How an ROIC Tree Shows a Company’s Growth Drivers and Capital Efficiency
Corporate officers are in the business of allocating capital. The goal for each CEO is to return an attractive return on its capital. All companies create value for their company and shareholders when they earn a return above the opportunity for other capital allocations. One way to measure those returns is the metric, ROIC, and […]
Investor’s Guide to Incremental Invested Capital (ROIIC)
Updated 5/29/2023 Focusing on the returns on invested capital a company produces helps us better understand how well it sets itself up to grow. A company with strong returns on invested capital is the unicorn we all look for, especially when they efficiently use the capital to grow over time. A great way to measure […]
ROIC Analysis: Value Destruction From Growth and Other Pitfalls
Something that might shock the average investor is that growth can actually lead to value destruction for a company, depending on how a company is achieving that growth. Using ROIC analysis and comparing it to a company’s cost of capital, we can quickly determine when that is happening and steer clear from these types of […]
How to Calculate NOPLAT for Operating ROIC
Both NOPLAT and ROIC can be easily misinterpreted and misused in its applications to understanding a business. NOPLAT gets especially mishandled due to its more well known cousin, NOPAT. Most of the time these are interchangeable, but when they’re not, it can really lead to a distortion in calculating ROIC. What is NOPLAT? NOPLAT stands […]
The Return on Capital Formula
“Businesses that earn a high return on capital are better than businesses that earn a low return on capital.” Joel Greenblatt In his seminal book “The Little Book that Beats the Market,” Joel Greenblatt laid out his now-famous “Magic Formula,” included in the formula is his version of return on capital. It is the formula […]
Cash Return On Invested Capital: “Insider” Formula for Earnings
Cash is king, and finding companies that are superior reinvestors of that cash is one of the trifectas of winning in investing. One of the easiest ways to find these companies is a formula called Cash Return on Invested Capital. The CROIC formula is a bit of an inside-baseball kind of formula. Wall Street doesn’t […]
An Adjusted Return on Equity Formula so You Don’t Overpay for a Stock
The Return on Equity formula (ROE) is an important metric for judging the profitability of a company and how efficiently management is using the equity that shareholders have invested in the business. However, having a high ROE does not necessarily make a company a good investment. As always with investing, it comes down to price. […]
Using Return on Invested Capital (ROIC) to Evaluate Stocks
One of the most core elements of great investing is understanding what Return on Invested Capital (ROIC) means, and how it can be used to evaluate a company as a potential investment. This is a guest contribution by Cameron Smith. Guest bio: Cameron Smith is a CPA, CMA (Chartered Professional Accountant, Certified Management Accountant) from […]
