Primer On The ROIC Valuation Framework via CSInvesting
From August 2004
ROIC Valuation: Four Levers Drive Value
Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever
Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More
- Value is created by earning returns (ROIC) in excess of cost of capital (WACC).
- Value creation depends upon driving operating profit and investing in NPV-positive opportunities; growth drives value only during periods of competitive advantage.
Duration of Competitive Advantage:
- Excess returns during periods of competitive advantage; without competitive advantage, returns tend to regress to the WACC.
- Lower perceived business risk reduces required returns on capital, increasing excess return (all else equal)
See the full PDF below.