ROIC Calculations: Tricky Line-Items

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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
(more to come)

I will walk through the ROIC calculation for Meta (META) and include an excel sheet with details in the next post.

Please email me with questions/comments/errors related to this post!