ValueROCE#27

Graham Net-Net Value

Similar to ROIC but uses pre-tax earnings (EBIT) to measure how well a company generates profits from its capital base. Above 15% is generally good. Particularly popular in UK and European financial analysis.

Formula

EBIT / (Total Assets - Current Liabilities) x 100

Description

Measures how efficiently a company generates profits from all capital employed, including both debt and equity. Similar to ROIC but uses EBIT (before tax) rather than NOPAT. Popular in UK and European financial analysis.

Interpretation

Above 15% is generally good. ROCE above the company's borrowing rate creates value. Consistent improvement over time is a strong positive signal. Compare within industry, as capital intensity varies widely.

Related Value Indicators

Price-to-Earnings Ratio TTM (P/E)P/E

Compares a stock's price to its earnings per share over the past 12 months. A lower P/E suggests you pay less for each dollar of profit the company generates.

Forward Price-to-Earnings (Forward P/E)

Compares today's stock price to next year's estimated earnings per share. It reflects what the market expects the company to earn, not what it has already reported.

Price-to-Book Ratio (P/B)P/B

Compares a stock's market price to its book value per share - the accounting value of the company's net assets. A ratio below 1.0 means the stock trades below its stated asset value.

Price-to-Sales Ratio (P/S)P/S

Compares a stock's price to its revenue per share. Useful for valuing companies that are not yet profitable, since revenue is harder to manipulate than earnings.

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