Ditch the Crystal Ball: How I Use ROIIC to Spot Winning Investments in Today's Market
A "Back of the Napkin" Approach to Uncover True Growth and Make Smarter Investment Decisions
Okay, gather 'round, fellow financial adventurers! Let’s talk about my favorite investing trick: calculating Return on Incremental Invested Capital (ROIIC). Forget those dusty old financial textbooks; I’ve got a "back of the napkin" method that’s more like a secret recipe for spotting today's winners. You know, because looking at past performance is like reading an old menu – it tells you what used to be on offer, not what’s cooking right now. While ROIC is like a classic portrait, polished and poised, ROIIC? That's the candid, unfiltered live stream of a company's financial performance.
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Why ROIIC is My Investment BFF, Especially in This Whirlwind Market!
In today’s market, things change faster than a TikTok trend. We need to know if a company's still got the magic touch, not just relying on their past glory. That’s why ROIIC is my go-to metric. It’s like having a financial crystal ball, but without the questionable ethics. Here’s why I swear by it:
Adapting to Change: The Financial Chameleon (Because Stagnation is Boring!)
Businesses are constantly evolving, facing new challenges and opportunities. ROIIC shows you how well they're adapting, measuring the returns from their latest moves.
ROIC? It might be showing you how well they adapted to the flip phone era. We need to know about the smartphone era!
It shows if the company is still able to deploy capital at high rates of return, or if they are slowing down.
Identifying Current Trends: The Financial Sherlock Holmes (Because Clues Are Everywhere!)
ROIIC is like a financial detective, uncovering emerging trends. A rising ROIIC? That’s a green light! A falling ROIIC? Time to investigate!
ROIC? It’s more like a historical record, missing the subtle clues of the present.
It helps to see if a competitive advantage is eroding, or if it is still strong.
Assessing Current Management Decisions: The Financial Judge Judy (Because Decisions Matter!)
ROIIC is my courtroom, and management’s decisions are on trial. Are they making shrewd investments or throwing money at a bonfire? ROIIC delivers the verdict.
ROIC? It’s more like a delayed report card, missing the immediate impact of their actions.
It shows if management is still allocating capital efficiently.
Understanding the Present, Not Just the Past: The Financial Time Traveler (Because the Present is Where the Action Is!)
ROIC is a history lesson; ROIIC is a live broadcast. In a world that moves at warp speed, I want to know what’s happening now.
I want to know what a company's current ability is to deploy capital, and if they are still able to find good projects.
My Super-Simple ROIIC Calculation: No Complicated Formulas, Just Pure Logic!