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. MORE

It would implement targets linked to shareholder value, including ROE and ROIC. Heini Wehrle/BIA/Minden Pictures/Getty Images. Most companies see investor relations as a one-way street. MORE

companies’ return on invested capital (ROIC), and compare it with economy-wide ROIC estimates constructed by Deloitte. Economywide ROIC has trended downward since the 1980s, falling from above 6% in the mid-1960s to 5% in 1980, then to 3% in 1990, and to only a bit more than 1% by 2010. In 1960, only a tiny proportion of major American firms earned an ROIC of 50% or more. The worldwide trend of rising economic inequality applies not only to individuals. MORE

A veritable alphabet soup (ROA, RONA, ROIC, ROCE, IRR, MVA, APV, and the like) exists to measure our financial capital. Vincent Tsui for HBR. Today’s executives spend a lot of time managing the balance sheet, despite the fact that it doesn’t represent their company’s scarcest resource. Financial capital is relatively abundant and cheap. According to Bain’s Macro Trends Group, the global supply of capital stands at nearly 10 times global GDP. MORE

Business results were outstanding: EBITDA more than doubled in the first year and ROIC increased almost 300%, with fewer sales people. When formulating a strategy, markets and segments are important categories to consider. But a market never buys anything. Only customers buy. 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. MORE

During the current recession, overall consumer spending has declined or held flat, sales per square foot have not improved significantly, and retailers' return on invested capital (ROIC) has suffered dramatically. Best Buy's ROIC has declined from 23.68% to 15.01% percent since 2007, while domestic sales per square foot (including online sales) declined from $909 to $853 during this same period. Internet Retail ROICThis post is part of the HBR Forum, The Future of Retail. MORE

Like Return on Invested Capital (ROIC), which reflects what a company earns, how much capital it needs to earn it and the ratio between the two, ROIT reveals what the company earns, how much it has to spend on its talent to earn it, and what the ratio is between the two. Compensation ROIC GSThe debate over the pay of top bankers is highly charged. MORE

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. MORE

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 ROICFor almost two centuries, Spain has hosted an enormously popular Christmas lottery. Based on the payout, it is the biggest lottery in the world and nearly all Spaniards play. In the mid-1970s, a man sought a ticket that ended in 48. MORE

Moreover, when Porter defines strategy, he is really talking about what constitutes a good strategy — one that will result in a higher ROIC than the industry average. I just finished a two-year project looking at Michael Porter's most important insights for managers. MORE