Return on Capital (ROC)
Return on capital (ROC) is after tax rate of return on net business assets. ROIC is unaffected by changes in interest rates or company debt and equity structure. It measures business productivity performance.
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- Analysis of Profitability Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value to FCFF (EV/FCFF)
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Debt
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Return on Invested Capital (ROIC)
Alphabet Inc., ROIC calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Invested capital2 | ||||||
| Performance Ratio | ||||||
| ROIC3 | ||||||
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Trade Desk Inc. | ||||||
| Walt Disney Co. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2025 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × ÷ =
4 Click competitor name to see calculations.
The period under review demonstrates significant fluctuations in Return on Invested Capital (ROIC), alongside corresponding changes in Net Operating Profit After Taxes (NOPAT) and Invested Capital. An initial decline in ROIC is followed by a recovery and subsequent progression towards levels comparable to the beginning of the period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT experienced a substantial decrease from 2021 to 2022, falling from US$77,747 million to US$52,578 million. A partial recovery occurred in 2023, with NOPAT reaching US$65,370 million. Further growth was observed in 2024 and 2025, with NOPAT increasing to US$93,781 million and US$140,506 million respectively. This indicates improving operational profitability in the later years of the period.
- Invested Capital
- Invested Capital increased from US$171,408 million in 2021 to US$202,355 million in 2022. A decrease was then noted in 2023, with Invested Capital falling to US$189,779 million. Subsequent increases were observed in 2024 and 2025, reaching US$227,952 million and US$310,780 million, respectively. The growth in invested capital suggests ongoing investment in the business.
- Return on Invested Capital (ROIC)
- ROIC began at 45.36% in 2021, then decreased significantly to 25.98% in 2022, coinciding with the decline in NOPAT. A recovery was observed in 2023, with ROIC rising to 34.45%. This upward trend continued into 2024, reaching 41.14%, and further increased to 45.21% in 2025. The ROIC in 2025 is nearly equivalent to the value observed in 2021, suggesting a return to prior levels of capital efficiency. The fluctuations in ROIC closely mirror the changes in NOPAT, indicating that profitability is a primary driver of this metric.
Overall, the period demonstrates a cyclical pattern. While initial performance declined, a strong recovery is evident, culminating in ROIC levels comparable to the beginning of the observed timeframe. The increasing NOPAT and Invested Capital suggest a growing and evolving business.
Decomposition of ROIC
Alphabet Inc., decomposition of ROIC
| ROIC | = | OPM1 | × | TO2 | × | 1 – CTR3 | |
|---|---|---|---|---|---|---|---|
| Dec 31, 2025 | = | × | × | ||||
| Dec 31, 2024 | = | × | × | ||||
| Dec 31, 2023 | = | × | × | ||||
| Dec 31, 2022 | = | × | × | ||||
| Dec 31, 2021 | = | × | × |
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Operating profit margin (OPM). See calculations »
2 Turnover of capital (TO). See calculations »
3 Effective cash tax rate (CTR). See calculations »
The period under review demonstrates fluctuating performance in key profitability and efficiency metrics, ultimately impacting the overall return on invested capital. A notable pattern emerges when examining the decomposition of ROIC into its constituent components: operating profit margin, capital turnover, and the impact of taxes.
- Operating Profit Margin (OPM)
- The operating profit margin experienced a significant decline from 34.97% in 2021 to 25.43% in 2022. A recovery was then observed in 2023, reaching 27.50%, followed by further improvement to 33.67% in 2024 and a substantial increase to 39.03% in 2025. This indicates improving operational efficiency and pricing power over the latter part of the period.
- Turnover of Capital (TO)
- The turnover of capital exhibited a slight decrease from 1.51 in 2021 to 1.40 in 2022, suggesting a less efficient utilization of capital. An increase to 1.62 in 2023 indicated improved efficiency, but this was followed by a slight decline to 1.54 in 2024. A more pronounced decrease to 1.30 in 2025 suggests a weakening in the ability to generate sales from invested capital.
- Effective Cash Tax Rate Adjustment (1 – CTR)
- The value of 1 minus the effective cash tax rate began at a high of 86.03% in 2021, then decreased substantially to 72.91% in 2022. A recovery to 77.19% occurred in 2023, followed by a further increase to 79.36% in 2024, culminating in a significant rise to 88.80% in 2025. This suggests a more favorable tax environment in the later years of the period, boosting after-tax returns.
- Return on Invested Capital (ROIC)
- The ROIC mirrored the combined effects of the individual components. A substantial decrease from 45.36% in 2021 to 25.98% in 2022 was observed, primarily driven by the decline in operating profit margin. Subsequent years showed recovery, with ROIC increasing to 34.45% in 2023, 41.14% in 2024, and reaching 45.21% in 2025. The 2024 and 2025 increases were likely supported by both the improving operating profit margin and the more favorable tax environment, despite the declining capital turnover in 2025.
In summary, the ROIC trajectory was initially negatively impacted by a decrease in operating profitability, but subsequent improvements in profitability and tax efficiency contributed to a recovery. The declining capital turnover in the final year warrants further investigation to determine its potential long-term impact on returns.
Operating Profit Margin (OPM)
Alphabet Inc., OPM calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted revenues | ||||||
| Profitability Ratio | ||||||
| OPM3 | ||||||
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Trade Desk Inc. | ||||||
| Walt Disney Co. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2025 Calculation
OPM = 100 × NOPBT ÷ Adjusted revenues
= 100 × ÷ =
4 Click competitor name to see calculations.
The operating profit margin exhibited considerable fluctuation over the five-year period. Net operating profit before taxes and adjusted revenues both increased throughout the period, but the relationship between these figures, as reflected in the operating profit margin, was not consistently linear.
- Operating Profit Margin (OPM)
- The operating profit margin decreased from 34.97% in 2021 to 25.43% in 2022, representing a substantial decline. A modest recovery was then observed in 2023, with the margin increasing to 27.50%.
- Further improvement occurred between 2023 and 2024, with the operating profit margin rising to 33.67%. This upward trend continued into 2025, culminating in a margin of 39.03%, the highest value recorded within the observed timeframe.
- The initial decline in 2022 suggests potential pressures on profitability, possibly stemming from increased operating costs or a shift in revenue mix. The subsequent recovery and strong performance in 2024 and 2025 indicate successful mitigation of these pressures and/or improved operational efficiency.
Net operating profit before taxes mirrored the overall trend in operating profit margin, decreasing in 2022 before experiencing growth in subsequent years. Adjusted revenues consistently increased year-over-year, contributing to the overall positive trajectory of net operating profit before taxes. The accelerating growth in both net operating profit before taxes and adjusted revenues in 2024 and 2025 likely drove the significant increase in the operating profit margin during those periods.
The substantial increase in operating profit margin from 2022 to 2025 warrants further investigation to determine the underlying drivers. Potential factors could include economies of scale, improved pricing strategies, cost control measures, or a favorable shift in the product/service mix.
Turnover of Capital (TO)
Alphabet Inc., TO calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Revenues | ||||||
| Add: Increase (decrease) in deferred revenue | ||||||
| Adjusted revenues | ||||||
| Invested capital1 | ||||||
| Efficiency Ratio | ||||||
| TO2 | ||||||
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Trade Desk Inc. | ||||||
| Walt Disney Co. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 Invested capital. See details »
2 2025 Calculation
TO = Adjusted revenues ÷ Invested capital
= ÷ =
3 Click competitor name to see calculations.
The period under review demonstrates fluctuating performance in the turnover of capital. Adjusted revenues exhibited consistent growth throughout the observed timeframe, while invested capital experienced more variability. Consequently, the turnover of capital ratio, which reflects the efficiency with which invested capital is used to generate revenue, showed corresponding fluctuations.
- Turnover of Capital (TO)
- The turnover of capital ratio began at 1.51 in 2021. A decrease was noted in 2022, with the ratio falling to 1.40. This suggests a less efficient utilization of invested capital in generating revenue during that year.
- A recovery occurred in 2023, as the ratio increased to 1.62, indicating improved capital utilization. However, this improvement was not sustained, with the ratio declining slightly to 1.54 in 2024.
- The most significant change occurred in 2025, with the turnover of capital ratio decreasing to 1.30. This represents the lowest value observed during the period and suggests a substantial reduction in the efficiency of capital usage. This decline coincides with a significant increase in invested capital, while revenue growth, though positive, did not keep pace.
The observed trend in invested capital suggests increasing capital expenditure or acquisitions. While adjusted revenues consistently increased, the decreasing turnover of capital in the later years indicates that the growth in revenue was not proportional to the growth in invested capital. This warrants further investigation to determine the underlying causes, such as potential inefficiencies in asset utilization or the impact of new investments that have not yet reached their full revenue-generating potential.
The fluctuation in the turnover of capital ratio highlights the dynamic relationship between revenue generation and capital investment. Continued monitoring of this ratio, alongside its component elements, is recommended to assess the long-term sustainability of revenue growth and the effectiveness of capital allocation strategies.
Effective Cash Tax Rate (CTR)
Alphabet Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2025 | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net operating profit after taxes (NOPAT)1 | ||||||
| Add: Cash operating taxes2 | ||||||
| Net operating profit before taxes (NOPBT) | ||||||
| Tax Rate | ||||||
| CTR3 | ||||||
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Comcast Corp. | ||||||
| Meta Platforms Inc. | ||||||
| Netflix Inc. | ||||||
| Trade Desk Inc. | ||||||
| Walt Disney Co. | ||||||
Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2025 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × ÷ =
4 Click competitor name to see calculations.
The effective cash tax rate exhibited considerable fluctuation over the five-year period. Cash operating taxes also demonstrated variability, though generally increasing before a recent decline. Net operating profit before taxes showed an overall upward trajectory, with a notable dip in 2022.
- Effective Cash Tax Rate (CTR)
- The CTR began at 13.97% in 2021, increasing substantially to 27.09% in 2022. This represents a significant rise in the proportion of pre-tax profits paid as cash taxes. Following this peak, the CTR decreased to 22.81% in 2023 and further to 20.64% in 2024. A more pronounced decline was observed in 2025, with the CTR falling to 11.20%. This suggests a decreasing tax burden relative to pre-tax profits in the most recent year.
- Cash Operating Taxes
- Cash operating taxes increased from US$12,624 million in 2021 to US$19,532 million in 2022, aligning with the increase in the CTR. A slight decrease to US$19,318 million occurred in 2023, followed by a rise to US$24,384 million in 2024. In 2025, cash operating taxes decreased significantly to US$17,726 million, coinciding with the lowest CTR value of the period.
- Net Operating Profit Before Taxes (NOPBT)
- NOPBT experienced a decrease from US$90,371 million in 2021 to US$72,109 million in 2022. However, NOPBT then demonstrated consistent growth, reaching US$84,688 million in 2023, US$118,165 million in 2024, and US$158,231 million in 2025. This upward trend in pre-tax profits likely contributed to the ability to absorb higher tax payments in earlier years and the reduced impact of taxes in the final year, despite fluctuating CTR values.
The interplay between NOPBT, cash operating taxes, and the CTR indicates a complex relationship. While NOPBT generally increased, the CTR’s volatility suggests changes in the company’s tax profile, potentially due to alterations in tax planning strategies, jurisdictional mix of earnings, or applicable tax laws.