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Goldman Sachs Group Inc  (NYSE:GS) ROIC %: 3.44% (As of Sep. 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 ROC %. Goldman Sachs Group Inc's annualized return on invested capital (ROIC) for the quarter that ended in Sep. 2017 was 3.44%.

As of today, Goldman Sachs Group Inc's WACC % is 4.50%. Goldman Sachs Group Inc's return on invested capital is 3.64% (calculated using TTM income statement data). Goldman Sachs Group 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.

Goldman Sachs Group Inc Annual Data

 Nov07 Nov08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 ROIC % 2.87 3.25 3.34 2.45 3.28

Goldman Sachs Group Inc Quarterly Data

 Dec12 Mar13 Jun13 Sep13 Dec13 Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Mar17 Jun17 Sep17 ROIC % 3.50 4.09 4.13 3.14 3.44

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.

Calculation

Goldman Sachs Group Inc'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 = Operating Income*(1-Tax Rate) / ( (Invested Capital (A: Dec. 2015 ) + Invested Capital (A: Dec. 2016 )) /2) = 10304 * ( 1 - 28.2% ) / ( (236251 + 215056) /2) = 7398.272 / 225653.5 = 3.28 %

where

 Invested Capital (A: Dec. 2015 ) = 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 = 200175 + 42787 + 0 + 86728 - 93439 = 236251

 Invested Capital (A: Dec. 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 = 210609 + 39265 + 0 + 86893 - 121711 = 215056

Goldman Sachs Group Inc's annualized Return on Invested Capital (ROIC) for the quarter that ended in Sep. 2017 is calculated as:

 Return on Invested Capital (Q: Sep. 2017 ) = NOPAT / Average Invested Capital = Operating Income*(1-Tax Rate) / ( (Invested Capital (Q: Jun. 2017 ) + Invested Capital (Q: Sep. 2017 )) /2) = 11904 * ( 1 - 28.49% ) / ( (244833 + 249630) /2) = 8512.5504 / 247231.5 = 3.44 %

where

 Invested Capital (Q: Jun. 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 = 226080 + 42966 + 0 + 86675 - 110888 = 244833

 Invested Capital (Q: {Q1}) = 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 = 234591 + 45357 + 0 + 86292 - 116610 = 249630

Note: The Operating Income data used here is four times the quarterly (Sep. 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 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 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, Goldman Sachs Group Inc's WACC % is 4.50%. Goldman Sachs Group Inc's return on invested capital is 3.64% (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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