Calculating ROIC for a Serial Acquirer (Lifco)
+ what to learn from the dismal performance at Dollar General and Ulta Beauty
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Following our most recent bi-weekly webinar, we wanted to provide a practical example of calculating ROIC for a serial acquirer.
Reconciling Invested Capital
We have seen that many investors use reported book value of invested capital, which leads to an overly optimistic ROIC given the treatment of acquisition-related intangibles. Also, while NOPAT is based on cash taxes, an artificially and unusually low tax rate will distort the ROIC outcome.
To illustrate how we approach ROIC, we highlighted Lifco on the Discord earlier this week. In this article, we’d like to share the ROIC reconciliations and give some additional context around ROIC, and why it’s so important to get an understanding of the drivers behind the nominator (NOPAT) and denominator (invested capital).
It’s one of the topics that we’ll be discussing in our first report on serial acquirers, set to be published next month!
So, let’s jump right in! Note that, for the Lifco numbers, we’ve used FY 2023.