Morgan Stanley IM: ROIC and Intangible Assets

• We extend the analysis from our recent report, “Return on Invested Capital,” by adjusting ROIC for all companies to reflect intangible investment.
• While the median and aggregate ROIC for the adjusted figures is similar to the traditional one, the adjusted figures have much less dispersion.
• The main result is that extremely high and low ROICs regress toward the mean.
• We believe these adjustments represent a step toward a more accurate view of the magnitude and return on investment.

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.

IMPORTANT INFORMATION

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Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.

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