Arrowhead Pharmaceuticals Inc (ARWR)

Return on total capital

		Sep 30, 2023	Sep 30, 2022	Sep 30, 2021	Sep 30, 2020	Sep 30, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	-184,165	-172,278	-140,846	-93,159	61,191
Long-term debt	US$ in thousands	—	—	—	—	—
Total stockholders’ equity	US$ in thousands	271,343	398,520	408,822	461,779	244,591
Return on total capital		-67.87%	-43.23%	-34.45%	-20.17%	25.02%

September 30, 2023 calculation

Return on total capital = EBIT ÷ (Long-term debt + Total stockholders’ equity)
= $-184,165K ÷ ($—K + $271,343K)
= -67.87%

Looking at the return on total capital (ROTC) of Arrowhead Pharmaceuticals Inc. over the past five years, we observe a significant fluctuation in the metric. ROTC is a measure of a company's profitability and efficiency in generating returns from its total capital, which includes both equity and debt.

In September 2019, Arrowhead Pharmaceuticals Inc. demonstrated a notably positive ROTC of 25.02%, indicating that it was efficiently utilizing its total capital to generate profits for its investors and creditors. However, this trend reversed in the subsequent years, with ROTC decreasing to -20.17% in September 2020, -36.45% in September 2021, and further declining to -44.79% in September 2022. Notably, in September 2023, the trend worsened, with ROTC plummeting to -75.55%.

The negative trend in ROTC signals that Arrowhead Pharmaceuticals Inc. may be facing challenges in effectively leveraging both its equity and debt to generate returns. This decline in ROTC could be attributed to various factors, including operational inefficiencies, declining profitability, or an increase in total capital without a proportionate increase in returns.

It is crucial for the management of Arrowhead Pharmaceuticals Inc. to closely examine the underlying factors contributing to the deteriorating ROTC and take appropriate corrective actions. Improving the efficiency of capital utilization, optimizing operational performance, and managing the capital structure prudently are essential considerations for the company to potentially reverse this downward trend in ROTC and enhance overall financial performance.