ROIC formula

Research
1

Anyone have a good P123 ROIC formula? I see a couple of old posts (2008 and 2013) attempting to address this.

The formula:
(net income - dividend) / (debt + equity)

OR

NOPAT / invested capital

2

Hi abwillingham, here’s the a link to the reference index (I keep a shortcut link to it in my browser)
https://www.portfolio123.com/doc/doc_index.jsp?cids=&vocabType=

Here’s the link to ROI and I assume this calc is still valid
https://www.portfolio123.com/doc/doc_detail.jsp?factor=ROI%25&popUpFullDesc=1

different people might have custom calc variations if they like to tweak it.

edit: I just reread and realize you may have been asking for an alternate formula — here’s a custom formula I have for ROIC NOPAT, but not sure when built or if I use it anywhere and not sure if I’m handling all components properly:

((OpInc(0,TTM)*(1- TxRate%(0,TTM,ZERONA)/100)) / (EqTot(0,QTR)+ DbtLT(0,QTR)))*100

edit2: I think TxRate% can be negative now, so might want to put something like Max(0,TxRate%(0,TTM,ZERONA)) in for the TxRate part if you prefer to make sure OpInc doesn’t get boosted due to negative tax rate.

3

Thanks Spaceman. I read in previous ROIC posts that complex formulas do not work well in ranking models.
I assume this qualifies as a complex formula.
Have you noticed any issues using this in a ranking mode?

I tested this in a screen on 100 SP500 tickers and about 10% retuned an N/A for (TxRate%(0,TTM,ZERONA)

Thanks
Tony

4

I’m sure I tested this in ranking node at some point because the custom formula is there, but don’t think I use it for anything. Some companies won’t have taxes due to no net income, like sorry business or maybe something like chg in tax law that causes sizeable charge at a point in time, restructure… I likely used the ZERONA to make sure the formula doesn’t error out when taxes were NA.

You can setup a screen report to look at the components and pull up specific companies to see some specific cases to see if there are some other issues maybe needing addressing. Sometimes just have to probe the database to see how the data falls out.

5

I took a look at the tax rate and ZERONA and was surprised to see a large number of companies coming back NA.

I asked Aaron about it and it turns out that TxRate% is secretly calculated with two numbers, so the fallback for that item can be a bit wonky. (Either of those numbers, IncTaxExp or IncBTax, can be NA or non-NA.)

I would use this instead:

This is a rare case where I would prefer the year-end/audited tax rate over a sum-of-interims approach. Also, I would be concerned with the other end as well. A bunch of companies came back with “tax rates” in the thousands. You will probably want a sanity check in there in either a custom universe or a piped-through screen.

6

Thanks for checking Paul