Value in 60 Seconds: ROIC and the DuPont model -- opportunity to find really good stocks

A couple of the things in this chart that's also super cool that we do that no one else has ever done that I know of, and certainly no one does in the world with as much rigor, and that is to look at not just return on invested capital by sector and for the whole market, but to break that down into the DuPont model of operating margins or NOPAT margin. Capital returns are often overlooked as an important driver of return on invested capital. One of the benefits of return on invested capital is that it's going to capture both income statement and balance sheet performance. The importance of the DuPont model is that it puts an operating approach to measuring success of the operating part of the business or NOPAT margin and the balance sheet or capital side of the business in terms of invested capital returns. So we can see What's driving the changes in return on invested capital? Is it a dropping NOPAT margin and dropping capital turns, or is it both? In this situation, the margin's driving things down, but capital turns are actually looking good. This could be an opportunity to find some really good stocks whose earnings aren't looking so good because their income statement is suffering, but they're seeing more efficiency on the balance sheet. So return on invested capital is actually doing better than earnings.