital (ROIC) for the quarter that ended in Jun. 2019 was 5.89%.

As of today (2019-10-15), British American Tobacco's WACC % is 6.50%. British American Tobacco's return on invested capital is 6.42% (calculated using TTM income statement data). British American Tobacco earns returns that do not match up to its cost of capital. It will destroy value as it grows.


British American Tobacco ROIC % 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.

British American Tobacco Annual Data
Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18
ROIC % Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 19.26 18.89 15.41 13.09 6.18

British American Tobacco Semi-Annual Data
Dec09 Jun10 Dec10 Jun11 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15 Jun16 Dec16 Jun17 Dec17 Jun18 Dec18 Jun19
ROIC % 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 15.36 16.70 5.72 6.80 5.89

Competitive Comparison
* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap.


British American Tobacco ROIC % Distribution

* The bar in red indicates where British American Tobacco's ROIC % falls into.



British American Tobacco ROIC % Calculation

British American Tobacco's annualized Return on Invested Capital (ROIC) for the fiscal year that ended in Dec. 2018 is calculated as:

Return on Invested Capital(A: Dec. 2018 )
=NOPAT/Average Invested Capital
=Operating Income*(1-Tax Rate)/( (Invested Capital (A: Dec. 2017 ) + Invested Capital (A: Dec. 2018 ))/2)
=11792.4050633 * ( 1 - 25.64% )/( (143746.648794 + 139983.544304)/2)
=8768.83240506/141865.096549
=6.18 %

where

Invested Capital(A: Dec. 2017 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation + Minority Interest + Total Stockholders Equity - Cash
=59017.4262735 + 7269.43699732 + 297.587131367 + 81446.3806971 - 4284.18230563
=143746.648794

Invested Capital(A: Dec. 2018 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation + Minority Interest + Total Stockholders Equity - Cash
=54789.8734177 + 5348.10126582 + 308.860759494 + 82840.5063291 - 3303.79746835
=139983.544304

British American Tobacco's annualized Return on Invested Capital (ROIC) for the quarter that ended in Jun. 2019 is calculated as:

Return on Invested Capital(Q: Jun. 2019 )
=NOPAT/Average Invested Capital
=Operating Income*(1-Tax Rate)/( (Invested Capital (Q: Dec. 2018 ) + Invested Capital (Q: Jun. 2019 ))/2)
=11102.661597 * ( 1 - 25.12% )/( (139983.544304 + 142399.239544)/2)
=8313.6730038/141191.391924
=5.89 %

where

Invested Capital(Q: Dec. 2018 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation + Minority Interest + Total Stockholders Equity - Cash
=54789.8734177 + 5348.10126582 + 308.860759494 + 82840.5063291 - 3303.79746835
=139983.544304

Invested Capital(Q: {Q1})
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation + Minority Interest + Total Stockholders Equity - Cash
=52700.887199 + 11040.5576679 + 321.926489227 + 82740.1774398 - 4404.30925222
=142399.239544

Note: The Operating Income data used here is two times the semi-annual (Jun. 2019) data.

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


British American Tobacco  (NYSE:BTI) ROIC % 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 ROC %. 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 or EBIT rather than net income in the numerator. The second is the tax adjustment to this operating income or EBIT, 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 or EBIT 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, British American Tobacco's WACC % is 6.50%. British American Tobacco's return on invested capital is 6.42% (calculated using TTM income statement data).


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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