ROIC valuation metric

ROIC Valuation Metric for S&P 500 Sectors

In this week’s value report, we use the Economatica system to take a look at ROIC for key sectors of the S&P 500 index.

Return on Invested Capital (ROIC) is one of the most important measures of corporate performance. It represents the amount of profit generated for each dollar invested into the company by bondholders and stockholders. This is a crucial profitability ratio and a key indicator examined closely by investors.

The highest ROIC corresponds to the Semiconductor and Other Electronic Component Manufacturing sector, followed by Pharmaceutical and Medicine Manufacturing and theSoftware Publishers. On the flip side, the lowest ROIC corresponds to Electric Power Generation, followed by Other Investment Pools and Funds (which consists mainly of REITs), and Oil and Gas Extraction.

ROI for the US nonfinancials

                                                       Note:  ROIC is defined as net operating profit after tax divided by average Invested Capital. (Tax rate 21%)
                                                       Invested Capital is defined as Total Assets – Cash & ST Investments – Current Liabilities + ST Debt
                                                       Median Values calculated for the sector.

 

For additional insight into these sectors’ performance, we used the Economatica system to illustrate the relationship between Enterprise Value/Invested Capital (EV/IC) and ROIC with the following scatter plot chart.  EV/IC is an alternative version to the Price to Book Value ratio.

ROIC invested Capital

                                            Note:   ROIC is defined as net operating profit after tax divided by average Invested Capital. (Tax rate 21%).
                                           Enterprise Value is defined as Market Capitalization + Total Net Debt
                                           Invested Capital is defined as Total Assets – Cash & ST Investments – Current Liabilities + ST Debt
                                           Median values calculated for the sector.

 

Economatica is an online investment research platform designed to facilitate deep fundamental and quantitative analysis. Asset managers, analysts, and other investment professionals have used Economatica for more than 30 years to research securities, identify opportunities, and make better investment decisions. To learn more please contact us.

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