Metrics#

Return on Invested Capital#

Also referred to as Return on Capital. Return on Invested Capital is one of the best metrics to understand the health of a business. By focusing on ROIC we have a single number to understand if we are innovating and if those innovations are resulting in customers that are happy because they continue to purchase from us. Further, ROIC allows us to understand if we are allocating capital well.

Return on Invested Capital = Net Income / (Debt + Equity)

Free Cash Flow#

Growth in earnings implies that we are expanding our capabilities and growing the organization organically. Look at Price to Free Cash Flow

Debt to Equity#

Look at Earnings per Share and how it is changing over time.

Tax Rate#

Reduce taxes so they can be reinvested into the business for further growth.

Acquire at Less Than 5x Free Cash Flow#

acquire if share price < (freecashflow * 5) / totalnumberofshares