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Consilient Observer
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October 06, 2022

Return on Invested Capital

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October 06, 2022

Return on Invested Capital


Consilient Observer

Return on Invested Capital

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October 06, 2022

 
 

How to Calculate ROIC and Handle Common Issues

 
 
  • Return on invested capital (ROIC) is a financial metric that can help one assess whether a company is creating value with its investments.
  • We discuss how to calculate ROIC and explain how it is connected to free cash flow, economic profit, and growth.
  • We work through some of the practical challenges in estimating it properly, present empirical data, and review how the introduction of intangible investments can reshape the figures.
  • We illuminate these ideas through a case study, show how ROIC can guide strategic analysis, and describe ROIC’s shortcomings.
 
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Counterpoint Global consists of 54 people, including 30 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
Free cash flow (FCF) is a measure of financial performance calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.

Return On Invested Capital (ROIC) represents the rate of return a company makes on the cash it invests in its business.

 

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For the complete content and important disclosures, refer to the article pdf.

 

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