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Credit Risk Management

 
Created by : Venkatachalam C V, Sr. Associate, JP MorganChase  | 11 29 2008 06:11:44 +0000
Industry : Investment BankingFunctional Area : Derivatives(Markets)
Activity:  8093 views;  last activity : 01 14 2011 12:46:17 +0000
I wonder which measure is the best one for measuring the actual return ot the capital being used by companies.
 
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ROIC Vs ROCE
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I believe that ROIC is a better measure of value distribution. I believe that investors should evaluate not only management's operating skill, but also its judgment in capital allocation. ROIC reflects the extent to which management shares its ability to create value with investors.
By Venkatachalam C V, Sr. Associate, JP MorganChase  11 29 2008 06:11:44 +0000
 
Top Argument
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ROCE might be a better measure of value creation. ROCE is a pre-tax measure of return on capital, so if the firm has debt, it is inappropriate to compare it directly to WACC.

By Kausik Panda, Sr. Associate, ICICI Securities  11 29 2008 06:12:36 +0000
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i think ROIC is better because it gives an easy way to assessing how well company is running and generate cash flow relative to invested capital.
By Vinod kumar, MBA (Finance) student, Punjab College of Technical Education  | 01 14 2011 12:46:16 +0000
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ROIC is clearly better as it is more precise than ROCE. Just take a look at the formulas / inputs and you'll see that. Just imagine the company works with lots of current liabilities for which they don't have to pay interest. This is great for the returns and thus should boost the ratio. It does not boost ROCE as non-interest bearing liabilities are not excluded in the denominator. There are some more explanations but I think I can already stop here as the case is clear.
By Jens Winhold, Portfolio Manager, CFA Charterholder, MainFirst Bank AG  | 01 14 2011 11:07:24 +0000
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ROCE is better known as ROA and is known as the 'acid test' one of the most important measures of a companies performance. Interest cost is controlable cost so ROIC or known as ROI is a secondary measure of corporate performance.


By Mathew Cherian, Research Associate/Analyst, Western Michigan University  | 05 10 2009 15:57:09 +0000
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when we talk and think about the value creation ROCE is the better measure always....


By varsha , Head/VP/GM-Quality, frac  | 02 22 2009 10:42:13 +0000
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