As we compare these measures, note that all of them apply this important principle: any measure of return on capital should be based on the amount invested, not the current market value of the company or its assets. (查看原文)
CFROI is more appropriate in businesses where investments are very lumpy. As two extreme examples, think of infrastructure projects or hydroelectric power plants. These require very substantial up-front investments that generate relatively stable cash flows without significant investments in maintenance or overhauling over many years or even decades. Although accounting conventions may require that the assets be depreciated, their net capital base has little bearing on the capacity to generate cash flows. ROIC often rises to levels that are unrelated to the project’s economic return (IRR), but CFROI will be much closer to the IRR because the operating cash flows are very stable.
In contrast, ROIC is likely to be a better estimate of the underlying IRR in businesses where investments occu... (查看原文)
Another consideration when valuing cyclical companies in commodity-linked industries is that starting with revenues may not be the best way to model performance. Consider a polyethylene manufacturer, which processes natural gas into polyethylene. The traditional approach to valuation would be to model sales volumes and polyethylene prices to estimate revenues, from which you would subtract the cost of purchasing natural gas (volume times natural-gas prices) and operating costs to estimate operating profits. It may be simpler, however, to model only volumes and the “crack spread”— the difference between polyethylene prices and the cost of natural gas — and then subtract operating costs. What ultimately matters is the crack spread, not the revenues. (查看原文)
Evidence suggests that, in many cyclical industries, the companies themselves are what drive cyclicality. Exhibit 37.6 shows the ROIC and net investment in commodity chemicals from 1980 to 2013. The chart shows that, collectively, commodity chemical companies invest large amounts when prices and returns are high. But since capacity comes on line in very large chunks, utilization plunges, and this places downward pressure on price and ROIC. The cyclical investment in capacity is the driver of the cyclical profitability. Fluctuations in demand from customers do not cause cyclicality in profits. Producer supply does.
Managers who have detailed information about their product markets should be able to do a better job than the financial market in figuring out the cycle and then take appropria... (查看原文)
Can companies really behave this way and invest against the cycle? It is actually very difficult for a company to take the contrarian view. The CEO must convince the board and the company’s bankers to expand when the industry outlook is gloomy and competitors are retrenching. In addition, the CEO has to hold back while competitors build at the top of the cycle. Breaking out of the cycle may be possible, but it is the rare CEO who can do it. (查看原文)
During the Internet bubble, managers and investors lost sight of what drove return on invested capital (ROIC); indeed, many forgot the importance of this ratio entirely.
The notion of "winner take all" led companies and investors to believe naively that all that mattered was getting big fast, and that they could worry about creating an effective business model later. (查看原文)
The book’s messages are simple: Companies thrive when they create real economic value for their shareholders. Companies create value by investing capital at rates that exceed their cost of capital. (查看原文)
ROIC is a better analytical tool than return on equity (ROE) or return on assets (ROA) for understanding the company's performance because it focuses solely on a company's operations. ROE mixes operating performance with capital structure, making peer-group analysis and trend analysis less insightful. ROA - even when calculated on a pre-interest basis - is an inadequate measure of performance because it includes nonoperating assets and ignores the benefits of accounts payable and other operating liabilities that together reduce the amount of capital required from investors. (查看原文)
After outsourcing, many businesses end up with much higher ROICs. In some cases, managers even refer to the higher ROIC as one of the main benefits of outsourcing. But the ROIC increase does not necessarily mean that the company has created value for its shareholders. (查看原文)
Although there is no objective way to determine a cutoff point, we believe that ROICs above 50 percent need to be handled with caution when used as a measure of value creation. Special caution is required in businesses where high capital turnover, rather than high earnings margins, drives such ROIC levels. (查看原文)
Because ROIC is multiplied by invested capital, economic profit automatically corrects for any distortion in ROIC for business models with extremely low capital intensity. (查看原文)
作者: McKinsey & Company Inc., Tim Koller, Marc Goedhart, David Wessels 副标题: Measuring and Managing the Value of Companies, 5th Edition isbn: 0470424656 书名: Valuation 页数: 811 定价: USD 95.00 出版社: Wiley 装帧: Hardcover 出版年: 2010-7-26
