Working Your Assets to Boost Your Growth
by Miles Cook, Pratap Mukharji, Lorenz Kiefer, and Marco Petruzzi
Supply chains can account for a staggering 80% of an organization’s costs. And at product companies, up to 60% of net assets go toward inventory, plants, warehouses, and other supply chain assets. Yet companies seldom look at supply chain improvements as a way to boost return on invested capital, or ROIC.
Calculating ROIC can be a little complex, but here’s how it’s usually done:
Earnings – Interest Expense (with an Adjustment for the Tax Benefit of Interest Costs)
Total Assets – Cash – Non-interest-bearing Current Liabilities
Companies most often focus on growing ROIC by building up the numerator: earnings. But shrinking ...