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. They don’t tell you how well the business is positioned for future growth and ROIC improvement. So while profits were rising and ROIC was high, market share was declining.

ROIC 58

Untangling Skill and Luck

Harvard Business Review

We will define skill as "the ability to use one's knowledge effectively and readily in execution or performance" and luck as "events or circumstances that operate for or against an individual." Take, for instance, a group of companies that currently have high returns on invested capital (ROIC). If you follow that group over time, you would see their ROICs revert back toward the cost of capital. Research Strategy ROIC

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

Harvard Business

A veritable alphabet soup (ROA, RONA, ROIC, ROCE, IRR, MVA, APV, and the like) exists to measure our financial capital. When Caesars Entertainment, a gaming company, reorganized operations in 2011, the senior team not only developed a database on the performance and the potential of the company’s top 2,000 managers but also analyzed the ability of the top 150 to take on new and different jobs. Vincent Tsui for HBR.

ROCE 47

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.