Why does Novo Nordisk have a negative ROIC?

NVO's ROIC appears negative (-3.6%) because the company has negative invested capital (-41.3B DKK or ~-$6B). This occurs when a company's negative working capital exceeds its equity—NVO collects cash from customers faster than it pays suppliers, generating a -56.6B DKK working capital position. The standard ROIC formula (NOPAT / Invested Capital) breaks down with negative denominators. Use ROE (80.8%) or ROTCE (86.0%) instead.

Which GLP-1 stock has higher profit margins?

Novo Nordisk has higher profit margins across all measures: 84.7% gross margin (vs LLY's 82.9%), 44.2% operating margin (vs LLY's 44.4%, essentially tied), and 41.7% FCF margin (vs LLY's ~27%). NVO's margin advantage reflects its integrated manufacturing model and Denmark cost structure.

Why is Eli Lilly's ROIC so much higher than Novo Nordisk's?

LLY's 52% ROIC reflects positive invested capital (~$57B) generating $29B+ in NOPAT. NVO's ROIC calculation fails because of negative invested capital—the company has so little capital tied up in the business that the denominator goes negative. This is actually a positive attribute (asset-light efficiency) that the ROIC formula cannot capture.

What is negative working capital and why does NVO have it?

Negative working capital means current liabilities exceed current assets. NVO has -56.6B DKK working capital because it collects from pharmacy distributors and health systems faster than it pays suppliers. This is common in pharma companies with strong market positions—essentially suppliers are financing the business. It's a sign of strength, not weakness.

How do NVO and LLY compare on ROE?

NVO's ROE is 80.8% vs LLY's 84.8% (8-quarter median). LLY wins on ROE due to higher financial leverage—LLY has $42.5B in total debt vs NVO's near-zero debt. LLY's debt-to-capital is 64% vs NVO's ~0%. Higher leverage amplifies ROE when the company earns returns above its cost of debt.

Which metric should I use for pharma valuation if ROIC doesn't work?

When ROIC fails due to negative invested capital (like NVO), use: (1) ROE for equity returns, (2) ROTCE for tangible equity returns, (3) FCF margin for cash generation efficiency, (4) EV/EBITDA for valuation, or (5) P/E ratio. Avoid EV/Invested Capital multiples when invested capital is negative.

What is Novo Nordisk's gross margin advantage from?

NVO's 84.7% gross margin (vs LLY's 82.9%) stems from: (1) integrated manufacturing with the 2024 Catalent acquisition, (2) Denmark headquarters with lower labor costs than US pharma, (3) semaglutide (Ozempic/Wegovy) manufacturing scale, and (4) IFRS accounting vs US GAAP classification differences.

Why does Eli Lilly have lower FCF margin despite similar operating margins?

LLY's ~27% FCF margin (vs NVO's 41.7%) reflects: (1) higher capex for GLP-1 manufacturing expansion, (2) $9B in contract manufacturing commitments, (3) R&D spending up 27% YoY for pipeline investments, and (4) working capital investment as the business scales rapidly. NVO's FCF margin benefits from stabilized operations.

Is Novo Nordisk or Eli Lilly a better GLP-1 investment?

It depends on your priority: NVO offers higher profit margins and asset-light efficiency (better for value investors focused on earnings quality). LLY offers faster revenue growth (54% vs NVO's ~25%) and valid ROIC measurement (52%, better for capital efficiency investors). Both are expensive relative to traditional pharma.

What is the Catalent acquisition and why does it matter for NVO margins?

In December 2024, Novo Nordisk acquired three Catalent fill-finish manufacturing sites. NVO's 2024 20-F notes that 17% of assets are excluded from internal controls assessment due to the acquisition timing. This vertical integration should improve gross margins by reducing contract manufacturing costs—but it's a significant operational risk to monitor.

How does currency affect the NVO vs LLY comparison?

NVO reports in Danish Krone (DKK), while LLY reports in USD. At ~7 DKK/USD, NVO's 290.4B DKK revenue is ~$41.5B vs LLY's ~$47B TTM. Currency impacts are reflected in NVO's margin percentages, which are comparable cross-currency. NVO benefits from revenue in USD/EUR while costs are partially in DKK.

What is Novo Nordisk's ownership structure?

The Novo Nordisk Foundation controls 75.78% of voting rights through its ownership stake in Novo Holdings A/S. This concentrated ownership provides strategic stability and long-term focus but may limit minority shareholder influence on governance decisions. The Foundation's charter prioritizes long-term pharmaceutical research over short-term returns, which aligns with NVO's R&D-intensive business model.

Novo Nordisk outearns Eli Lilly on every margin metric: 84.7% gross margin vs 82.9%, 44.2% operating margin vs 44.4%, and 41.7% FCF margin vs ~27%. Yet LLY's 52% ROIC far exceeds NVO's—which appears as an anomalous -3.6%. This isn't a data error: NVO's negative invested capital reveals an extraordinarily asset-light business model where the standard ROIC formula breaks down. For margin-focused investors, NVO wins. For capital efficiency purists, LLY dominates.

Novo Nordisk vs Eli Lilly: Why NVO Converts More Revenue to Profit

Last Updated: December 31, 2025 Data Currency: NVO FY 2024 20-F (SEC Filing), LLY Q3 2025 10-Q (SEC Filing)

TL;DR: Novo Nordisk delivers higher profit margins than Eli Lilly across every metric: 84.7% gross margin (vs 82.9%), 44.2% operating margin (essentially tied with LLY's 44.4%), and 41.7% FCF margin (vs LLY's ~27%). Yet LLY's ROIC (52%) dramatically outperforms NVO's reported -3.6%—but that negative number isn't a red flag. NVO's extraordinarily asset-light model generates negative invested capital, making the standard ROIC formula mathematically invalid. For margin-focused investors, NVO wins. For investors who require valid ROIC measurement, LLY is the only choice.

Quick Comparison Table

Metric	NVO (FY 2024)	LLY (Q3 2025 TTM)	Winner
Gross Margin	84.7%	82.9%	NVO (+1.8pp)
Operating Margin	44.2%	44.4%	Tie
Net Margin	34.8%	31.7%	NVO (+3.1pp)
FCF Margin	41.7%	~27%	NVO (+14.7pp)
ROE	80.8%	84.8%	LLY (+4.0pp)
ROIC	N/A (-3.6%)*	52.0%	LLY only
Invested Capital	-$6B**	+$56.6B	NVO more asset-light
Interest Coverage	78.3x	~25x	NVO (3x better)

*NVO's ROIC is mathematically invalid due to negative invested capital (see "The ROIC Puzzle" section below) **Approximately -41.3B DKK at ~7 DKK/USD

Source: SEC 20-F and 10-Q filings via MetricDuck. XBRL-derived metrics.

What These Metrics Tell You About GLP-1 Business Models

Before diving into the numbers, here's what each metric reveals about these pharmaceutical giants:

Metric	What It Measures	Why It Matters for GLP-1 Stocks
Gross Margin	Revenue retained after manufacturing costs	Higher = better manufacturing efficiency or pricing power
Operating Margin	Profit after all operating expenses	Captures R&D and SG&A efficiency alongside manufacturing
FCF Margin	Cash generated per dollar of revenue	Shows how much profit converts to real cash
ROE	Return on shareholder equity	Measures profitability relative to equity invested
ROIC	Return on all invested capital	Measures efficiency of total capital (equity + debt)

For methodology details, see the CFA Institute's return on capital concepts.

Why NVO Wins on Margins: The Profitability Breakdown

Gross Margin: NVO's 1.8 Percentage Point Edge

NVO FY 2024 Gross Margin: 84.67% | DKK 245.9B gross profit on DKK 290.4B revenue LLY Q3 2025 Gross Margin: 82.91% | $14.6B gross profit on $17.6B quarterly revenue

Novo Nordisk's gross margin advantage stems from three structural factors:

1. Integrated Manufacturing via Catalent Acquisition

From NVO's 2024 20-F:

"The Company's 2024 acquisition of three former Catalent, Inc. fill-finish sites has been excluded from the scope of management's assessment and conclusion on internal control over financial reporting as of December 31, 2024, as the acquisition was completed on December 18, 2024."

This vertical integration should reduce contract manufacturing costs over time. However, the 17% of assets excluded from internal controls assessment represents significant integration risk to monitor.

2. Denmark Cost Structure

NVO's headquarters and manufacturing concentration in Denmark provides labor cost advantages versus US-headquartered LLY. While GLP-1 drugs command premium pricing globally, manufacturing costs differ significantly.

3. Semaglutide Manufacturing Scale

Ozempic and Wegovy share the same semaglutide active ingredient, creating manufacturing synergies that tirzepatide (Mounjaro/Zepbound) doesn't yet match at NVO's scale.

Operating Margin: Essentially Tied

Company	Operating Margin	Operating Income
NVO (FY 2024)	44.19%	DKK 128.3B (~$18.3B)
LLY (Q3 2025)	44.41%	$7.8B quarterly

Despite NVO's gross margin advantage, operating margins converge because:

LLY's R&D leverage - LLY grew R&D spending 27% while revenue grew 54%, improving operating leverage
NVO's SG&A investment - Wegovy launch costs and geographic expansion consumed gross margin gains
Product mix - Both companies benefit from GLP-1's favorable economics

From LLY's Q3 2025 10-Q: "Gross margin as a percent of revenue for the three months ended September 30, 2025 increased 1.9 percentage points, primarily driven by favorable product mix, partially offset by lower realized prices."

LLY is rapidly closing the gross margin gap through product mix improvements. The operating margin tie reflects LLY's operational execution during its growth phase.

FCF Margin: NVO's 15 Percentage Point Advantage

This is the most significant divergence between the two companies:

Company	FCF Margin	Free Cash Flow
NVO (FY 2024)	41.66%	DKK 121.0B (~$17.3B)
LLY (Q3 2025 TTM)	~27%*	~$16.1B TTM

*LLY's FCF margin is volatile quarter-to-quarter due to working capital swings

Why NVO converts more operating profit to free cash flow:

1. Capital Expenditure Differences

LLY is in aggressive capacity-building mode:

From LLY's Q3 2025 10-Q: "Contract manufacturing commitments up to $9 billion with terms up to 8 years and limited cancellation flexibility."

NVO's Catalent acquisition front-loaded capital needs, while LLY is still deploying capital for manufacturing expansion.

2. Working Capital Dynamics

NVO's negative working capital (-56.6B DKK) means the business generates cash from operations without tying up capital in inventory and receivables. LLY's rapid growth requires working capital investment.

3. R&D Intensity

LLY's pipeline investments (donanemab for Alzheimer's, early oncology) require near-term cash outflows that don't appear in operating margin but reduce FCF.

Why LLY Wins on ROE: The Leverage Effect

Company	ROE	Total Debt	Debt-to-Capital
NVO (FY 2024)	80.8%	~$0*	~0%
LLY (Q3 2025)	84.8%**	$42.5B	64.1%

*NVO's 20-F shows zero financial debt in our extraction **8-quarter median ROE

LLY's higher ROE despite lower operating margins reflects financial leverage amplification:

DuPont Decomposition (see Investopedia's DuPont Analysis guide):

ROE = Net Margin × Asset Turnover × Financial Leverage

Component	NVO	LLY	Advantage
Net Margin	34.8%	31.7%	NVO
Asset Turnover	0.74x	0.65x	NVO
Financial Leverage	3.2x	4.8x	LLY (by design)

LLY's choice to use $42.5B in debt (at ~2.4% cost of debt) to fund growth amplifies equity returns because returns on invested capital (52%) far exceed borrowing costs.

Capital Structure Implication: NVO could theoretically boost ROE by taking on debt, but its current model proves that exceptional profitability doesn't require leverage. LLY's approach is also valid—using cheap debt to fund high-ROIC investments creates shareholder value when executed well.

Metric Trajectory Comparison

Metric	NVO (FY23→FY24)	LLY (Q4 23→Q3 25)	Trend Winner
Gross Margin	84.60%→84.67% (+0.07pp)	79.2%→82.9% (+3.7pp)	LLY improving faster
Operating Margin	44.16%→44.19% (+0.03pp)	30.3%→44.4% (+14.1pp)	LLY improving faster
Net Margin	36.0%→34.8% (-1.2pp)	15.4%→31.7% (+16.3pp)	LLY improving faster
ROE	78.5%→80.8% (+2.3pp)	62.9%→84.8% (+21.9pp)	LLY improving faster

Interpretation: LLY is improving faster on all metrics due to GLP-1 operating leverage, but NVO maintains higher absolute margins. LLY's trajectory suggests margin convergence is possible.

The ROIC Puzzle: Why NVO's -3.6% Isn't What You Think

Here's the analytical anomaly that confuses many investors:

Company	ROIC	Interpretation
LLY	52.0%	Exceptional capital efficiency
NVO	-3.6%	Mathematically invalid—not negative performance

Why NVO's ROIC Calculation Fails

The standard ROIC formula:

ROIC = NOPAT / Invested Capital
Where: Invested Capital = Total Equity + Total Debt - Cash

For NVO (FY 2024):

NOPAT: DKK 128.3B (strong positive)
Total Equity: DKK 143.5B
Total Debt: ~DKK 0
Cash: DKK 15.7B
Invested Capital: DKK 143.5B - 0 - 15.7B = DKK 127.8B... but wait

The complication is negative working capital:

Balance Sheet Item	NVO (DKK)
Current Assets	160.9B
Current Liabilities	217.5B
Working Capital	-56.6B

When properly calculated with the operating asset approach:

Operating Assets - Operating Liabilities = Invested Capital
This yields -41.3B DKK negative invested capital

A positive numerator divided by a negative denominator = mathematically meaningless result.

What Negative Invested Capital Actually Means

Negative invested capital is not a red flag—it's a sign of an extraordinarily asset-light business model.

NVO's business generates so much supplier financing (accounts payable > accounts receivable + inventory) that the company requires negative capital to operate. This is rare and generally positive:

Suppliers finance the business - NVO's payment terms mean suppliers provide working capital
Minimal fixed assets required - Pharmaceutical manufacturing is capital-light relative to revenue
Cash generation exceeds reinvestment needs - The business produces excess cash naturally

Which Metric to Use Instead

For NVO, since ROIC fails, use these alternatives:

Metric	NVO Value	What It Shows
ROE	80.8%	Equity returns (valid)
ROTCE	86.0%	Tangible equity returns (valid)
FCF Margin	41.7%	Cash generation efficiency (valid)
Cash ROIC	-3.4%	Same issue as ROIC (invalid)

For LLY, ROIC works perfectly because invested capital is positive ($56.6B).

Investment Implications: Choosing Between Margin Quality and Capital Efficiency

For Margin-Focused Investors: NVO

If you prioritize:

Earnings quality (higher net margins mean less cost volatility risk)
Cash generation (41.7% FCF margin is exceptional)
Low leverage (near-zero debt means no refinancing risk)
Dividend coverage (NVO's payout ratio is lower due to higher FCF)

NVO's margin profile is superior. The company converts more of each revenue dollar into profit and cash.

For Capital Efficiency Investors: LLY

If you prioritize:

Measurable ROIC (52% is exceptional for any industry)
Growth rate (54% revenue growth vs NVO's ~25%)
Scalable returns (LLY can deploy capital at 50%+ returns)
Pipeline optionality (Alzheimer's, oncology, beyond GLP-1)

LLY offers valid ROIC measurement and faster growth, though at lower margins per revenue dollar.

Valuation Consideration

Both stocks trade at significant premiums to traditional pharma:

Metric	NVO	LLY	S&P 500 Pharma
P/E Ratio	~35x	~37x	~15x
EV/EBITDA	~25x	~25x	~12x

Neither is "cheap." The margin and capital efficiency advantages are priced in.

Key Risks to Monitor

NVO-Specific Risks

Catalent Integration - 17% of assets excluded from controls assessment
Semaglutide Concentration - Ozempic + Wegovy = majority of revenue
US Pricing Pressure - Government and payer negotiations

From NVO's 2024 20-F risk factors:

"Increasing rebates and discounts in the US... Payer consolidation reducing negotiating leverage"

LLY-Specific Risks

$9B Manufacturing Commitments - Limited cancellation flexibility
R&D Execution - Pipeline investments must yield returns
Leverage Risk - 64% debt-to-capital requires continued earnings

From LLY's segment performance disclosures:

"Asset impairment, restructuring, and other special charges for the three and nine months ended September 30, 2025 were primarily related to a litigation charge."

Data Sources & Methodology

All metrics derived from SEC XBRL filings processed through MetricDuck's quantitative pipeline:

Company	Filing Type	Period	CIK
Novo Nordisk	20-F (Annual)	FY 2024	0000353278
Eli Lilly	10-Q (Quarterly)	Q3 2025	0000059478

Metric Definitions:

Gross Margin: Gross Profit / Revenue
Operating Margin: Operating Income / Revenue
Net Margin: Net Income / Revenue
FCF Margin: Free Cash Flow / Revenue
ROE: Net Income / Average Shareholders' Equity
ROIC: NOPAT / Average Invested Capital (where Invested Capital = Equity + Debt - Cash)

For 20-F filers like NVO reporting in non-USD currency, margins are directly comparable across currencies. Absolute dollar figures converted at ~7 DKK/USD.

Limitations

Period mismatch: NVO FY 2024 (annual) vs LLY Q3 2025 TTM creates ~9-month reporting gap
Currency conversion: DKK/USD rate of ~7 is approximate; actual rate fluctuates daily
IFRS vs US GAAP: NVO uses IFRS, LLY uses US GAAP—margin classifications may differ slightly
Debt extraction: NVO's total debt shows as zero in XBRL; may reflect classification differences in IFRS
FCF volatility: LLY's FCF margin ranges from 15.8% to 50.2% quarterly due to capex timing
Point-in-time metrics: ROIC uses period-end invested capital, not average, which may overstate or understate returns

Bottom Line

Novo Nordisk converts more revenue to profit than Eli Lilly—84.7% gross margin vs 82.9%, and 41.7% FCF margin vs ~27%. NVO's asset-light model is so efficient that standard ROIC calculations fail, producing a meaningless -3.6%.

For investors focused on earnings quality and cash generation, NVO's margin profile is superior. For investors requiring valid ROIC measurement and faster growth, LLY's 52% ROIC and 54% revenue growth make it the only viable choice.

Both are expensive. Neither is wrong. The choice depends on which analytical framework you prioritize.

Related Analysis:

Explore More ROIC Analysis

This article is part of our comprehensive ROIC Analysis Hub, which covers sector benchmarks from 938 companies and detailed peer comparisons across industries.

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ROIC: The Complete Investor's Guide — Calculation methodology, sector benchmarks, and 8-quarter diagnostic
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Novo Nordisk vs Eli Lilly: Why NVO Converts More Revenue to Profit

Novo Nordisk vs Eli Lilly: Why NVO Converts More Revenue to Profit

Quick Comparison Table

What These Metrics Tell You About GLP-1 Business Models

Why NVO Wins on Margins: The Profitability Breakdown

Gross Margin: NVO's 1.8 Percentage Point Edge

Operating Margin: Essentially Tied

FCF Margin: NVO's 15 Percentage Point Advantage

Why LLY Wins on ROE: The Leverage Effect

Metric Trajectory Comparison

The ROIC Puzzle: Why NVO's -3.6% Isn't What You Think

Why NVO's ROIC Calculation Fails

What Negative Invested Capital Actually Means

Which Metric to Use Instead

Investment Implications: Choosing Between Margin Quality and Capital Efficiency

For Margin-Focused Investors: NVO

For Capital Efficiency Investors: LLY

Valuation Consideration

Key Risks to Monitor

NVO-Specific Risks

LLY-Specific Risks

Data Sources & Methodology

Limitations

Bottom Line

Explore More ROIC Analysis

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