Return On Invested Capital
Our press release contains information regarding Return On Invested Capital (ROIC), which is a non-GAAP financial measure. We believe that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate our performance, including as a financial measure for our annual incentive compensation. Our measure of ROIC may be different from that used by other companies. We define ROIC as the percentage resulting from the following calculation:
(a) Net Income, before interest expense, income tax provision, and purchase accounting depreciation and amortization, divided by;
(b) average invested capital for the year, calculated as a five quarter rolling average using the sum of short-term debt, long-term debt, shareowners’ equity, and accumulated amortization of goodwill and other intangible assets, minus cash and cash equivalents, short-term investments, and long-term investments (fixed income securities), multiplied by;
(c) one minus the effective tax rate for the period.
ROIC is calculated as follows (in millions, except percentages):
|
|
Twelve Months Ended |
||||||
|
|
December 31, |
||||||
|
|
2019 |
|
2018 |
||||
(a) Return |
|
|
|
|
||||
Net Income |
|
$ |
930.9 |
|
|
$ |
852.2 |
|
Interest expense |
|
103.9 |
|
|
73.7 |
|
||
Income tax provision |
|
183.9 |
|
|
301.6 |
|
||
Purchase accounting depreciation and amortization |
|
22.5 |
|
|
17.1 |
|
||
Return |
|
1,241.2 |
|
|
1,244.6 |
|
||
(b) Average invested capital |
|
|
|
|
||||
Short-term debt |
|
370.9 |
|
|
466.3 |
|
||
Long-term debt |
|
1,803.7 |
|
|
1,231.4 |
|
||
Shareowners’ equity |
|
1,041.6 |
|
|
1,687.9 |
|
||
Accumulated amortization of goodwill and intangibles |
|
890.1 |
|
|
870.2 |
|
||
Cash and cash equivalents |
|
(829.1 |
) |
|
(1,034.4 |
) |
||
| Short-term and long-term investments |
|
(126.7 |
) |
|
(717.8 |
) |
||
| Average invested capital |
|
3,150.5 |
|
|
2,503.6 |
|
||
| (c) Effective tax rate |
|
|
|
|
||||
| Income tax provision 1 |
|
183.9 |
|
|
243.0 |
|
||
| Income before income taxes |
|
$ |
1,114.8 |
|
|
$ |
1,153.8 |
|
| Effective tax rate |
|
16.5 |
% |
|
21.1 |
% |
||
| (a) / (b) * (1-c) Return On Invested Capital |
|
32.9 |
% |
|
39.2 |
% |
||
