There are many ways to measure profitability—gross margin, net margin, return on assets (ROA), return on equity (ROE)—each with its place depending on the industry and business model. However, for a clear view of value creation, we consistently rely on Cash Return on Invested Capital (CROIC). CROIC, calculated as:
(Cash from Operations – Maintenance Capex) / Invested Capital, measures the cash yield on all capital invested (equity and debt). This aligns directly with how shareholder value is created: by earning returns above a company’s weighted average cost of capital (WACC).
