Taiwan Semiconductor Manufacturing Company Limited (TSM) Return on Invested Capital (ROIC)

Taiwan Semiconductor Manufacturing Company Limited

TSM (NYSE)

(%)

Models
Taiwan Semiconductor Manufacturing Company 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 USD amounts except #	LTM Mar 11	2025 Dec 31	2024 Dec 31	2023 Dec 31	2022 Dec 31	2021 Dec 31
Income Tax Rate	15.98%	15.98%	17.66%	13.1%	13.18%	10.58%
Operating Income	60,982	62,318	40,262	30,016	36,577	23,447
Net Operating Profit After Tax (NOPAT)	51,239	52,360	33,150	26,083	31,757	20,966
Total Stockholders Equity	172,209	172,209	129,255	111,713	94,699	77,532
+ Total Debt	33,923	33,923	31,887	31,149	28,973	27,187
- Cash and Short Term Investments	97,505	97,505	75,683	55,858	51,753	43,466
= Invested Capital	108,627	108,627	85,459	87,004	71,919	61,253
Return on Invested Capital (ROIC)	47.17%	48.2%	38.79%	29.98%	44.16%	34.23%

R&D Amortization

R&D Amortization Calculations

Monetary values in USD amounts except #	2025 Dec 31	2024 Dec 31	2023 Dec 31	2022 Dec 31	2021 Dec 31	2020 Dec 31
Research and Development Expenses	7,934	6,218	5,941	5,326	4,500	3,892
Unamortized R&D Ratio	1.0	0.8	0.6	0.4	0.2	0.0
Unamortized R&D Value	7,934	4,975	3,564	2,130	899.9	0
R&D Amortization Ratio	0.0	0.2	0.2	0.2	0.2	0.2
R&D Amortization This Year	0	1,244	1,188	1,065	899.9	778.5

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)	51.24 Bil. USD
+ Research and Development Expenses	7.76 Bil. USD
- Amortization of Research Asset	5.18 Bil. USD
= Adjusted NOPAT	53.83 Bil. USD
Total Stockholders Equity	172.2 Bil. USD
+ Value of the Research Asset	19.5 Bil. USD
= Adjusted Stockholders Equity	191.7 Bil. USD
+ Total Debt	33.92 Bil. USD
- Cash and Short Term Investments	97.51 Bil. USD
= Adjusted Invested Capital	128.1 Bil. USD
ROIC Adjusted for Capitalized R&D	42.01%

Return on Invested Capital