No. of Recommendations: 2
In theory you could use something like 2-3 year change in operational assets (total assets minus excessive cash, say), versus change in cash flow from operations in the same period. But there are just so many moving parts---were the start and end periods typical years or unusually bad/good? M&A? Are they in a weird business, or just a plain product or service company?
Thanks Jim - that makes sense on ROIIC. The endpoint sensitivity, M&A, and other one-off events seem like they’d make a mechanical screen pretty noisy.
On the simpler question, have you ever backtested ordinary ROIC (not incremental) versus ROE, or used both together as screening criteria?
I wonder if using ROIC instead of ROIIC might preserve some of the benefit without the measurement problems that come with incremental returns.
