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.
Return on Invested Capital (ROIC)
Teradyne Inc., ROIC calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 313,918) | 659,470) | 1,034,943) | 850,330) | 499,351) | |
| Invested capital2 | 2,415,179) | 2,587,403) | 2,564,053) | 2,183,213) | 1,845,838) | |
| Performance Ratio | ||||||
| ROIC3 | 13.00% | 25.49% | 40.36% | 38.95% | 27.05% | |
| Benchmarks | ||||||
| ROIC, Competitors4 | ||||||
| Advanced Micro Devices Inc. | -0.35% | -0.24% | 56.77% | — | — | |
| Analog Devices Inc. | 7.11% | 5.76% | 2.37% | 6.95% | — | |
| Applied Materials Inc. | 36.75% | 46.34% | 41.96% | 29.68% | — | |
| Broadcom Inc. | 23.04% | 20.75% | 10.98% | 4.78% | — | |
| Intel Corp. | -1.60% | 4.14% | 22.03% | — | — | |
| KLA Corp. | 40.63% | 42.51% | 31.64% | — | — | |
| Lam Research Corp. | 27.10% | 41.68% | 37.13% | — | — | |
| Marvell Technology Inc. | 0.17% | -1.91% | -2.75% | — | — | |
| Micron Technology Inc. | -11.01% | 17.20% | 12.88% | 6.84% | — | |
| NVIDIA Corp. | 10.91% | 53.12% | 33.44% | — | — | |
| Qualcomm Inc. | 18.69% | 45.12% | 42.56% | 27.48% | — | |
| Texas Instruments Inc. | 28.83% | 49.74% | 48.28% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Invested capital. See details »
3 2023 Calculation
ROIC = 100 × NOPAT ÷ Invested capital
= 100 × 313,918 ÷ 2,415,179 = 13.00%
4 Click competitor name to see calculations.
The analysis of the return on invested capital (ROIC) reveals a cyclical performance pattern characterized by a period of strong expansion followed by a significant contraction between 2019 and 2023.
- Net Operating Profit After Taxes (NOPAT)
- A substantial increase in profitability was observed from 2019 to 2021, with NOPAT rising from US$ 499,351 thousand to a peak of US$ 1,034,943 thousand. This growth trend reversed sharply thereafter, declining to US$ 659,470 thousand in 2022 and further dropping to US$ 313,918 thousand by the end of 2023, representing a significant reduction in operational earnings.
- Invested Capital
- The capital base exhibited a consistent upward trend for the first four years, growing from US$ 1,845,838 thousand in 2019 to a peak of US$ 2,587,403 thousand in 2022. A slight contraction occurred in 2023, with invested capital decreasing to US$ 2,415,179 thousand.
- Return on Invested Capital (ROIC)
- ROIC followed a bell-shaped trajectory, increasing from 27.05% in 2019 to a peak of 40.36% in 2021. This growth indicates that operating profit expansion significantly outpaced the increase in invested capital during this period. However, a sharp decline followed, with the ratio falling to 25.49% in 2022 and reaching a five-year low of 13.00% in 2023. The compression of the ROIC is primarily attributable to the precipitous drop in NOPAT while the capital base remained relatively stable.
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Decomposition of ROIC
Teradyne Inc., decomposition of ROIC
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Operating profit margin (OPM). See calculations »
2 Turnover of capital (TO). See calculations »
3 Effective cash tax rate (CTR). See calculations »
The Return on Invested Capital (ROIC) exhibited a cyclical trajectory between 2019 and 2023, characterized by a significant expansion phase followed by a sharp contraction. After rising from 27.05% in 2019 to a peak of 40.36% in 2021, the return experienced a precipitous decline, ending the period at 13.00% in 2023. This erosion in value is the result of simultaneous declines in operational profitability, capital efficiency, and an increasing effective tax burden.
- Operating Profit Margin (OPM)
- Profitability served as a primary driver for the fluctuations in ROIC. The margin increased from 24.24% in 2019 to a high of 32.37% in 2021, reflecting strong operational leverage. However, this trend reversed sharply in the subsequent two years, with the margin falling to 26.22% in 2022 and further contracting to 16.14% by 2023, indicating a significant compression in operating earnings relative to revenue.
- Turnover of Capital (TO)
- Capital efficiency followed a similar pattern of growth and subsequent decay. The turnover ratio improved from 1.27 in 2019 to 1.45 in 2020 and 2021, suggesting optimal utilization of the invested capital base. From 2022 onward, efficiency deteriorated, dropping to 1.22 and then to 1.08 in 2023, signifying that each unit of invested capital generated progressively less revenue.
- Effective Cash Tax Rate Adjustment (1 – CTR)
- The after-tax component of the return decomposition shows a consistent downward trend throughout the five-year period. The value of 1 minus the effective cash tax rate decreased steadily from 88.19% in 2019 to 74.25% in 2023. This indicates a gradual increase in the effective cash tax rate, which acted as a persistent drag on the net ROIC regardless of operational performance.
In summary, the degradation of ROIC from its 2021 peak was compounded by a "triple headwind": the collapse of operating margins, the reduction in capital turnover, and the increasing impact of cash taxes. The convergence of these three factors explains the transition from a high-performance return profile to a significantly lower return level by the end of 2023.
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Operating Profit Margin (OPM)
Teradyne Inc., OPM calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 313,918) | 659,470) | 1,034,943) | 850,330) | 499,351) | |
| Add: Cash operating taxes2 | 108,845) | 165,914) | 166,173) | 135,350) | 66,842) | |
| Net operating profit before taxes (NOPBT) | 422,763) | 825,384) | 1,201,116) | 985,680) | 566,192) | |
| Revenues | 2,676,298) | 3,155,045) | 3,702,881) | 3,121,469) | 2,294,965) | |
| Add: Increase (decrease) in deferred revenue and customer advances | (56,330) | (7,690) | 8,085) | 42,171) | 40,389) | |
| Adjusted revenues | 2,619,968) | 3,147,355) | 3,710,966) | 3,163,640) | 2,335,354) | |
| Profitability Ratio | ||||||
| OPM3 | 16.14% | 26.22% | 32.37% | 31.16% | 24.24% | |
| Benchmarks | ||||||
| OPM, Competitors4 | ||||||
| Advanced Micro Devices Inc. | 2.02% | 5.31% | 22.70% | — | — | |
| Analog Devices Inc. | 32.00% | 27.59% | 20.52% | 26.98% | — | |
| Applied Materials Inc. | 29.22% | 30.32% | 30.54% | 25.67% | — | |
| Broadcom Inc. | 45.19% | 42.94% | 30.96% | 17.06% | — | |
| Intel Corp. | -0.86% | 13.58% | 28.05% | — | — | |
| KLA Corp. | 39.78% | 41.73% | 36.39% | — | — | |
| Lam Research Corp. | 28.38% | 35.59% | 34.25% | — | — | |
| Marvell Technology Inc. | 4.55% | -7.16% | -8.08% | — | — | |
| Micron Technology Inc. | -36.77% | 31.50% | 23.15% | 14.37% | — | |
| NVIDIA Corp. | 15.97% | 37.99% | 28.45% | — | — | |
| Qualcomm Inc. | 21.48% | 35.06% | 30.10% | 24.17% | — | |
| Texas Instruments Inc. | 44.51% | 51.22% | 49.60% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2023 Calculation
OPM = 100 × NOPBT ÷ Adjusted revenues
= 100 × 422,763 ÷ 2,619,968 = 16.14%
4 Click competitor name to see calculations.
The financial performance from 2019 to 2023 reflects a distinct cyclical trajectory, characterized by a period of significant expansion in both revenue and profitability followed by a sharp contraction.
- Revenue and Net Operating Profit Trends
- Adjusted revenues grew steadily from US$ 2,335,354 thousand in 2019 to a peak of US$ 3,710,966 thousand in 2021. This growth was mirrored by the Net Operating Profit Before Taxes (NOPBT), which increased from US$ 566,192 thousand in 2019 to a high of US$ 1,201,116 thousand in 2021. After 2021, both metrics entered a decline, with revenues falling to US$ 2,619,968 thousand and NOPBT dropping substantially to US$ 422,763 thousand by the end of 2023.
- Operating Profit Margin (OPM) Fluctuations
- The operating profit margin experienced a period of efficiency gains between 2019 and 2021, rising from 24.24% to a peak of 32.37%. This indicates a period where operating profits grew faster than revenues. However, this trend reversed sharply in the following two years, with the margin falling to 26.22% in 2022 and further plummeting to 16.14% in 2023.
- Analysis of Margin Contraction
- A significant erosion of operational efficiency is observed in the final two years of the period. The decline in OPM from 32.37% in 2021 to 16.14% in 2023 represents a nearly 50% reduction in margin. Because the decrease in NOPBT was more aggressive than the decrease in adjusted revenues, the data suggests an inability to scale down operating expenses in alignment with the revenue downturn.
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Turnover of Capital (TO)
Teradyne Inc., TO calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Revenues | 2,676,298) | 3,155,045) | 3,702,881) | 3,121,469) | 2,294,965) | |
| Add: Increase (decrease) in deferred revenue and customer advances | (56,330) | (7,690) | 8,085) | 42,171) | 40,389) | |
| Adjusted revenues | 2,619,968) | 3,147,355) | 3,710,966) | 3,163,640) | 2,335,354) | |
| Invested capital1 | 2,415,179) | 2,587,403) | 2,564,053) | 2,183,213) | 1,845,838) | |
| Efficiency Ratio | ||||||
| TO2 | 1.08 | 1.22 | 1.45 | 1.45 | 1.27 | |
| Benchmarks | ||||||
| TO, Competitors3 | ||||||
| Advanced Micro Devices Inc. | 0.39 | 0.40 | 2.65 | — | — | |
| Analog Devices Inc. | 0.28 | 0.27 | 0.16 | 0.31 | — | |
| Applied Materials Inc. | 1.49 | 1.73 | 1.57 | 1.31 | — | |
| Broadcom Inc. | 0.57 | 0.53 | 0.42 | 0.36 | — | |
| Intel Corp. | 0.59 | 0.71 | 0.89 | — | — | |
| KLA Corp. | 1.26 | 1.18 | 1.01 | — | — | |
| Lam Research Corp. | 1.14 | 1.35 | 1.24 | — | — | |
| Marvell Technology Inc. | 0.30 | 0.22 | 0.33 | — | — | |
| Micron Technology Inc. | 0.29 | 0.58 | 0.60 | 0.51 | — | |
| NVIDIA Corp. | 1.26 | 1.49 | 1.28 | — | — | |
| Qualcomm Inc. | 1.14 | 1.50 | 1.66 | 1.33 | — | |
| Texas Instruments Inc. | 0.78 | 1.14 | 1.12 | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Invested capital. See details »
2 2023 Calculation
TO = Adjusted revenues ÷ Invested capital
= 2,619,968 ÷ 2,415,179 = 1.08
3 Click competitor name to see calculations.
The analysis of capital efficiency between 2019 and 2023 reveals a cyclical trend characterized by a period of rapid expansion followed by a contraction in asset productivity. The turnover of capital reached a peak in the middle of the period before experiencing a steady decline, reflecting a divergence between revenue generation and the capital base.
- Revenue Dynamics
- Adjusted revenues experienced significant growth from 2019 to 2021, rising from 2.34 billion USD to a peak of 3.71 billion USD. This growth phase was followed by a consistent downward trend, with revenues contracting to 3.15 billion USD in 2022 and further decreasing to 2.62 billion USD by the end of 2023.
- Invested Capital Trends
- The invested capital base expanded steadily from 1.85 billion USD in 2019 to a peak of 2.59 billion USD in 2022. While revenues began to decline after 2021, the capital base remained elevated, only showing a modest reduction to 2.42 billion USD in 2023. This suggests that the capital investments made during the growth phase were not rapidly scaled back as demand softened.
- Turnover of Capital Analysis
- The turnover of capital ratio improved from 1.27 in 2019 to a peak of 1.45 in 2020 and 2021, indicating an increase in the efficiency of revenue generation per unit of invested capital. However, a subsequent decline is observed, with the ratio falling to 1.22 in 2022 and reaching a period low of 1.08 in 2023. This deterioration in the ratio is primarily driven by the decline in adjusted revenues occurring while the invested capital remained relatively stagnant, resulting in lower asset productivity toward the end of the analyzed period.
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Effective Cash Tax Rate (CTR)
Teradyne Inc., CTR calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net operating profit after taxes (NOPAT)1 | 313,918) | 659,470) | 1,034,943) | 850,330) | 499,351) | |
| Add: Cash operating taxes2 | 108,845) | 165,914) | 166,173) | 135,350) | 66,842) | |
| Net operating profit before taxes (NOPBT) | 422,763) | 825,384) | 1,201,116) | 985,680) | 566,192) | |
| Tax Rate | ||||||
| CTR3 | 25.75% | 20.10% | 13.83% | 13.73% | 11.81% | |
| Benchmarks | ||||||
| CTR, Competitors4 | ||||||
| Advanced Micro Devices Inc. | 143.92% | 111.01% | 5.73% | — | — | |
| Analog Devices Inc. | 20.23% | 21.73% | 25.70% | 16.31% | — | |
| Applied Materials Inc. | 15.68% | 11.76% | 12.33% | 12.01% | — | |
| Broadcom Inc. | 10.78% | 9.59% | 16.50% | 22.68% | — | |
| Intel Corp. | — | 57.13% | 12.07% | — | — | |
| KLA Corp. | 18.86% | 13.88% | 14.30% | — | — | |
| Lam Research Corp. | 16.15% | 13.55% | 12.57% | — | — | |
| Marvell Technology Inc. | 87.58% | — | — | — | — | |
| Micron Technology Inc. | — | 6.38% | 6.96% | 6.13% | — | |
| NVIDIA Corp. | 45.94% | 6.28% | 8.10% | — | — | |
| Qualcomm Inc. | 23.51% | 14.27% | 14.84% | 14.19% | — | |
| Texas Instruments Inc. | 16.49% | 14.83% | 12.93% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cash operating taxes. See details »
3 2023 Calculation
CTR = 100 × Cash operating taxes ÷ NOPBT
= 100 × 108,845 ÷ 422,763 = 25.75%
4 Click competitor name to see calculations.
An analysis of the financial metrics from 2019 to 2023 reveals an inverse relationship between net operating profitability and the effective cash tax rate. While operating profits reached a peak in 2021 before declining sharply, the percentage of profit paid in cash taxes increased consistently throughout the observed period.
- Net Operating Profit Before Taxes (NOPBT)
- Operating profitability experienced significant volatility, growing from US$ 566.19 million in 2019 to a five-year peak of US$ 1.20 billion in 2021. This growth was followed by a substantial contraction, with profit falling to US$ 422.76 million by December 31, 2023.
- Cash Operating Taxes
- Cash tax outflows rose from US$ 66.84 million in 2019 to a peak of US$ 166.17 million in 2021. These payments remained relatively stagnant in 2022 at US$ 165.91 million before decreasing to US$ 108.85 million in 2023.
- Effective Cash Tax Rate (CTR)
- The CTR demonstrated a continuous upward trajectory, increasing from 11.81% in 2019 to 25.75% in 2023. The most significant acceleration in the tax rate occurred between 2021 and 2023, during which the rate nearly doubled from 13.83% to 25.75%.
The divergence between the declining NOPBT and the rising CTR in the final two years of the period indicates a heightened relative tax burden. By 2023, the effective cash tax rate reached its highest level in the five-year sequence, coinciding with the lowest level of net operating profit since 2019.
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