ROIC With and Without GIAA: What’s Good?

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I remember when I was first learning about ROIC I was eager for hard numbers to help bracket the concepts I was being taught, and they were hard to come by. So here goes: below is a chart of the S&P500’s ROIC for the last 20 years as of December 2022. You can see that the current ROIC based on LTM NOPAT stands at about 9.5 percent and looks to be about 6-9% over the last 20 years, on average. Bloomberg doesn’t have a standard field for ROTC or make it easy to pull GIAA out, but I did it manually using the excel plugin (I took out goodwill only), and that’s where I got the 100-300 basis points lower range. 

S&P 500 ROIC 2003 – 2022

A chart depicting S&P500’s return on invested capital over the last 20 years.

I was able to find the below charts from McKinsey that show ROIC for “nonfinancial US companies,” all the way back to the 60’s, but only through 2003. It shows the spread for the median company being only about 50bps.  

McKinsey charts showing return on invested capital and economic profits for “nonfinancial US companies” from the 1960s through 2023.
Business descriptions of Zimmer Biomet Holdings, Stryker Corporation, and Smith & Nephew PLC for ROIC comparisons.

Finally, there is this graphic from Damodaran’s Return On Capital:

A graphic of Damodaran’s invested capital returns.

While this chart is only for a point in time in 2007, it is consistent with the ballpark range with/without GIIA that I am using. Does anyone have current or more recent data for market indexes with and without GIAA? Please share!

As a reminder, if one assumes a typical company’s cost of capital is 7-8%, we are looking for ROIC excluding GIIA well north of that to create a nice cushion of economic profitability (15%+?). We can see from the stats above that this is fairly unusual. This also ignores the most important question for valuation purposes: regardless of the strength or weakness of capital productivity historically, what will the capital productivity be going forward, i.e., how durable is this economic profit spread?  

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