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Performance Measurement

Strategy Driven

Supplementing profits with ROIC and revenue growth is a step in the right direction to ensure that the profits a business earns are actually creating value, not simply over-consuming capital that another company could better deploy. However, profits, ROIC, and revenue growth are backward looking.

ROIC 62
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CEOs Don’t Care Enough About Capital Allocation

Harvard Business Review

The results can be impressive: if your firm’s return on invested capital is 8% and you have an 8% cost of capital, a 1% improvement in ROIC will increase firm value by 19%. There are just two ways to increase ROIC: improve operating profit (by increasing revenues or cutting costs) or invest capital more wisely.

CEO 8
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How Companies Can Use Investors to Their Advantage

Harvard Business Review

Directly influenced by investor input, Nikon developed a restructuring plan that would carry a onetime cost of ¥48 billion ($460 million) but generate ¥20 billion ($190 million) in annual savings. It would implement targets linked to shareholder value, including ROE and ROIC.

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Don’t Turn Your Sales Team Loose Without a Strategy

Harvard Business Review

To borrow a telecom industry metaphor, a deal with a customer is the “last mile” in connecting any strategy with business development efforts and marketplace results. Business results were outstanding: EBITDA more than doubled in the first year and ROIC increased almost 300%, with fewer sales people. Only customers buy.

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What If Companies Managed People as Carefully as They Manage Money?

Harvard Business Review

Finding, developing, and retaining this talent is hard — so much so that the business press refers to a “war” for talent. A veritable alphabet soup (ROA, RONA, ROIC, ROCE, IRR, MVA, APV, and the like) exists to measure our financial capital. Time, whether measured by hours in a day or days in a career, is finite.