In a previous post, we discussed a metric called return on invested capital (ROIC) and its variant, return on incremental invested capital (ROIIC). ROIC measures the after-tax operating earnings generated per dollar of average total capital, while ROIIC measures the incremental operating earnings generated per dollar of additional capital employed in the business. These measures
The Hurdle Rate – Understanding the Cost of Capital Read More »
One mistake I see many small business owners make is to focus on the “bottom line”, i.e., the profits of the business, while ignoring the amount of capital necessary to generate those profits. Profit as a stand along measure tells us relatively little about the economics of the business. For example, consider two companies each
Managing Your Business for Profitability – Understanding Return on Invested Capital Read More »
In the investment world we constantly hear about the importance of “thinking like an owner,” particularly in reference to the short holding periods of most money managers. However, in the small business world, the opposite is often true – business owners who fail to think like capital providers. If you are a small business owner,
Financial Management: A Brief Guide for Small Businesses Read More »
