WALL STREET JOURNAL.
When It Comes to ROIC, Investors May Not Be Buying the Company
A survey suggests companies need to do a better job selling their
plans to improve returns on invested capital
May 18, 2016 9:33 am ET
Investors are clamoring
for companies to disclose their return on invested capital, but they
aren’t exactly buying the story companies are trying to tell with the
In a survey this spring by
investor relations experts Rivel Research Group, ROIC once again
scored as the most important financial metric for global investors
that companies can talk about, as The Wall Street Journal
wrote about earlier this month.
When asked what metric is
“very important” to investment decisions, 57% of those surveyed
answered ROIC, the highest score among the various measurements. That
was up from 49% in December 2013. Two years ago, ROIC trailed
earnings-per-share growth but climbed to the top spot in a survey
conducted at the end of 2014.
The second-highest scorer
this year was free cash flow margin, another efficiency metric, which
jumped from fifth place in the previous survey. (Note to companies:
Investors could do without price-to-book value, which only 1 in 5 said
they need to hear about.)
But Rivel dove deeper into
conversations with 353 buy-side professionals and found some signs
companies need to be on their game when discussing ROIC.
Roughly 75% of those
surveyed around the globe said they were at least somewhat satisfied
with the disclosures from companies, a good sign for companies. But
when asked to compare a company’s discussion of its ROIC with an
activist’s argument about the company’s ROIC, the survey was more
tepid for companies.
In North America, less
than half of those surveyed, 43%, gave the company the nod while 32%
said they bought into the activist. (Some 6% said both and 18% were
That seems to imply
companies need to do a better job selling their plans on ROIC, or
potentially risk investors taking the side of the activists.
ROIC is becoming a
flashpoint in activist fights. Investors argue that companies are
failing to earn returns on their spending and companies say investors
are failing to give them time.
In their comments to Rivel,
various unnamed investors raised concerns about the difficulty in
finding ROIC and whether it’s comparable to peers, urging companies to
disclosure how they calculate it.