Insights

We favour CROIC because: It focuses on actual cash generation, not accounting profits (unlike ROIC based on NOPAT). It uses Cash from Operations net of interest and tax, capturing true "owners’ earnings." By deducting maintenance capex, we isolate the cost of sustaining operations—something most investors overlook when they lump all capex together. This clarity lets us distinguish between growth that's real and repeatable, and that which is capital-intensive or unsustainable.

  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).