Adobe's ROIC Doubled in 8 Quarters: The Capital Turnover Story
Adobe's ROIC didn't just beat peers—it doubled in 8 quarters. The story isn't 'Adobe has high ROIC.' It's WHY it improved from 50% to 105% while Salesforce stayed at 12%. DuPont decomposition reveals the answer.
Adobe's ROIC Doubled in 8 Quarters: Capital Turnover Analysis
Last Updated: January 20, 2026 Data Currency: FY2025 10-K filing (November 2025). ADBE SEC Filings
TL;DR: Adobe's ROIC improved from ~50% (8Q median) to 105% (current)—a +54pp gain that dwarfs peers. The driver isn't just high margins. It's capital turnover acceleration: from 2.67x to 4.14x (+1.76x improvement). Meanwhile, Salesforce's 12% ROIC isn't poor management—it's the mathematical consequence of $57B invested capital from acquisitions. Cash ROIC of 149% validates Adobe's quality.
Key Metrics:
- ROIC Improvement: ~50% → 105% (+54pp in 8 quarters)
- Capital Turnover: 2.67x → 4.14x (+1.76x improvement)
- Cash ROIC: 149% (validates accounting ROIC)
- Buybacks vs SBC: $11.3B vs $1.94B (net accretive)
- CRM Invested Capital: $57.1B (10x Adobe's $5.8B)
Track These Companies: ADBE Company Page | CRM Company Page | NOW Company Page | INTU Company Page
The Real Story: Why Did ROIC Double?
Most analysis stops at "Adobe has 105% ROIC while Salesforce has 12%." That's descriptive, not analytical.
The real question: Why did Adobe's ROIC nearly double in 8 quarters? And why can't Salesforce close the gap?
Answering this requires DuPont decomposition—breaking ROIC into its component drivers.
The ROIC Formula
ROIC = NOPAT Margin × Invested Capital Turnover
Where:
- NOPAT Margin = Net Operating Profit After Tax / Revenue
- Capital Turnover = Revenue / Invested Capital
High ROIC can come from:
- High margins (pricing power, cost efficiency)
- High turnover (asset-light model, capital discipline)
- Both
Adobe wins on both axes.
DuPont ROIC Analysis: Margin vs Capital Efficiency
SaaS Peer Comparison: Adobe, Salesforce, ServiceNow, Intuit
| Company | ROIC | NOPAT Margin | Capital Turnover | Invested Capital |
|---|---|---|---|---|
| ADBE | 105% | 29.8% | 3.53x | $5.8B |
| NOW | 27% | 11.0% | 2.42x | $5.6B |
| INTU | 24% | 21.2% | 1.14x | $18.4B |
| CRM | 12% | 16.7% | 0.74x | $57.1B |
Table: DuPont decomposition of ROIC for major SaaS companies. Data from FY2025 10-K (ADBE) and Q3 2025 10-Q filings.
What this reveals:
- Adobe's NOPAT margin (29.8%) leads the peer group—nearly 3x ServiceNow's 11.0%
- Adobe's capital turnover (3.53x) is 4.8x Salesforce's (0.74x)—this is the bigger gap
- Salesforce generates similar absolute NOPAT (~$6.7B) but with 10x more capital
Margin Advantage: Meaningful But Not the Whole Story
Adobe's 29.8% NOPAT margin vs CRM's 16.7% is a 1.8x advantage. Important, but it doesn't explain an 8.5x ROIC gap.
Capital Turnover: The Multiplier Effect
Adobe's 3.53x turnover vs CRM's 0.74x is a 4.8x advantage. Combined with the margin gap:
Adobe ROIC = 29.8% × 3.53x = 105%
CRM ROIC = 16.7% × 0.74x = 12.4%
The math checks out. The capital turnover gap is the dominant factor.
Why Did Adobe's ROIC Double? Capital Turnover Acceleration
The 8-Quarter Trajectory
| Metric | 8Q Median | Current | Trend |
|---|---|---|---|
| ROIC | 79.8% | 105.1% | +54.3pp |
| Capital Turnover | 2.67x | 4.14x | +1.76x |
| NOPAT Margin | ~28% | 29.8% | +1.8pp |
The insight: Margin improvement contributed ~2pp to ROIC. Capital turnover improvement contributed ~50pp.
Adobe's ROIC doubled because it's generating significantly more revenue per dollar of invested capital—not just squeezing margins.
What Drove the Turnover Improvement?
The math is straightforward: turnover = revenue / invested capital. For turnover to improve 55%, either revenue must grow faster than capital, or capital must shrink.
Adobe's case: revenue grew while invested capital stayed flat.
| Metric | 2-Year Change | CAGR |
|---|---|---|
| Revenue | $19.4B → $23.2B | +9.4% |
| Invested Capital | $6.1B → $5.8B | -2.5% |
| Turnover Impact | +12.5%/year |
Three structural factors:
- Organic Revenue Growth: Subscription revenue compounds without proportional capital investment
- Capital Discipline: No major acquisitions diluting the denominator (contrast: CRM added $50B+ in goodwill)
- Negative Net Working Capital: Deferred revenue ($6.5B) exceeds receivables—customers pay upfront, funding operations without capital deployment
This is the advantage of software economics: revenue scales without commensurate capital requirements.
Why Salesforce's 12% ROIC Isn't "Bad Management"
The Acquisition Premium Problem
Salesforce's invested capital breakdown tells the story:
| Component | Amount | % of Total |
|---|---|---|
| Goodwill | ~$52.5B | 92% |
| Other | ~$4.6B | 8% |
| Total Invested Capital | $57.1B | 100% |
That goodwill comes from major acquisitions (CRM FY2024 10-K):
- Slack: ~$27.7B acquisition (2021)
- Tableau: ~$15.7B acquisition (2019)
- MuleSoft: ~$6.5B acquisition (2018)
When you pay premium prices for acquisitions, the goodwill inflates invested capital permanently. Even with strong operational execution, ROIC suffers mathematically.
The Strategic Trade-Off
| Strategy | Advantage | ROIC Impact |
|---|---|---|
| Adobe (Organic) | High ROIC, no integration risk | Capital light |
| Salesforce (M&A) | Faster market expansion | Capital heavy |
Salesforce's 12% ROIC isn't failure—it's the cost of buying growth vs building it. Whether that trade-off makes sense depends on acquisition returns over time.
Cash ROIC Validation: The Quality Test
Our system flagged Adobe with "aggressive" accounting. But does cash flow support the reported ROIC?
Cash ROIC vs Accounting ROIC
| Company | Accounting ROIC | Cash ROIC | Gap | Quality Signal |
|---|---|---|---|---|
| ADBE | 105% | 149% | +44pp | Cash exceeds earnings |
| NOW | 27% | 93% | +66pp | Strong cash generation |
| INTU | 24% | 38% | +14pp | Modest premium |
| CRM | 12% | 25% | +13pp | Modest premium |
Table: Cash ROIC validates earnings quality. Gap = Cash ROIC minus Accounting ROIC.
What this means:
Adobe's cash ROIC (149%) is higher than accounting ROIC (105%). This is a quality validation signal:
- Cash generation exceeds reported earnings
- No earnings inflation from aggressive accounting
- The "aggressive" flag was a false positive
The gap exists because cash ROIC uses operating cash flow, which includes working capital benefits (deferred revenue) that don't flow through NOPAT.
The Dilution Math: Are Buybacks Actually Working?
Stock-Based Compensation Analysis
| Metric | Value | Calculation |
|---|---|---|
| SBC Expense | $1.94B | FY2025 |
| Unvested SBC Liability | $3.24B | Future dilution pool |
| Market Cap | $150.9B | Current |
| Dilution Yield | 1.3% | $1.94B / $150.9B |
Buyback Analysis
| Metric | Value | Calculation |
|---|---|---|
| Stock Repurchases | $11.3B | TTM |
| Market Cap | $150.9B | Current |
| Buyback Yield | 7.5% | $11.3B / $150.9B |
Net Shareholder Yield
Net Yield = Buyback Yield - Dilution Yield
Net Yield = 7.5% - 1.3% = +6.2%
The result: Adobe's buybacks massively exceed SBC-driven dilution. Shareholders are net accretive by ~6.2% annually.
The $3.24B unvested SBC liability is often cited as a concern. But at current buyback rates, Adobe retires more shares than SBC creates.
What Could Reverse the ROIC Trend?
The risks aren't accounting-related. They're operational and regulatory.
Risk 1: FTC/DOJ Investigation
From the 10-K:
"Federal Trade Commission (FTC) investigation regarding disclosure and subscription cancellation practices, potentially leading to significant monetary costs or penalties."
The DOJ has filed a complaint seeking injunctive relief. Settlement costs are unquantified but could be material.
Risk 2: AI Regulation Compliance
From the 10-K:
"Jurisdictions around the world are developing and passing new regulations that apply specifically to the use of AI."
Adobe's generative AI tools (Firefly) face potential compliance costs. EU AI Act requirements could add product development and operational burden.
Risk 3: Competitive Pressure
From the 10-K:
"We participate in rapidly evolving and intensely competitive markets, and, if we do not compete effectively, our business and financial results could materially suffer."
Figma (now independent after failed acquisition) and Canva represent real competitive threats to Creative Cloud.
Risk 4: M&A Activity
If Adobe pursues major acquisitions, the capital turnover advantage disappears. The Figma deal ($20B) would have added massive goodwill, potentially halving ROIC.
Investment Implications
What the Data Shows
- ROIC improvement is real and structural—driven by capital turnover, validated by cash ROIC
- The "aggressive" accounting flag is misleading—cash generation exceeds reported earnings
- Buybacks materially exceed dilution—net shareholder yield is positive
- CRM's low ROIC is structural—acquisition strategy creates permanent capital burden
What to Monitor
| Metric | Current | Alert Threshold | Rationale |
|---|---|---|---|
| Capital Turnover | 4.14x | <3.0x | Primary ROIC driver |
| Cash ROIC | 149% | <100% | Quality validation |
| Net Shareholder Yield | +6.2% | <0% | Dilution concern |
| Invested Capital | $5.8B | >$15B | M&A dilution risk |
The Sustainability Question
Adobe's ROIC doubled because capital turnover improved 55% while margins expanded modestly. For this to continue:
- Revenue growth must outpace capital requirements
- No major acquisitions can dilute the denominator
- Competitive position must hold against Figma/Canva
The trajectory is favorable, but the risks are real.
Monitor Updates: ADBE Filing Intelligence | ADBE Analysis
Methodology
ROIC Calculation: NOPAT / Invested Capital, following the Damodaran framework where Invested Capital = Total Debt + Shareholders' Equity - Excess Cash. NOPAT = Operating Income × (1 - Tax Rate).
DuPont Decomposition: ROIC = (NOPAT/Revenue) × (Revenue/Invested Capital). This two-factor decomposition separates margin efficiency from capital efficiency, revealing which driver contributes to returns.
Cash ROIC: Operating Cash Flow / Invested Capital. Comparing cash ROIC to accounting ROIC validates earnings quality—when cash ROIC exceeds accounting ROIC, cash generation supports (or exceeds) reported profits.
Data Sources: All figures from latest SEC filings (10-K for ADBE FY2025, 10-Q for CRM/NOW/INTU Q3 2025). Metrics extracted via automated filing intelligence system with XBRL validation. Historical 8-quarter trends calculated from trailing quarterly filings.
This analysis is for informational purposes only and does not constitute investment advice. Past performance does not guarantee future results.
MetricDuck Research
CFA charterholders with experience at institutional asset managers. We apply fundamental analysis frameworks to SEC filings, focusing on capital allocation and earnings quality.