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Forum Definition: ROCC Metrics
Methodology and Specifications
for
Returns on Corporate Capital™
(June 14, 2017 workshop version: for review and comment)
The definition of “Returns on Corporate Capital” (“ROCC”) summarized below
was developed in a Shareholder Forum workshop project that was initiated
in 2016* to address both corporate and
investor interests in analyzing a company’s performance based on its
use of capital to generate income from the production of goods and
services, as the ultimate basis for competitive corporate success
and long term shareholder value.
Purpose of consistently defined metric
The standard calculation of ROCC has been developed to provide a broadly
applicable measurement of a company’s use of available capital, in
essentially the same way that corporate managers and investors commonly
measure the merits of a proposed or continuing business enterprise. In
this context, the measurements are intended to provide relevant
comparisons only among companies with similar industry operations, and for
the limited purposes of preliminary review to determine whether more
detailed, situation-specific analysis is justified.
The ROCC calculation is similar to some variations of the commonly used
“ROIC” (returns on invested capital), but has been carefully defined to
provide a more consistently defined metric by standardizing its
calculation and carefully specifying data elements that can be obtained
directly from public sources, according to professional and academic
practices allowing any user to compare or test analyses presented by other
users.
Calculations based on GAAP-defined amounts
The following calculation of ROCC is based strictly on GAAP-defined
amounts as they are reported by companies in audited statements filed with
the U.S. Securities and Exchange Commission (SEC), without any researcher
“normalization” or other judgmental adjustments:
net
income
plus interest expense and income taxes,
__divided by__
prior year ending balances of
total assets
less current liabilities other than interest-bearing debt
Industry competitor aggregates
The ROCC of each company’s industry competitors is based on the same
calculations of the total asset and income results for all SEC-reporting
companies in the relevant industry other than the subject company,
providing an economically meaningful measurement of competitor performance
reflecting market contribution rather than an average of unweighted
ratios. (It should be noted that the exclusion of the subject company from
its industry competitor aggregates, while analytically rigorous, produces
different industry competitor results for each company in an industry.
ROCC calculations including all companies in an industry can be provided
upon request.) The industry of each company is based on the company’s
specification of its Standard Industrial Classification (SIC) in its SEC
filings; if a 4-digit SIC industry definition is specified by fewer than
ten companies, its broader 3 or 2 digit SIC industry group classification
is assigned to support statistically meaningful competitor comparisons.
Universe of companies
For purposes of consistency and integrity, the standard ROCC graphs
published by the Shareholder Forum provide analyses of only the
approximately 8,000 companies currently reporting investment information
to the SEC for registered equity securities, and include only such
companies in their specified industry averages. Special projects can be
developed using other companies, such as OTC-traded or non-U.S. companies,
but the data available for these companies may not be reliably comparable.
Source of data
ROCC analyses are produced by the Shareholder Forum using data provided by
the
EDGAR Online
division of Donnelley Financial Solutions from SEC records of each subject
company’s reports.
ttt
Requests for variations of the standard ROCC data reports to address
specific analytical requirements are welcomed, and can be addressed to
rocc@shareholderforum.com.
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June 14, 2017
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