The Daily Technical #40: What is the return on invested capital (ROIC) metric used to measure?

Good morning. Welcome to the 40th edition of The Daily Technical. You’re here for one reason so let’s dive in.

First time reading? Sign up here.

OVERVIEW OF YESTERDAY’S QUESTION
What are the most common valuation methods used in finance?

Comparable Company Analysis ("Trading Comps"): Trading comps value a company based on how similar publicly-traded companies are currently being valued at by the market.

Comparable Transactions Analysis ("Transaction Comps"): Transaction comps value a company based on the amount buyers paid to acquire similar companies in recent years.

Discounted Cash Flow Analysis ("DCF"): DCFs value a company based on the premise that its value is a function of its projected cash flows, discounted at an appropriate rate that reflects the risk of those cash flows.

Leveraged Buyout Analysis ("LBO"): An LBO will look at a potential acquisition target under a highly leveraged scenario to determine the maximum purchase price the firm would be willing to pay.

Liquidation Analysis: Liquidation analysis is used for companies under (or near) distress and values the assets of the company under a hypothetical, worst-case scenario liquidation.

Common Mistakes

1. Mixing Up Definitions: Confusing one valuation method with another. For instance, equating trading comps with transaction comps. Remember, one deals with current market valuations of similar firms, while the other looks at historical acquisition prices.

2. Lacking Detail: Simply naming the methods without clear definitions won't cut it. Always expand on the process and rationale behind each.

3. Ignoring Context: Show you understand when and why you'd choose one method over another.

Key Takeaways / TLDR

• Ensure you define each valuation method clearly and accurately

• Know when to use each method based on the company's situation or industry

TODAY’S QUESTION
What is the return on invested capital (ROIC) metric used to measure?

Type your answer here. Within 90 seconds you’ll have custom feedback in your inbox.

THAT’S A WRAP
Before You Go: Are you in our skool community?

This is where you’ll get access to the HirePrep platform during our beta. We’re also using this community to share resources, insights, and network!

You should have gotten an invite yesterday with the subject “HirePrep beta invited you to join their community”

Can’t find the email? No worries. Join here using access code “LASTNAME2024”

See you tomorrow,

The HirePrep Team