🚀 go-pugleaf

When calculating ROIC the denominator is simple enough however the numerator
is less clear...

TMF states that we want to isolate the pure earnings power of the company,
without any GAAP trickery that may skew the results.

http://www.fool.com/School/roic/roic03.htm

"As pointed out in part two, we want to measure the income the company
generates before considering what capital costs. In this way, we are
looking at the pure earnings power of a corporation before taking into
account the decisions that were made to finance the business."

"On the same topic, we always want to back amortization of goodwill out of
operating expenses. Since goodwill amortization (amortize literally means
"to bring towards death") schedules can differ so much between companies
and since this is a non-cash expense that is based on an accounting choice
that is arbitrary (inside of statutorily permissible periods not exceeding
40 years), we don't count this is an operating expense. Again, this allows
an investor to look at a company's operating performance before taking into
account distortions to the cash return a company is generating"

According to the above we are looking for something similar to the following
for the numerator:

Pre Tax Profit 
less Interest Expense 
less Amortisation of Goodwill

If we "back out amortisation of goodwill" as it is a non-cash expense then
surely we would also want to backout depreciation and other amotisation and
with this being the case then are we not simply left with EBITDA, as
defined below ?

EBITDA (earnings before interest, taxes, depreciation, and amortization) 
Otherwise known as the middle line or operational cash flow, it is not a
replacement for earnings per share. Rather, it is a crucial ingredient,
along with the company's debt, in evaluating the company.

-- 
Thanks

Murph