Return On Invested Capital Research Articles

Sustainable development goals and corporate financial performance: Examining the influence of stakeholder engagement

AbstractThis study investigates the relationship between sustainable development goals (SDG) and corporate financial performance (CFP) in the motor vehicle manufacturing sector. Using a comprehensive dataset from CSRHUB database, covering 380 companies from 2016 to 2022, we analyze how SDG‐related disclosures—across depth, breadth, and concentration—impact financial metrics such as return on assets (ROA), return on equity (ROE), return on invested capital (ROIC), and Tobin's Q. The study employs the system generalized method of moments (System GMM) to mitigate endogeneity concerns, ensuring robust results. Our findings reveal that while SDG initiatives positively influence CFP, the role of stakeholder engagement is pivotal. Firms with comprehensive SDG strategies and high stakeholder engagement experience superior financial outcomes. However, an overly narrow focus on specific SDG themes, even with strong stakeholder interactions, correlates with weaker financial performance. This research contributes to the ongoing discourse on corporate sustainability by highlighting the moderating effect of stakeholder engagement in SDG disclosures. The findings offer practical implications for both policymakers and business leaders, suggesting a balanced approach to SDG reporting to maximize financial performance.

An Analysis of Utility Capital (In)efficiency

Determining the optimal allocation of financial resources to support growth in demand and improve operational efficiency is a strategic and intricate challenge for utilities. Unlike other industries in which return on invested capital (ROIC) and capital turnover ratio are standard metrics of capital efficiency, the utility sector operates under unique regulatory constraints that render these measures less applicable.

How Does CEO Duality Influence ESG Scores in Hospitality and Tourism Companies? Confounding Roles of Governance Mechanisms and Financial Indicators

Previous studies have yielded inconsistent results about the impact of CEO duality on corporate performance in the hospitality and tourism (H&T) industry. To further delve into this relationship, we investigated the causal relationship between CEO duality and environmental, social, and governance (ESG) performance under various board characteristics and financial indicators. The data from the Thomson Reuters Eikon database were evaluated using a machine learning technique that included targeted maximum likelihood estimation (TMLE), augmented inverse probability weighting (AIPW), and neural network analysis, all of which are doubly robust estimators with cross-fitting. The findings suggest that CEO duality negatively impacts environmental pillar scores but not other outcomes (i.e., governance and social pillar scores). Among the governance practices and financial indicators, policy executive compensation performance, policy executive compensation ESG performance, and return on invested capital (ROIC) have positive relations with total ESG scores. The results have important ramifications for helping H&T companies develop effective boards of directors and governance systems, as well as achieve targeted ESG performance objectives.

Pengaruh CAR, FDR, dan BOPO Terhadap ROA pada Studi kasus BCA Syariah periode (Tahun 2018 – 2022)

The purpose of this research is to determine the extent to which the capital adequacy ratio (CAR), Financing to Deposit Ratio (FDR), and the operational expense ratio (BOPO) have an effect on the profitability of BCA Syariah. The return on invested capital (ROA) is the metric that is used to analyse these elements. In terms of methodology, the research is quantitative. This information is included in the yearly report for 2018-2022 that is provided by BCA Syariah. A thorough selection was made for the sample. A multiple linear regression analysis was used in this investigation, and the statistical software tool IBM SPSS version 23 was utilised for the analysis. According to the findings of the multiple linear regression analysis, the independent variables CAR, FDR, and BOPO were able to explain the dependent variable ROA concurrently. This was the case all three variables individually. The correlation between the variable FDR and ROA is positive, although it is not statistically significant. When it comes to ROA, both the CAR factor and the BOPO factor have a counterproductive effect.

The Impact Of ESG Techniques On ROIC And EPS For Manufacturing Firms: Research From Listed Companies In India

Companies that are publicly traded worldwide are shifting their focus away from maximizing short-term profits to achieving long-term environmental, social, and governance (ESG) objectives. The growing importance of environmental sustainability concerns is now recognized by most business leaders. They have started to believe that an organization's financial health and reputation in the marketplace may be affected by this. A study recently concluded that companies that have strong ESG performance may be able to enhance their financial performance. The question of how ESG affects financial performance has received little attention in India. Our study examines the link between ESG operations and financial indices in India's publicly traded firms by analyzing dynamic and static panel data. Our initial step is to gather financial data from Bloomberg and preprocess it using descriptive statistics. The consequence of ESG variables on the financial performance of the manufacturing companies during 2018 to 2022 was investigated. The analysis was done based on 701 BSE manufacturing companies’ year-wise data. The independent variable is the ESG scores; the dependent variables are performance indicators, i.e., Return on Invested Capital (ROIC) and Earnings per share (EPS). The control variable that is employed: Firm size. 
 The empirical findings indicate that ESG doesn’t have a substantial positive impact on performance. However, the relationship between ESG disclosures do vary if measured individually; the disclosures are found putting positive effect on ROIC but EPS. 
 Financial performance may be improved through ESG activities, which could have an impact on investors, business administrators, decision-makers, and industry regulations.

Measures of firm performance and concentration: Stylized facts and a dilemma of data reproduction

Economists and policymakers have used the increase in the concentration of return on invested capital (ROIC) in publicly traded US firms over the last decades as evidence for the decline of competitiveness in the broader economy. Principle support for this claim is a graph presented by the Council of Economic Advisors (CEA, 2016) that reproduces data from the McKinsey and Company’s book on Corporate Valuation. We demonstrate that the key findings associated with the evolution of the ROIC cannot be broadly reproduced using Compustat data and established accounting measures and calculations. Further, we find the recommended data filtering strategies can result in discarding more than 75% of the available data. We show that using the full information dataset can lead to significant changes in economic conclusions. We advocate for transparency in calculations and rationalization of data pre-processing.

Risk and Investment Value Analysis in the U.S. Airline Sector of the Stock Market

Amid the evolving global economic landscape, the U.S. airline industry has undergone significant transformations, thus raising the need for comprehensive analyses of its investment value and inherent risks. Financial health, risk management strategies, and investment potential of key players in the U.S. airline sector were assessed, namely, Southwest Airlines, American Airlines, and Singapore Airlines. The research methodology involves a thorough evaluation of the financial ratios of these airlines, their strategic initiatives such as hedging, as well as their environmental, social, and governance (ESG) risk ratings. Key metrics such as Return on Invested Capital (ROIC), the Piotroski F-Score, Altman Z-Score, and debt ratios among others form the foundation of the analysis, providing insights into their operational efficiency, financial strength, and risk profiles. The study concludes that each airline exhibits a distinct financial profile with varying levels of investment potential. The choice between investing in these airlines hinges on individual investor preferences, risk tolerance, and investment horizons. The results reveal that Southwest Airlines and Singapore Airlines present lower risk profiles, potentially appealing to conservative investors, while American Airlines could appeal to more aggressive investors due to its high potential returns, albeit at a higher risk. Meanwhile, Singapore Airlines offers a balanced profile attractive to growth-focused investors. The importance of aligning investment decisions with personal investment objectives and risk tolerance was underscored, thereby providing valuable insights for potential investors in the U.S. airline sector.

How to improve quality investing

In this article, we evaluate the relationship between quality investing combined with Economic Moat, ESG (Environmental, Social and Governance) and analyst opinions over the period 2014–2020 based on a data set comprising 803 US stocks. Performance is evaluated using several metrics (returns and alphas). Our results show that quality stocks measured by return on invested capital (ROIC) exhibit superior performance. The incorporation of competitive advantages allows a better discrimination among the classic high-quality strategies. Investment in stocks with quality and high ESG entails the payment of a premium but buying quality companies with Economic Moat makes up for this negative aspect. The results show how quality companies that have competitive advantages obtain a better future performance and are recognized by the market with a higher valuation. However, the markets may take time to recognize this value since the incorporation of the average Price-to-Price target (Analyst consensus) increases the future performance. JEL classification: G11; G14; G23

Do Digital Technology Firms Earn Excess Profits? Alternative Perspectives

ABSTRACT Despite regulators’ allegations that digital technology giants misuse their market power to earn abnormal profits, there is a dearth of systematic work on (1) whether digital-tech firms in general, and tech giants in particular, earn excess profits or (2) whether their abnormal profitability, if any, is due to market power. We use two alternative measures of economic profitability in addition to accounting rate of return (ARR): internal rate of return (IRR), which equates current investments to their long-term payback, and return on invested capital (ROIC), whose numerator (profits) and denominator (invested capital) are adjusted for capitalized intangibles. Inferences based on IRRs differ from those based on ARRs and ROICs. IRRs show that the digital-tech sector is now the best-performing sector, and its gap between profitability and cost of capital has increased over time. We are unable to separate the contribution of market power and innovation to digital tech’s high IRRs. JEL Classifications: D43; L1; M21; M41.

ВІДСУТНІСТЬ ФОНДОВОГО РИНКУ: ЧИ Є АЛЬТЕРНАТИВА EVA, EPS, P/E

The article proves that there is an urgent need to determine the key performance indicators of the company and to improve the methods of determining capitalization and profitability, for which accounting data is insufficient, because it ignores the costs of capital obtaining, the impact of changes in accounting policies, and the possibility of data manipulation. It was determined that in countries with a developed stock market, the performance of public companies is most often predicted through their share prices, return on assets (ROA), return on equity (ROE), earnings per share (EPS), return on invested capital (ROIC), return on investment (ROI), Economic Value Added (EVA), Economic Value Added Momentum (EVAM). It was found that Ukraine is a unique example of the disappearance in recent years of a stock market created from scratch in the 1990s; the causes of the problems hindering the development of the stock market of Ukraine are outlined. The essence and purpose of EVA, EPS, P/E indicators are considered in order to propose ways of their modification or replacement in the absence of a stock market. It has been proven that the market capitalization indicator cannot be used for non-joint-stock companies; and the main problem of determining EVA for a non-joint-stock company or in the absence of a stock market is determining the value of equity capital. Under such conditions, it is proposed to choose one of the classic approaches to the assessment of the value of capital - expense (Method of net assets, Method of probability of liquidation), income (Method of discounted dividends, Method of discounted cash flows), market (Method of multipliers, Method of deals, Method of industry ratios). It is also suggested to choose the Net Present Value (NPV) indicator for strategic management, because NPV maximization, even with negative EVA values, is sometimes a higher priority task than EVA maximization. But using NPV has the same problem as EVA using, it is choosing a discount rate. Various methods of calculating the value of equity capital are proposed: the capital asset valuation model (CARM); subjective assessment: interest on long-term government bonds or deposits; average profitability in the industry. Earnings per share (EPS) can be replaced by return on equity and even return on equity. With the ratio of the market value of the share to the net earnings per share (P/E), it is much more difficult, because the calculation of the market value under such conditions is not available. It is noted that the types of enterprises, which are usually public and private, differ. For example, despite being small in their early stages, technology firms typically go public. Smaller companies tend to experience a greater negative impact from higher interest rates and inflation. It is concluded that all indicators should be treated with skepticism and used only as tools, not as drivers, and other factors should also be taken into account during the holistic assessment of investments: dividends, projected future profits, corporate culture, social responsibility of the company.

Sound Corporate Governance and Financial Performance: Is There a Link? Evidence from Manufacturing Companies in South Africa, Nigeria, and Ghana

The study aimed to compare the effect of sound corporate governance on manufacturing companies in South Africa, Nigeria, and Ghana on financial performance. The study used a purposive sampling method to select 60 manufacturing companies, of which twenty-nine (29) were from South Africa, 17 were from Nigeria, and 14 were from Ghana. The study employed GMM and FMOLS to estimate the effect of corporate governance on the firm’s financial performance. According to the study, South Africa has the longest average board tenure at 7.85 years, followed by Nigeria at 4.7 years and Ghana at 3.9 years. The average board tenure was found to have a positive and statistically significant effect on the return on invested capital (ROIC) of the firms in South Africa and Ghana, and a positive and statistically insignificant effect was found for the firms in Nigeria. The study indicated that the firms in South Africa have the highest percentage of female directors at 24.26%, followed by Ghana at 17.8% and Nigeria at 17.3%. The study showed that female representation on the corporate board has a positive and statistically significant effect on all firms’ return on net operating assets (RONOA). The study provides policy implications for shareholders, boards of directors, and other stakeholders by enabling them to build confidence in the corporate governance structure of manufacturing companies in the three countries.

Faktor Yang Mempengaruhi Return On Invested Capital

The development of the business world is increasingly rapid accompanied by intense competition, making companies must be able to survive, one of which is by improving financial performance. Non-bank financial institution sector companies are one of the pillars of economic development. However, in the last five years, mining sector companies have experienced fluctuations in company profits due to the impact of the covid 19 pandemic, causing a decline in the company's financial performance. This research was conducted to examine the effect of intellectual capital, growth ratio, liquidity (cash ratio), efficiency (net profit margin), effectiveness (total asset turnover), and leverage (debt to asset ratio) on companies in the non-bank financial institution sector on the IDX. There are 58 population of mining sector companies listed on the IDX. The sample of this research is 35 companies' financial statements obtained by using purposive sampling method. The analytical method used is panel data regression analysis with eviews 12 tools. The results showed that intellectual capital, net profit margin, total asset turnover had a positive effect on return on invested capital (ROIC), growth ratio had a negative effect on return on invested capital (ROIC), while cash ratio and debt to asset ratio no effect on return on invested capital (ROIC). simultaneously intellectual capital, growth ratio, cash ratio, net profit margin, total asset turnover, and debt to asset ratio jointly influence return on invested capital (ROIC). Keyword : Intellectual Capital, Growth Ratio, Cash Ratio, Net Profit Margin, Total Asset Turnover, and Debt to Asset Rasio

Faktor-Faktor Yang Mempengaruhi EVA

Capital structure, return on invested capital (ROIC), fixed assets, and net operating profit after tax (NOPAT) are the factors that affect economic value added (EVA). Understanding the potential effects of the independent factors on the dependent variable, which is economic value added (EVA), is the goal. Descriptive statistics, the traditional hypothesis tests (normality, multicollinearity, heteroscedasticity, and autocorrelation), the t-test and F-test, and coefficient of determination were all used in this work. According to descriptive statistics, the data is normal and passes the traditional assumption test. Capital structure largely has no effect on EVA. Significant effects of ROIC, Fixed Assets, and NOPAT on EVA. EVA is impacted simultaneously by the capital structure, ROIC, fixed assets, and NOPAT. The capital structure, ROIC, fixed assets, and NOPAT are independent variables that have an impact on 35.2% of the dependent variables, while other variables have an impact on 64.8%.

A New Method to Estimate NPV and IRR from the Capital Amortization Schedule and the Advantages of the New Method

This paper introduces a new method, different from the discounted cash flow (DCF) method, for the first time, to estimate NPV and IRR. This method makes use of the capital amortization schedule (CAS). Accordingly, the present value (PV) of the closing balance (CB) in a CAS at a particular discount rate is the NPV at that rate and the interest rate that makes the CB zero is the IRR. CAS method also reveals that NPV represents the unutilised net cash flow (NCF) that remains as the CB in CAS. IRR is the only rate that fully utilize the NCF and makes the CB zero. The estimated NPV and IRR by CAS and DCF methods are perfectly matching in all cases of small or large-scale investments and under the financial and or economic analysis of investments. The CAS method is more transparent than the DCF method and provides a better insight into: a. evidence of reinvestment of intermediate income in some normal NCF and most non-normal NCF (NNCF) investments; b. elimination of the reinvestment income to get a unique IRR that resolves the problem of multiple IRR; and c. to identify the appropriate criterion between IRR and NPV, as NPV indicates the unutilised NCF whereas IRR indicates the return on invested capital (ROIC) by fully utilizing the NCF. The investors are comfortable to compare the IRR with the cost of capital in percentage term. As the modified IRR (MIRR) assumes reinvestment, MIRR might become redundant if there is no reinvestment and this is an incidental inference drawn.

Kinerja Perusahaan: Pengaruh Corporate Social Responsibility dan Pertumbuhan Pendapatan

Indonesia is currently being hit by the coronavirus disease 2019 (COVID-19-19) pandemic, making the level of competition between companies more competitive to generate profits. This strongly encourages companies to look for ways to attract investors' attention in capital market. The purpose of this study is to analyse the effect of corporate social responsibility (CSR) disclosure and revenue growth on the firm performance of sustainable companies listed on the Indonesia Stock Exchange (IDX). This study will examine whether there is a relationship between CSR disclosure in sustainability reports and revenue growth on firm performance. CSR is measured by GRI-Standards. Firm performance is measured by return on assets (ROA), return on equity (ROE), return on invested capital (ROIC), and economic value added (EVA). A sample of 37 companies was obtained from purposive sampling method, in which companies listed on IDX must completely published sustainability reports during the 2016-2020 period. The analysis technique with panel-based data regression. The results of this research show that CSR disclosure in sustainability reports has a significant positive effect on firm performance (EVA). Revenue growth in sustainable companies also has a significant positive effect on firm performance (ROE).

Designing Omni-Channel Retailing to Align Financial Performance with Strategy

Sunil Chopra describes how looking at combinations of product and channel through the lens of return on invested capital (ROIC) allows retailers to design omni-channel portfolios that align their products, service offerings, and pricing. By using each channel to improve invested capital turns or broaden profit margin, these portfolios increase the company’s value.

Working Capital Management (WCM) and Firm Performance in Emerging Markets: A Case of Bangladesh

We examine the impact of efficient working capital management on market value and profitability. Using secondary data on selected firms from Dhaka Stock Exchange we explore the effects of various working capital components (i.e. cash conversion cycle (CCC), current ratio (CR), current asset to total asset ratio (CATAR), current liabilities to total asset ratio (CLTAR), debt to asset ratio (DTAR), siz,e and growth) to the firm’s performance by looking firm’s value i.e. Tobin’s Q (TQ) and profitability i.e. return on asset (ROA) and return on invested capital (ROIC). Our results show that, for both food and overall manufacturing sectors, there is a significant association between working capital variables and firm’s value & return on assets, but an insignificant association with return on invested capital.

СТРУКТУРА ТА ЕФЕКТИВНІСТЬ ІНВЕСТИЦІЙ У СПОРТИВНУ ІНДУСТРІЮ КРАЇН (НА ПРИКЛАДІ ЕКОНОМІКИ НІМЕЧЧИНИ)

In the last thirty years sport is turning into business and football clubs are developing into large corporations. Sports industry has been becoming not just more exciting but also highly lucrative. The value of professional football sector is estimated to be about 8 billion euros. Even more investors see sports leagues or football clubs as profitable investments. For instance, European Super League can be taken, which could have been more profitable for investors than other competitions and attracted such sponsor as JPMorgan Chase. However, in the near future such project has no support from governments and other clubs and therefore has no future yet. One type of investment in the sports industry is the purchase of shares in sports clubs. Borussia Dortmund is a German football club, one of the most successful clubs in the world, which plays in the Bundesliga, the top tier of the German league system. Dortmund’s shares are listed on the Frankfurt Stock Exchange. Borussia is the only club in Germany and among approximately 25 clubs in the world, including few British and Italian clubs, whose shares are publicly traded. Even more clubs are considering going public to increase its capital. One of the biggest clubs in Belgium, Brugge examined such opportunity, though the club postponed their initial public offering because of the low demand. On the contrary, Ukrainian football club Veres started selling its shares in April 2021 and during the first day have received bids for the purchase of stocks for the amount of over 36 million hryvnas. However, the benefit for the investor might be only the increase of a share price as the club does not intend to pay out dividends. The article analyses the price of a club share for more than 20 years and historical dividends. Borussia’s stock is analysed using futures contracts. It also examines such indicators as return on invested capital (ROIC), weighted average cost of capital (WACC), return on assets (ROA), which are compared with those of Manchester United, Juventus, Lazio and Ajax. A model is being built to predict the stock price during COVID-19 and before the start of the pandemic to compare price fluctuations and model errors.

Economic Value-Added Creation by Optimizing Capital Structure in Project Finance

Infrastructure Projects are large investment by the public and/or private sector that required enormous financial resource commitment to build physical asset and facilities needed for economic development so that the company need project financing to support with. Project finance is based on debt repayment from project companies’ revenue and not on the sponsors or the developer’s balance sheet, so the project companies should assure the cash flow is sufficient for debt repayment and dividend payment. Beside that investors still have to analyze the value created in that project with highest positive Economic Value Added. Net Operating Profit After Tax (NOPAT) need to cover cost of invested capital to create value so that the ratio of NOPAT to total Project Cost (Return on Invested Capital) is should be more than the weighted average cost of capital (WACC). The capital structure doesn’t have an optimum weight and cost as long as the Return on Invested Capital (ROIC) higher than WACC.

Comparative analysis of profitability of real estate, industrial construction and infrastructure firms: evidence from India

PurposeThis study aims to identify the most profitable segment of construction firms amongst real estate, industrial construction and infrastructure. This paper also examines the determinants of profitability of real estate, industrial construction and infrastructure firms.Design/methodology/approachThe data of 67 firms (20 real estate, 21 industrial construction and 26 infrastructure) is collected for a 15-year period (2003–2017). Two models are created using total return on assets (ROA) and return on invested capital (ROIC) as dependent variables.. Leverage, liquidity, age, growth, size and efficiency of the firm are identified as firm-specific independent variables. Two economic variables, i.e. growth in GDP and inflation, are also used as independent variables. Initially, the models are tested for stationarity, multicollinearity and heteroscedasticity, and finally, the coefficients are estimated using Arellano–Bond dynamic panel data estimation to account for heteroscedasticity and endogeneity.FindingsThe results suggest that industrial construction is the most profitable segment of construction, followed by real estate and infrastructure. Their profitability is positively driven by liquidity, efficiency and leverage. The real estate firms are somewhat less profitable compared to industrial construction firms, and their profitability is positively driven by liquidity. The infrastructure firms have low ROA and ROIC.Originality/valueThe real estate, infrastructure and industrial construction drastically differ from each other. The challenges involved in real estate, infrastructure and industrial construction are altogether different. Therefore, authors present a comparative analysis of the profitability of real estate, infrastructure and industrial construction segments of the construction and compare their determinants of profitability. The results provided in the study are robust and reliable because of the use of a superior econometric model, i.e. Arellano–Bond dynamic panel data estimation with robust estimates, which accounts for heteroscedasticity and endogeneity in the model.