Nitin, your article dives into ROIC with the kind of precision you'd expect from a CFA wielding a financial scalpel. You do a fantastic job of explaining how return on invested capital (ROIC) can help value investors navigate the choppy waters of today’s high-valuation market, especially when the siren song of "AI" and tech stocks lures people into paying prices that would make Warren Buffett wince. Your use of Vulcan Materials (VMC) as a case study adds a great, real-world touch—because who knew a company selling crushed stone could be a stock market superstar?
But let's talk about that formula parade for a second. Don’t get me wrong, it's impressive, and probably warms the hearts of finance majors everywhere. However, I couldn’t help but feel like I was back in calculus class when I hit the NOPAT breakdown. I half-expected to see an equation for time travel next. While your deep dive into the nuances of ROIC calculation is undoubtedly useful for those of us with a taste for numbers, a few simpler explanations or analogies might keep less mathematically inclined readers from reaching for their calculators—or a stiff drink.
That said, your discussion on amortization and cash taxes is spot-on, offering readers some much-needed clarity on why ROIC, when calculated correctly, paints a truer picture of a company’s profitability. Still, a small chuckle arose when I imagined a typical investor nodding along to the amortization explanation, then immediately Googling "EBITDA for dummies." A little more accessibility here could go a long way—unless your goal is to leave a trail of confused investors who are too embarrassed to ask questions!
Now, onto Vulcan Materials (VMC). I love that you used a construction materials company to make your case. It’s unexpected and drives home your point that even in industries most of us think of as "boring," ROIC can identify hidden gems. But let’s be real—no one in 1925 who invested in VMC could have imagined their dollar would turn into $393,492. If they had, they’d have bought more stock, and maybe also a nice new Model T. But your analysis of how VMC consistently reinvests and improves its incremental ROIC is impressive and gives the reader a clear sense of why this seemingly unremarkable company has outshined its peers for nearly a century. The subtle humor of an industry as “unsexy” as crushed stone delivering such stellar returns wasn’t lost on me.
However, there’s a bit of irony in the way you discuss the trade-offs managers face between ROIC and capital return. You make it sound almost like a “choose your own adventure” novel for CFOs: "Do you reinvest and try to outpace your WACC, or do you give up and just hand the money back to shareholders?" I couldn’t help but picture these executives sweating bullets, frantically flipping through spreadsheets like they're on some sort of corporate game show. It’s a nice reminder that, while the math may be precise, the human element behind these decisions is anything but.
As for the market observations section, where you discuss the relationship between ROIC and enterprise value, I think a little humor could lighten things up. The idea of ROIC as the financial world’s “Tobin’s Q whisperer” is amusing. Who knew ROIC could get so personal with valuation metrics? But your point about the statistically significant relationship between ROIC-WACC spread and valuation ratios is solid. Maybe you could throw in a line about how, in today’s market, companies with negative ROIC are like bad reality TV—people still watch (or invest), even though everyone knows it’s not good for them.
In conclusion, your article brilliantly underscores the importance of ROIC as a measure of long-term value. But for a topic that’s as potentially dry as a desert in summer, you might consider throwing in a few more analogies or lighter moments. After all, not every reader is going to feel the same excitement over deferred taxes that you clearly do. Overall, though, this is a stellar piece that should serve as a guiding light for investors looking to navigate today’s overvalued, AI-hyped market.
And who knew a construction materials company could teach us so much about the importance of returns? Perhaps the real takeaway here is that, just like with investing, value can often be found where you least expect it.
Nitin, your article dives into ROIC with the kind of precision you'd expect from a CFA wielding a financial scalpel. You do a fantastic job of explaining how return on invested capital (ROIC) can help value investors navigate the choppy waters of today’s high-valuation market, especially when the siren song of "AI" and tech stocks lures people into paying prices that would make Warren Buffett wince. Your use of Vulcan Materials (VMC) as a case study adds a great, real-world touch—because who knew a company selling crushed stone could be a stock market superstar?
But let's talk about that formula parade for a second. Don’t get me wrong, it's impressive, and probably warms the hearts of finance majors everywhere. However, I couldn’t help but feel like I was back in calculus class when I hit the NOPAT breakdown. I half-expected to see an equation for time travel next. While your deep dive into the nuances of ROIC calculation is undoubtedly useful for those of us with a taste for numbers, a few simpler explanations or analogies might keep less mathematically inclined readers from reaching for their calculators—or a stiff drink.
That said, your discussion on amortization and cash taxes is spot-on, offering readers some much-needed clarity on why ROIC, when calculated correctly, paints a truer picture of a company’s profitability. Still, a small chuckle arose when I imagined a typical investor nodding along to the amortization explanation, then immediately Googling "EBITDA for dummies." A little more accessibility here could go a long way—unless your goal is to leave a trail of confused investors who are too embarrassed to ask questions!
Now, onto Vulcan Materials (VMC). I love that you used a construction materials company to make your case. It’s unexpected and drives home your point that even in industries most of us think of as "boring," ROIC can identify hidden gems. But let’s be real—no one in 1925 who invested in VMC could have imagined their dollar would turn into $393,492. If they had, they’d have bought more stock, and maybe also a nice new Model T. But your analysis of how VMC consistently reinvests and improves its incremental ROIC is impressive and gives the reader a clear sense of why this seemingly unremarkable company has outshined its peers for nearly a century. The subtle humor of an industry as “unsexy” as crushed stone delivering such stellar returns wasn’t lost on me.
However, there’s a bit of irony in the way you discuss the trade-offs managers face between ROIC and capital return. You make it sound almost like a “choose your own adventure” novel for CFOs: "Do you reinvest and try to outpace your WACC, or do you give up and just hand the money back to shareholders?" I couldn’t help but picture these executives sweating bullets, frantically flipping through spreadsheets like they're on some sort of corporate game show. It’s a nice reminder that, while the math may be precise, the human element behind these decisions is anything but.
As for the market observations section, where you discuss the relationship between ROIC and enterprise value, I think a little humor could lighten things up. The idea of ROIC as the financial world’s “Tobin’s Q whisperer” is amusing. Who knew ROIC could get so personal with valuation metrics? But your point about the statistically significant relationship between ROIC-WACC spread and valuation ratios is solid. Maybe you could throw in a line about how, in today’s market, companies with negative ROIC are like bad reality TV—people still watch (or invest), even though everyone knows it’s not good for them.
In conclusion, your article brilliantly underscores the importance of ROIC as a measure of long-term value. But for a topic that’s as potentially dry as a desert in summer, you might consider throwing in a few more analogies or lighter moments. After all, not every reader is going to feel the same excitement over deferred taxes that you clearly do. Overall, though, this is a stellar piece that should serve as a guiding light for investors looking to navigate today’s overvalued, AI-hyped market.
And who knew a construction materials company could teach us so much about the importance of returns? Perhaps the real takeaway here is that, just like with investing, value can often be found where you least expect it.
Regards Jkjiwani, FCCA U.K.
Member IIBF