A Metric that Should Drive Your Investments in 2023
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- Опубликовано: 28 май 2024
- This metric should drive your investments in 2023. In this video, Paul Gabrail will go deeper into return on invested capital (ROIC) and illustrate why this is so important when researching stocks to buy.
#roic #valueinvesting
0:00 ROIC 101: Two ways to fund a business
0:53 What is ROIC? Why is it important?
5:43 A reasonable ROIC?
8:03 Stock Review: Ford vs Microsoft
9:12 Low ROIC isn’t a dealbreaker
11:00 Focus on high ROIC businesses
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-Video Editing by Justin Nelson-
A blend of videos like these between stock analysis, ratios and metric is what the community like Paul. Great explanation! 🤗
Thanks for the support .AP
Though I don’t agree all that Paul teaches, but huge respect for a lot of integrity that he maintains in RUclips finance.
Thanks for the kind words .AP
I like videos where Paul teaches finance!
That’s what we try to do all the time .AP
Most underestimated stock channel on RUclips. Haters gonna hate. Keep it up fellas.
Using your method means all stocks with huge ROIC are overvalued.
High quality is expensive.
Your process does not work and this video actually proves it.
All these “undervalued” companies have low ROIC,
Stock investment is a trade-off of quality vs price, high ROIC companies will in general do better, but are also in general more expensive. The question thus becomes how much of a discount is required for buying a worse business?
@@decus9544 the better decision is avoiding bad companies and finding the best even if you pay a higher price you will win long term.
But this is just my process.
@@ibrahimciftci9599 Fair enough, that works, but I'd ask the question, if you could buy a mediocre company earning a stable $1B per year with zero growth and thus zero ROIC, what would you buy it for? There's a fair price in there, which it's up to you to figure out... Or just ignore, if it suits you!
@@decus9544 yes you are right for sure I would mix of few potential value traps into my portfolio but I would not rely purely on them like this channel teaches.
Not using his method , is the numbers he uses , you can put what ever you want and pay as much as you want .AP
This is the kind of content I like! I love learning about investing Terms and how they work.
I love that you guys are talking about ROIC. The idea behind ROIC is more important than a formula. Basically, "On a percentage basis, what 'CASH CAN' the company produce given all the funds invested from debt and equity holders." The problem is that there is no simple formula for it. It requires extra thinking and extra work to calculate. NOPAT/(Debt+Equity) is a good start but it's not enough. You have to think about the unit economics of the business, you have to think about fixed costs, you have to think about share repurchases, you have to think about cash basis vs GAAP, and you have to think about investments on the P&L. If I told my clients their business's ROIC and I based it on GAAP they would laugh me out of the room. You have to approach it from the business operator's perspective. My examples are BRK.B, AMZN, and CRM. These businesses have much higher ROICs than GAAP methods would lead you to believe. DPZ and MAR are businesses with lower ROICs than GAAP methods would lead you to believe. Just remember what the objective of ROIC is when you look at a business and be cautious of just plugging in a formula.
Our pillars we use is to give us a 500ft view , then comes more deep knowledge of all of this .AP
This is the most underrated video!
That stuff is the real deal! Thx
The way I like to do look at ROIC:
(FCF - stock based comp)/(Total Equity + Total Debt)
I then try to see what the ROIC for the company looks like in both bull and bear markets to get a good overview of how resillient this business is.
Like all the videos but this one is probably one of my favorites. Thanks guys keep educating
Great video. One of the best you guys ever made. I was disappointed with someone videos you made a while ago. But you have outdone yourselves.
This is POWERFUL! Sheeesh. Way to break it down, Paul! No lie, I’ve listened to this video on repeat over 15 times. Thanks for the wisdom, man! 💪🏾💪🏾💪🏾💪🏾
Thank you. More videos like this please.
Thanks more will come .AP
Thank you Paul for this video!! This helps with the course im taking :)
That's why I love ASML - although it is an extremly capital extensive business they generate a ROIC of about 50 per cent.
Great explanation Paul. Love it!
Super video, well and easy explained!
Please do Crowdstrike holdings !!
Very insightful.
I had IBM since 2020. 71% increase and over 4% of annual dividends. Exactly as you said, good Sir :) I bought it cheap, and now I am getting the benefits.
Thanks for this video, very informative
Thanks for letting us know .AP
Just found you. Subscribed. Thank u
Should start grouping your videos in Playlist. Ex: Beginning investing (Just the basics etfs, value investing...). Beginning level 2,3. Intermediate investing. Level 2, 3.... Advanced.... Would think you would get more RUclips revenue down the road with those. I've only been watching for like 1.5 years and you guys have noticeable improvement regularly. Thanks for doing what you do keep up the great work. "Long time listener first time commenter"
A lot of UK companies (including my own) use ROCE (EBIT/Capital Employed) as the main KPI along with Leverage ratio.
Absolutely, Paul should also discuss and compare ROIC and ROCE.
this channel is a goldmine of information
Actually, it's a great educational video. Thank you Paul.
Thanks for taking time to comment .AP
Thanks for the explanation and information!
You are welcome ! AP
ROIC is a fundamental analysis metric like P/E and cash flows. P/E and cash flows per share are more straight forward and KIS is a great principle. Keep it simple!
Apple, HP, Starbucks, AutoZone, AMD ;)
Autozone has been so good for me since last year .AP
Niceee this kind of new educational topic is pretty good !
Btw does earning (in PE ratio) is counted before / after dividend ?
Before
@@MegaCoolFaisal Thankss !
So if I calculated Keycorps roic correctly, for the last 3 years, based on yahoo finance(I've tried the 10-k but it was gibberish, so I will pick up some accounting books), their roic in 2022 was 2.85%, 2021 was 6.19% and 2020 was 1.64%. The average for the last 3 years comes to ~3.5%. So a lower price where it's at now seems rather justified vs something like Walmart that is trading at a huge premium and has ~9% roic may be justified. Although if you can still overpay, then maybe when the price decreases due to the split, that falls under a more fair price. Which is fine. I'm getting compensated for the current shares going down since the difference is made up with 2 shares per current share.
I still have a lot of questions, but those should be answered when I get those books. Between your channel, Ben Felix, plain bagel, and books, I've learned a lot. I hope to be a millionaire on Tuesday next week,give or take a couple decades.
For the stock analyzer took, do you guys use WACC to calculate terminal value or some sort P/E multiple?
I love Yall!!
Can you guys review MDT?
The higher the ROIC the higher the P/E that I can pay for. But which P/E is to high for a certain ROIC? Is there a formula or table?
What do You think of Stanley Black & deckar (value trap?)
We will add them to the list and give it a look.AP
A couple years ago I was in corporate finance and you would be surprised how many people switch majors because they dont get this. Side not: Funny enough CAPM is not conservative enough for me so I dont even use
Difference with ROCE?
Analysis on ALLY, please
Thanks
Thanks on the list .AP
Oh, that's so good to be watching that haha I look at ROIC every time I'm analyzing a stock. That's when you know if the company is generating profits with the capital.
Thanks for the comment ! AP
"The higher the Return On Invested Capital, the more money the company has at the end of the day to invest it back into the business, pay down debt, pay you as a shareholder by paying dividends, or to buy back shares."
Thank you
I have been working with him for a year and four months. And I have been getting my profits seems legit to me
What are your thoughts on return on capital employed ?
The little book that beat the market suggest to buy business with high roic and earnings yield n you will beat the market in the long run...
Yes thats one of the books we recommend and sticking to it for long periods of time .AP
I was surprised that Berkshire has a terrible ROIC. Why do you think that is ?
Mebey because they reinvest all the profit ? I don't know just speculating
I found a comment here under the name Dean devito, look at the replys under his comment
Do not make it complicated with cost of capital, just require always at least 10%. Do you really want to own businesses which have a return below 10% ? A high ROIC over a longer period of time indicates a moat, probably.
Berkshire has less than 1% ROIC?? - what’s up with that? Not sure if my software is broken.
It’s a little over valued at the moment, but seems they should be higher roic should they?
The year hasn't finished yet. Let's see in the next financial statements, but you can see that it had 9.9% last year.
This is the problem with GAAP earnings and automatically calculated metrics online for every single business. It requires more work. You have to use your judgment and calculate your own metrics. You will have to decide what line items on the financial statements need adjustment. I would imagine Berkshire's low ROIC is due to the change in unrealized gain on the stock portfolio in the TTM. So you will need to figure out NOPAT/FCF/OpProf for the operating non-insurance businesses and then divide those by the appropriate amount of debt and equity on the balance sheet. Berkshire causes additional trouble with its insurance businesses. You should be cautious about using ROIC to analyze financial businesses. You have to think about the business and accounting rules on a case-by-case basis in order to come up with the method you need to use to get the info you want. However, your gut feeling that Berkshire's ROIC must be much higher is totally correct!
You need to know how to value BRK. It’s not an easy task. There are some adjustments you need to make in order to get at a fair value. Buffett has repeatedly said to ignore the EPS. It is now meaningless for BRK because of the accounting regulations.
GAAP earnings include changes in the valuations of stock assets. The stock market has been declining, thus the market value of their holdings has been declining, showing as a loss in the income report. ROIC is based on income, not cash flow, and this is one of it's downsides that you have to account for.
Do you think ROIC is a better metric than ROE or ROA?
Yes he said that in some old videos
write a book pleas!!
He was working on it .AP
First! Lol
Enjoy the vid .AP
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