Ending Return on Invested Capital (ROIC)

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Return on invested capital (ROIC) is not only the most intuitive measure of corporate performance, but it is also the best. It measures how much profit a company generates for every dollar invested in the company. It is the true measure of a company’s cash on cash returns.

Ending ROIC is a variation on the standard ROIC calculation and is calculated (see Figure 1) by dividing net operating profit after tax (NOPAT) by ending invested capital. Ending invested capital is measured at the end of a given quarterly, annual or trailing twelve months (TTM) period. Using ending invested capital provides unique insights, but it can also result in a potentially myopic view of a firm’s profitability at a certain point in time. For example, an acquisition made at the end of a fiscal year would dramatically increase ending invested capital while the NOPAT from the acquisition might barely affect NOPAT for the period.

The formulas for ROIC are easy. The hard part is finding all the data, especially from the footnotes and MD&A, required to get NOPAT and invested capital right. When we calculate ROIC, we make numerous adjustments to close accounting loopholes and ensure apples-to-apples comparability across thousands of companies.

Figure 1: How to Calculate Ending ROIC

 NOPAT/Ending Invested Capital

 Or

NOPAT/Revenue * Revenue/Ending Invested Capital

Sources: New Constructs, LLC and company filings

Our Robo-Analyst technology[1] allows us to perform the diligence needed to calculate an accurate ROIC and comparable metrics, such as ending ROIC, return on gross invested capital (ROGIC), and GAAP-based ROIC.

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