Investment Ratios

Question 1

ROE

Answer 1

How much equity is required to generate a certain amount of after-tax profit (Net Income)?

Net Income / Average Shareholders’ Equity (only use trailing)

Question 2

Return on Invested Capital (ROIC)

Answer 2

How much in after-tax profits for all its investors does a company generate with all its capital?

NOPAT + Interest / (Total Debt + Equity + Other Long-Term Funding Sources)

Use trailing Denominator

Steven sometimes uses pre-tax cash flow: EBIT+ D&A - maint capex divided by Total Assets - cash, current liab excl debt, intangibles, lease intangibel.

Total Assets - Current Liabilities less debt as the denominator and EBIT - Maintenance Capex as numerator. This focuses on pre-tax profits over invested capital

Question 3

Return on tangible Capital

Answer 3

EBIT / (Total Capital - Goodwill - Intangible Assets)

Question 4

FPA Working Capital

Answer 4

Inventory + A/R over A/P

Why? only include these

Question 5

EBITDA - Capex / EV

Answer 5

Essentially a free cash flow type yield metric