Alibaba Group Holding Limited (9988.HK) Return on Invested Capital (ROIC)

Alibaba Group Holding Limited

9988.HK (HKSE)

Models
Alibaba Group Holding Limited Return on Invested Capital (ROIC)

# Render description block
model.render_description({
    "data": r"""
### Return on Invested Capital (ROIC)

The return on capital or invested capital in a business attempts to measure the return earned on capital invested in an investment.

> Read more on [Aswath Damodaran - Return Measures PDF](https://pages.stern.nyu.edu/~adamodar/pdfiles/papers/returnmeasures.pdf)

### ROIC Formula

`Return on Invested Capital (ROIC)` = `Net Operating Profit After Tax (NOPAT)` / `Invested Capital`

The Net Operating Profit After Tax (NOPAT) is calculated using the reported Earnings Before Interest and Taxes (EBIT) or Operating Income on the income statement adjusted for the tax liability.

`Net Operating Profit After Tax (NOPAT)` = `Operating Income` * (1 - `Income Tax Rate`)

There are two ways to calculate invested capital: One looks at the company's assets, and another looks at its financing from debt and equity. In this model, we are using the financing based approach.

`Invested Capital` = `Total Stockholders Equity` + `Total Debt` - `Cash and Short Term Investments`

We then adjust `Invested Capital` and `Net Operating Profit After Tax (NOPAT)`  for **capitalized R&D expenses**.
""",
    "properties": {
        "width": "responsive"
    }
})

# --- Historical Data
data.compute({
    "user:%incomeTaxRate": """
        income:incomeTaxExpense / income:incomeBeforeTax
    """,
    "user:netOperatingProfitAfterTaxNopat": """
        income:operatingIncome * (1 - user:%incomeTaxRate)
    """,
    "user:investedCapital": """
        balance:totalStockholdersEquity
        + balance:totalDebt
        - balance:cashAndShortTermInvestments
    """,
    "user:%returnOnInvestedCapitalRoic": """
        user:netOperatingProfitAfterTaxNopat / user:investedCapital
    """,
}, forecast=0, timeseries="annual")

model.render_table({
    "timeseries": "annual",
    "data": {
        "user:%incomeTaxRate": "Income Tax Rate",
        "income:operatingIncome": "Operating Income",
        "user:netOperatingProfitAfterTaxNopat": "Net Operating Profit After Tax (NOPAT)",
        "balance:totalStockholdersEquity": "Total Stockholders Equity",
        "balance:totalDebt": "+ Total Debt",
        "balance:cashAndShortTermInvestments": "- Cash and Short Term Investments",
        "user:investedCapital": "= Invested Capital",
        "user:%returnOnInvestedCapitalRoic": "Return on Invested Capital (ROIC)",
    },
    "start": -5,
    "end": 0,
    "properties": {
        "title": "Historical Data",
        "order": "descending",
        "number_format": "M",
        "include_ltm": True,
        "display_averages": False,
        "width": "responsive"
    }
})

# --- R&D Amortization
assumptions.set({
    "timeseries": "annual",
    "data": {
        "#rDAmortizationYears": """
            5
        """,
    },
    "titles": {
        "#rDAmortizationYears": "R&D Amortization Years",
    },
    "properties": {
        "width": "responsive",
        "title": "R&D Amortization",
        "id": "component-10",
        "bindTo": None
    },
    "descriptions": {
        "#rDAmortizationYears": r"""
Represents the assumed useful life (in years) over which R&D spending is capitalized and amortized to form a **“research asset.”**

A longer period increases the capitalized R&D asset (raising invested capital) and typically lowers adjusted ROIC; a shorter period does the opposite.
        """,
    }
})

# --- R&D Amortization Calculations
data.compute({
    "user:#unamortizedRDRatio": """
        (0 > time:index >= -assumption:#rDAmortizationYears) 
        * (assumption:#rDAmortizationYears + time:index + 1) / assumption:#rDAmortizationYears
    """,
    "user:unamortizedRDValue": """
        income:researchAndDevelopmentExpenses * user:#unamortizedRDRatio
    """,
    "user:#rDAmortizationRatio": """
        (0 > 1 + time:index >= - assumption:#rDAmortizationYears) * 1 / assumption:#rDAmortizationYears
    """,
    "user:rDAmortizationThisYear": """
        income:researchAndDevelopmentExpenses * user:#rDAmortizationRatio
    """,
}, forecast=0, timeseries="annual")

model.render_table({
    "timeseries": "annual",
    "data": {
        "income:researchAndDevelopmentExpenses": "Research and Development Expenses",
        "user:#unamortizedRDRatio": "Unamortized R&D Ratio",
        "user:unamortizedRDValue": "Unamortized R&D Value",
        "user:#rDAmortizationRatio": "R&D Amortization Ratio",
        "user:rDAmortizationThisYear": "R&D Amortization This Year",
    },
    "start": data.get("""
        -assumption:#rDAmortizationYears - 1
    """),
    "end": 0,
    "properties": {
        "title": "R&D Amortization Calculations",
        "order": "descending",
        "number_format": "M",
        "include_ltm": False,
        "display_averages": False,
        "width": "responsive"
    }
})

# Render description block
model.render_description({
    "data": r"""
### Capitalizing R&D Expenses

As per prof. Aswath Damodaran's paper:
> "Research expenses, notwithstanding the uncertainty about future benefits, should be capitalized."

Capitalizing R&D expenses treats R&D as an intangible investment. We estimate a “research asset” as the sum of unamortized R&D based on the selected amortization period.

`Value of the Research Asset` = Sum of `Unamortized R&D Value`

We also record annual amortization of that asset.

`Amortization of Research Asset` = Sum of `R&D Amortization This Year`

We then adjust profitability and capital to reflect this treatment:

`ROIC Adjusted for Capitalized R&D` = `Adjusted NOPAT` / `Adjusted Invested Capital`
""",
    "properties": {
        "width": "responsive"
    }
})

# --- Adjusted ROIC Calculation
data.compute_results({
    "amortizationOfResearchAsset": """
         function:sum(start=-assumption:#rDAmortizationYears - 1, end=-1):user:rDAmortizationThisYear
    """,
    "adjustedNopat": """
        user:netOperatingProfitAfterTaxNopat
        + income:researchAndDevelopmentExpenses
        - result:amortizationOfResearchAsset
    """,
    "valueOfTheResearchAsset": """
         function:sum(start=-assumption:#rDAmortizationYears - 1, end=-1):user:unamortizedRDValue 
    """,
    "adjustedStockholdersEquity": """
        balance:totalStockholdersEquity + result:valueOfTheResearchAsset
    """,
    "adjustedInvestedCapital": """
        result:adjustedStockholdersEquity
        + balance:totalDebt
        - balance:cashAndShortTermInvestments
    """,
    "%roicAdjustedForCapitalizedRD": """
        result:adjustedNopat / result:adjustedInvestedCapital
    """,
}, timeseries="annual")

model.render_results({
    "timeseries": "annual",
    "data": {
        "user:netOperatingProfitAfterTaxNopat": {
            "label": "Net Operating Profit After Tax (NOPAT)",
            "type": "$"
        },
        "income:researchAndDevelopmentExpenses": {
            "label": "+ Research and Development Expenses",
            "type": "$"
        },
        "result:amortizationOfResearchAsset": {
            "label": "- Amortization of Research Asset",
            "type": "$"
        },
        "result:adjustedNopat": {
            "label": "= Adjusted NOPAT",
            "type": "$"
        },
        "balance:totalStockholdersEquity": {
            "label": "Total Stockholders Equity",
            "type": "$"
        },
        "result:valueOfTheResearchAsset": {
            "label": "+ Value of the Research Asset",
            "type": "$"
        },
        "result:adjustedStockholdersEquity": {
            "label": "= Adjusted Stockholders Equity",
            "type": "$"
        },
        "balance:totalDebt": {
            "label": "+ Total Debt",
            "type": "$"
        },
        "balance:cashAndShortTermInvestments": {
            "label": "- Cash and Short Term Investments",
            "type": "$"
        },
        "result:adjustedInvestedCapital": {
            "label": "= Adjusted Invested Capital",
            "type": "$"
        },
        "result:%roicAdjustedForCapitalizedRD": {
            "label": "ROIC Adjusted for Capitalized R&D",
            "type": "%"
        },
    },
    "properties": {
        "title": "Adjusted ROIC Calculation",
        "width": "responsive",
        "hidden_keys": []
    }
})

# --- Return on Invested Capital
model.set_final_value({
    "value": data.get("""
        user:%returnOnInvestedCapitalRoic
    """, timeseries="annual"),
    "units": "%",
    "title": "Return on Invested Capital",
    "properties": {
        "width": "full" 
    }
})

Return on Invested Capital

%

* Values are not guaranteed, please do your own
research before making investment decisions.

Return on Invested Capital (ROIC)

The return on capital or invested capital in a business attempts to measure the return earned on capital invested in an investment.

Read more on Aswath Damodaran - Return Measures PDF

ROIC Formula

Return on Invested Capital (ROIC) = Net Operating Profit After Tax (NOPAT) / Invested Capital

The Net Operating Profit After Tax (NOPAT) is calculated using the reported Earnings Before Interest and Taxes (EBIT) or Operating Income on the income statement adjusted for the tax liability.

Net Operating Profit After Tax (NOPAT) = Operating Income * (1 - Income Tax Rate)

There are two ways to calculate invested capital: One looks at the company's assets, and another looks at its financing from debt and equity. In this model, we are using the financing based approach.

Invested Capital = Total Stockholders Equity + Total Debt - Cash and Short Term Investments

We then adjust Invested Capital and Net Operating Profit After Tax (NOPAT) for capitalized R&D expenses.

Historical Data

Monetary values in HKD amounts except #	LTM Mar 13	2025 Mar 31	2024 Mar 31	2023 Mar 31	2022 Mar 31	2021 Mar 31
Income Tax Rate	21.08%	21.96%	24%	19.17%	36.29%	16.97%
Operating Income	125,126	151,022	122,792	114,661	85,975	106,358
Net Operating Profit After Tax (NOPAT)	98,755	117,860	93,319	92,683	54,776	88,313
Total Stockholders Equity	1,128,311	1,082,366	1,068,723	1,130,782	1,170,992	1,111,839
+ Total Debt	307,726	265,924	222,742	223,457	218,027	215,187
- Cash and Short Term Investments	408,239	458,830	618,596	599,259	561,848	573,366
= Invested Capital	1,027,797	889,460	672,869	754,980	827,171	753,660
Return on Invested Capital (ROIC)	9.61%	13.25%	13.87%	12.28%	6.62%	11.72%

R&D Amortization

R&D Amortization Calculations

Monetary values in HKD amounts except #	2025 Mar 31	2024 Mar 31	2023 Mar 31	2022 Mar 31	2021 Mar 31	2020 Mar 31
Research and Development Expenses	61,254	56,609	64,836	68,477	67,882	47,130
Unamortized R&D Ratio	1.0	0.8	0.6	0.4	0.2	0.0
Unamortized R&D Value	61,254	45,287	38,901	27,391	13,576	0
R&D Amortization Ratio	0.0	0.2	0.2	0.2	0.2	0.2
R&D Amortization This Year	0	11,322	12,967	13,695	13,576	9,426

Capitalizing R&D Expenses

As per prof. Aswath Damodaran's paper:

"Research expenses, notwithstanding the uncertainty about future benefits, should be capitalized."

Capitalizing R&D expenses treats R&D as an intangible investment. We estimate a “research asset” as the sum of unamortized R&D based on the selected amortization period.

Value of the Research Asset = Sum of Unamortized R&D Value

We also record annual amortization of that asset.

Amortization of Research Asset = Sum of R&D Amortization This Year

We then adjust profitability and capital to reflect this treatment:

ROIC Adjusted for Capitalized R&D = Adjusted NOPAT / Adjusted Invested Capital

Adjusted ROIC Calculation
Net Operating Profit After Tax (NOPAT)	98.76 Bil. HKD
+ Research and Development Expenses	70.16 Bil. HKD
- Amortization of Research Asset	60.99 Bil. HKD
= Adjusted NOPAT	107.9 Bil. HKD
Total Stockholders Equity	1,128 Bil. HKD
+ Value of the Research Asset	186.4 Bil. HKD
= Adjusted Stockholders Equity	1,315 Bil. HKD
+ Total Debt	307.7 Bil. HKD
- Cash and Short Term Investments	408.2 Bil. HKD
= Adjusted Invested Capital	1,214 Bil. HKD
ROIC Adjusted for Capitalized R&D	8.89%

Return on Invested Capital