Return on Invested Capital (ROIC)
factor.formula
Return on Invested Capital (ROIC):
EBIT_{TTM} * (1-TaxRate):
Earnings before interest and taxes (EBIT_{TTM}):
InvestedCapital:
Interest-bearing debt:
in:
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The Earnings Before Interest and Taxes (EBIT) for the last 12 months usually uses TTM (Trailing Twelve Months) data, which represents the cumulative value of the past 12 months.
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Operating profit for the last twelve months, also using TTM data.
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Interest expense for the last twelve months, also using TTM data.
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A company's effective tax rate can be the actual tax rate or the industry average tax rate. The simplified tax rate of 0.25 is used in the formula. In actual use, it should be replaced by the company's actual tax rate.
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Invested capital refers to the total capital used by a company in its operating activities, including shareholders' equity and interest-bearing liabilities.
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Total shareholders' equity, which represents shareholders' ownership in the company.
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Interest-bearing liabilities are debts that a company needs to pay interest on, including short-term loans, long-term loans, bonds payable and long-term liabilities due within one year.
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Short-term loans are loans that need to be repaid within one year.
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Long-term loans refer to loans that need to be repaid in more than one year.
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Bonds payable are bonds issued by a company that need to be repaid at some point in the future.
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Long-term liabilities due within one year refer to the portion of long-term debt that needs to be repaid within one year.
factor.explanation
Return on Invested Capital (ROIC) is a key profitability and capital efficiency indicator. It measures a company's ability to generate after-tax operating profits using all invested capital (including shareholders' equity and interest-bearing liabilities). The higher the indicator, the more efficient the company is in managing and utilizing its capital, and the more value it can create for investors. ROIC can be used not only to evaluate a company's profitability, but also to compare capital efficiency between different companies and to evaluate a company's long-term value creation ability. Investors usually compare ROIC with a company's weighted average cost of capital (WACC). If ROIC is greater than WACC, it means that the company is creating value for investors, otherwise it may be consuming value. It should be noted that when calculating ROIC, EBIT usually uses TTM (Trailing Twelve Months) data to reflect the company's recent operating performance, while invested capital usually uses the end-of-period value. In addition, when calculating after-tax EBIT, the company's actual tax rate should be used instead of a fixed tax rate.