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6.0% ROE is below the cross-sector median (~12%). Capital efficiency is below average; shareholders are earning a sub-par return on every dollar of equity invested. It 5-year average 10.5% but has been declining.
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FormulaNet income ÷ Average shareholders’ equity
What it measuresHow much profit a company generates for every dollar of shareholder equity invested. ROE is the simplest measure of how productively management is using the capital you, the shareholder, have entrusted to the business.
How to read itCross-sector medians sit around 12%. Sustained ROE above 20% is exceptional and usually signals a strong competitive moat. ROE below 10% suggests sub-par capital efficiency — the company is profitable but earning a thin return on each dollar of equity.
CaveatROE is amplified by leverage: a heavily-indebted business can post a high ROE without genuine operational excellence. Read it alongside ROA and ROIC, which neutralize the leverage effect.
5.3% ROIC is below a typical 8% cost of capital. Each additional dollar of capital deployed at this rate is a value-destructive choice — shareholders would be better served by buybacks or dividends. It 5-year average 7.6% but has been declining.
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FormulaNOPAT ÷ (Total debt + Shareholders’ equity − Cash)
What it measuresHow efficiently the business converts its full capital base — debt and equity together — into after-tax operating profit. ROIC is the single best indicator of business quality and competitive moat width over the long run.
How to read itA typical company’s cost of capital (WACC) sits around 8%. ROIC above 15%, sustained for a decade, is the hallmark of a wide-moat business. ROIC below WACC means each marginal dollar invested is destroying value — shareholders would be better served by buybacks or dividends.
CaveatROIC is the metric to weight most heavily for capital-allocation judgement. Watch the trend: a ROIC that has slipped from 25% to 15% over five years can still look "great" while the moat is quietly eroding.
3.7% ROA is below the cross-sector median. Either the asset base is heavy (utility / REIT / capital-intensive industrial) or the business is generating sub-par profits per dollar of assets — context matters. It has held above 7.0% for 7 of the last 10 years but has been declining.
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FormulaNet income ÷ Average total assets
What it measuresProfit generated per dollar of total assets — every PP&E item, every dollar of inventory, every receivable. Unlike ROE, ROA is unaffected by capital structure, which makes it a cleaner cross-company comparison of operational productivity.
How to read itCross-sector median ROA sits around 5%. Asset-light businesses (software, payments, brand-driven consumer) routinely clear 10%. Asset-heavy industries (utilities, REITs, capital-intensive industrials) run 2–4% and that’s normal — judge ROA against the company’s industry, not against software.
CaveatA falling ROA paired with rising revenue means the asset base is growing faster than profits — a sign that recent CapEx or M&A may not yet be earning its keep.
7.3% ROCE is near typical cost-of-capital benchmarks. Capital efficiency is acceptable but not a competitive advantage. It has held above 10.0% for 7 of the last 10 years but has been declining.
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FormulaEBIT ÷ (Total assets − Current liabilities)
What it measuresOperating profit per dollar of long-term capital employed in the business. ROCE strips out short-term liabilities (which fund themselves through normal trade cycles) and uses pre-tax operating profit, making it a clean comparator across capital structures and tax regimes.
How to read itROCE tracks ROIC closely but is computed off audited balance-sheet line items (no adjustments to compute NOPAT or invested capital), so analysts often prefer it. Above 15% is excellent; below 10% suggests capital is not earning much over the cost of carrying it.
2.4× coverage means operating cash flow more than doubles required reinvestment. After CapEx, the business has substantial free cash for dividends, buybacks, debt paydown, or M&A. Recent direction: declining.
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FormulaOperating cash flow ÷ |Capital expenditures|
What it measuresHow comfortably operating cash flow funds the company’s required reinvestment. A coverage ratio above 1.0× means the business is self-funding — free cash flow is positive after CapEx, leaving room for the dividend, buybacks, or debt paydown.
How to read itAbove 2.0× indicates a cash-generative business with substantial discretionary capital after maintenance and growth investment. Around 1.0–1.5× is tight — fine for stable dividend payers, but vulnerable to a CapEx-cycle uptick or an OCF dip. Below 1.0× means the business is funding reinvestment with debt or cash reserves.
CaveatHigh-growth businesses in build-out mode often run sub-1.0× coverage by design (Amazon for most of the 2000s). Read the ratio against the company’s growth phase: an elevated CapEx cycle in a maturing business is a different story from one in a hyper-scaler.