Searching for better value metrics

September 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Cash-return-on-invested-capital (CROIC) has been proposed by some as a superior Value metric
  • Since the GFC in 2009, CROIC generated consistently positive compared to flat (or negative) returns from traditional valuation metrics
  • However, CROIC turns out to be just a simple combination of Value & Quality factors


CROIC, CFROI, CROCI & CROCS – the first three of these are financial ratios, the last one of them is an ugly, but comfortable shoe.

Given that the shoe has been sold more than 300 million times and became even more popular during the work-from-home environment in 2020, most readers probably identified Crocs as the odd one. Some might even be wearing a pair right now.

The first three acronyms refer to financial ratios that aim to offer an alternative to traditional valuation metrics. Two have been popularized by banks, i.e. Deutsche Bank claims cash-return-on-capital-invested (CROCI) and Credit Suisse cashflow-return-on-investment (CFROI). The numerator usually consists of EBITDA, NOPAT, free or operating cashflow, while the denominator is comprised of invested capital.

However, the definitions vary and investors should be cautious. For example, Investopedia, perhaps not the most highly regarded website by quantitative researchers, shows total equity value in the denominator for CROCI, but then states below the formula that long-term debt should also be included. Naturally, total equity value does not include long-term debt, so the formula and definition should be corrected.

Proponents argue that these are superior valuation metrics as they highlight the relationship between cashflow generation and invested capital, which is less stale than price-to-book and less prone to manipulation than price-to-earnings ratios. They provide a better perspective on the economics of a business.

In this short research note, we will investigate cash-return-on-invested-capital (CROIC) as an alternative Value metric (read Value Factor – Comparing Valuation Metrics).


We define CROIC as EBITD