ROC (Joel Greenblatt) %
View All TermsJoel Greenblatt defined Return on Capital differently in his book The Little Book That Still Beats the Market (Little Books. Big Profits) . He defines Return on Capital as follows:
Return on Capital = EBIT / (Net fixed Assets + Working Capital)
EBIT stands for Earnings Before Interest and Taxes. It is also called operating income. Fixed Assets are also known as non-current assets. They include the property, plant, and equipment that the firm needs in its operation. GuruFocus calculates working capital as: (Accounts Receivable + Inventory + Other Current Assets) - (Accounts Payable + Other Current Liabilities).
So Joel Greenblatt™s Return on Capital can be restated as:
EBIT / (max((Receivables + Inventory + Other Current Assets ) - (Payables + Other Current Liabilities), 0) + Net fixed Assets)
When net working capital is negative, 0 is used.
Survey
We'd love to learn more about your experiences on GuruFocus.com and how we can improve!
Take Survey
Follow Us
Disclaimers