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April 14, 2021

Market-Expected Return on Investment

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April 14, 2021

Market-Expected Return on Investment


Consilient Observer

Market-Expected Return on Investment

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April 14, 2021

 
 

Bridging Accounting and Valuation

 
 
  • This report describes market-expected return on investment (MEROI), which measures the return at which the present value of a company’s profits equals the present value of the investments a company makes. This allows executives and investors to understand how high the bar is set for corporate performance.
  • Measuring returns has become more difficult as corporate investments have shifted from being primarily tangible to intangible. We seek to gain a more accurate view of returns, and hence expectations, by separating expenses and investments properly.
  • We discuss the shortcomings of common measures of corporate returns, including return on equity (ROE), return on invested capital (ROIC), return on incremental invested capital (ROIIC), and internal rate of return (IRR).
  • This report breaks new ground by connecting valuation (MEROI) and accounting (properly measuring intangible investment). 
 
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Counterpoint Global consists of 50 people, including 29 investors, four disruptive change researchers, two consilient researchers and two sustainability researchers. Counterpoint Global’s culture fosters collaboration, creativity, continued development, and differentiated thinking.
 
 

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DEFINITIONS OF TERMS

Return on invested capital represents the rate of return a company makes on the cash it invests in its business.

Return on investment is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.

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