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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Harshu Vyas who wrote (74806)	1/7/2024 7:40:18 PM
From: E_K_S	2 Recommendations Recommended By Harshu Vyas Lance Bredvold Read Replies (1) \| Respond to of 79000

Re: ROIC vs ROA vs CapEx in the FCF Statement Fwiw, I typically look at the quarterly FCF Capital Expenditures (how much of the FCF is being reinvested into Capital Assets). For DELL I get this data from their FCF Statement (use barchart.com) However, ROIC & ROA shows how efficient management is doing with that invested capital. What's the point of investing your FCF into capital assets if management makes lousy investments. I do notice that morningstar.com reports ROIC as well as ROE & ROA for all the companies in their database. Key Metrics: Return on Equity and Return on Invested Capital (How ROE and ROIC can inform you about management and competitive advantages) ------------------------------------------------------------- Here's a breakdown of ROIC and ROA, along with their key differences: ROIC (Return on Invested Capital): Measures: How effectively a company generates profit from the capital it has invested, considering both debt and equity financing. Formula: ROIC = Net Operating Profit After Tax (NOPAT) / Invested Capital Invested Capital: Usually calculated as Total Assets - Current Liabilities Interpretation: A higher ROIC indicates a company is better at generating returns from its investments. ROA (Return on Assets): Measures: How efficiently a company uses its assets to generate profit, focusing solely on assets. Formula: ROA = Net Income / Total Assets Interpretation: A higher ROA suggests a company is utilizing its assets more productively. Key Differences: Capital Consideration: ROIC encompasses both debt and equity financing, providing a broader view of capital usage. ROA focuses solely on assets, without accounting for debt financing. Profit Measure: ROIC typically uses NOPAT, which excludes the effects of taxes and financial leverage. ROA uses net income, which includes those factors. Denominator: ROIC's denominator is invested capital, excluding non-operating assets and current liabilities. ROA's denominator is total assets, including all assets regardless of their operational use. Which Metric to Use: ROIC: Generally preferred for a more comprehensive assessment of a company's profitability and capital allocation decisions. ROA: Useful for understanding asset efficiency and comparing companies within similar industries that have similar capital structures. In summary: ROIC offers a broader view of profitability and capital efficiency, factoring in debt financing. ROA focuses on asset utilization and is often used for within-industry comparisons. ----------------------------------------------------------------------------------- Some good points to consider (and watch) especially if a company has a new CEO and management shake up. PYPL comes to mind