based on forensic audit only around 20% of the companies are clean. All clean companies need not be a good business to own; based on growth and return on equity.
> Auditor payments growth more than company revenue growth
Cashflow growth rate should be similar profit growth
ex: cashflow growth 15% and profit growth 30% then its fake*.
Capital 100 crores earning 10 crores 10%
50 cr earning 10 crores 20%
Return on Invested Capital ROIC ROCE
Operating profit / capital invested=15% no need to invest in companies.
The ROIC formula involves dividing net operating profit after tax (NOPAT) by invested capital.
Return on capital employed is a financial ratio that measures a company’s profitability in terms of all of its capital.
ROCE is similar to ROIC return on invested capital.
where: EBIT=Earnings before interest and tax
Capital Employed=Total assets − Current liabilities
ROIC= NOPAT / Invested Capital
where :NOPAT=Net operating profit after tax