We have just added Cash Return on Invested Capital (CROIC), is also known as Cash Return on Capital invested (CROCI), to the Quant Investing stock screener.
It is a valuation ratio that lets you compare a company's ability is to generate cash returns on its investments. You can thus use it to screen for companies that generate a high free cash return on the capital they have invested.
What makes it different
What makes it different to other valuation ratios is that it gives you a cash-flow based return on the investments of a company. This is important as cash flow cannot be manipulated as easily as profits.
How is it calculated
CROIC is calculated as Free Cash Flow (FCF) / (Total Equity + Total Liabilities – Current Liabilities – Excess Cash)
Free cash flow is equal to the Cash generated by the operations of the company (cash flow statement) - Capital Expenditure (Capex).
Excess cash is the amount of cash in excess of what the company needs to run its business, in other words, cash that can be paid out to investors without harming the business.
How you can use the ratio
You can use CROIC to search for undervalued stocks, BUT you can also, very effectively, use it to compare companies from different industries. This is because any business that generated more cash from its investments is more attractive than one that doesn’t.
CROIC example from the screener
Here is an example from the screener:
As you can see it is very easy to compare companies from different industries.
CROIC is available as
Available as a filter screening ratio: Yes
Available as an output column: Yes
Get it emailed to you
To help you find better investment ideas you can get new companies with high CROIC emailed to you.
To do this build and save a high CROIC screen and select email alerts. When a new company enters your screen, you will get an email alert.