Value in 60 Seconds: Is ROIC the perfect valuation metric? - 15 September 23

And ROIC, would you say, is that the most important profit metric or are there other others that you like?

There's no one perfect metric. I think ROIC is as close as it gets because the drivers of intrinsic value are return on incremental invested capital and revenue growth. And people are going to say, hold on, hold on, hold on. I thought that the intrinsic value of a financial asset is the present value of future free cash flow. Well, that's correct, but revenue growth and your ROIC are how you calculate free cash flow. So I think ROIC is the most important because companies with higher ROIC, all else equal, generate more free cash flow per dollar of reported earnings. So companies with higher ROIC have higher free cash flow conversion. And as we just said, free cash flow is ultimately what you're after as an investor. Free cash flow, particularly per share, is what drives intrinsic value, but you need ROIC to get to free cash flow.