Harvard Business Review Guides Ultimate Boxed Set (16 Books)

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)

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Total Assets – Cash – Non-interest-bearing Current Liabilities

Companies most often focus on growing ROIC by building up the numerator: earnings. But shrinking ...