Morgan Stanley IM: Return on Invested Capital
We discuss how to calculate return on invested capital (ROIC) and show how it is connected to free cash flow, economic profit, and growth. We work through the challenges in estimating it, present empirical data, review how adjusting for intangible investments can reshape the figures, and include a case study.07.10.2022 | 06:34 Uhr
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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.