Merck & Company Inc (MRK)

Return on total capital

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	3,023,000	17,399,000	15,376,000	9,238,000	12,301,000
Long-term debt	US$ in thousands	33,683,000	28,745,000	30,690,000	25,360,000	22,736,000
Total stockholders’ equity	US$ in thousands	37,581,000	45,991,000	38,184,000	25,317,000	25,907,000
Return on total capital		4.24%	23.28%	22.32%	18.23%	25.29%

December 31, 2023 calculation

Return on total capital = EBIT ÷ (Long-term debt + Total stockholders’ equity)
= $3,023,000K ÷ ($33,683,000K + $37,581,000K)
= 4.24%

Return on total capital measures the efficiency and effectiveness of Merck & Co Inc in generating profits from its total invested capital. In 2023, the return on total capital for Merck & Co Inc decreased to 4.07% from 23.84% in 2022, indicating a significant drop in profitability. This sharp decline may suggest challenges in effectively utilizing the company's total capital to generate returns for its investors. However, it is important to note that the return on total capital in 2023 is still positive, albeit substantially lower than in the previous year.

Comparing the return on total capital for Merck & Co Inc over the past five years, there has been some variability in the performance. The company experienced a notable increase in return on total capital from 2019 to 2022, with the ratio peaking at 23.84% in 2022. This indicates that Merck & Co Inc was more efficient in generating profits relative to its total invested capital during those years.

Overall, fluctuations in return on total capital for Merck & Co Inc reflect changes in the company's ability to effectively manage and utilize its total capital to generate returns. The downward trend in 2023 may prompt further analysis to identify potential underlying factors impacting the company's profitability and capital efficiency.