As you apply ROIC analysis to companies you are working on, you will inevitably have questions about company-specific line items and how to handle them for the numerator and denominator of the ROIC ratio. Below is a list of some items that are common sources of confusion and that are addressed in two of Mauboussin’s ROIC pieces: Calculating Return On Invested Capital (2014) and Return On Invested Capital (2022). If you have a question about one of these – in fact even if you don’t – you should refer to these two pieces and the examples that Mauboussin walks through in calculating ROIC. As I post ROIC numbers for live companies over time, I will add them to this list and link to explanations.
| ROIC Income and Invested Capital Tricky Line-Items |
|---|
| Income (Numerator) |
| Restructuring charges |
| Litigation expense |
| Operating lease payments |
| Cash taxes vs estimated/normalized |
| Asset write-downs |
| Invested Capital (Denominator) |
| Excess cash |
| Minority interest |
| Share buybacks |
| Preferred stock |
| Goodwill & other intangible assets |
Next, I will walk through the ROIC calculation for Meta (META) and include an excel sheet with details.
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