If multiples are a distillation of BOTH growth / margin AND return on capital, and most bankers / and even some hedge funds are laying out comp sheets with only growth and margin and valuation multiples and argue this name should trade at this higher multiple if it can accelerate revenue and improve margin, shouldn't we always include the peer ROE / ROIC into comp sheet and make that argument?
Lmk if I am wrong. tks.
Secyh62 thoughts?
| +29 | Interesting juncture: L/S Hedge Fund or MM Private Credit? | 6 | 3s | |
| +19 | London HFs | 8 | 1d | |
| +19 | MM BD people make LSD/MSD $m?? | 25 | 8h | |
| +16 | Road to Working at a Hedge Fund? | 14 | 1d | |
| +15 | Credit comps | 9 | 1h | |
| +14 | Large HFs in SF / Bay Area | 10 | 2d | |
| +13 | Fund Accountant @ HF | 7 | 4d | |
| +12 | JD or CFA for Distressed Debt/Activism? | 2 | 2d | |
| +10 | Junior Summer: Long Only AM vs High Yield Research at a BB | 3 | 28m | |
| +9 | Hedge fund operations - what does your day to day look like? | 0 | 1h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
First, ROIC bakes in a margin assumption (NOPAT margin X IC Turnover = ROIC) so might not need to include both but I think to answer the question you have to think about one's purpose/task. A banker's task is to close deals/facilitate transactions. They are incentivized to use whatever metrics look best and dress up the deal. So I don't know that we can say they would be wrong using something else given that context.
A public markets investor should be using ROIC IMO. You could have two businesses with the exact same growth and margins but different ROIC if one business is more capital intensive than the other, which would drive valuation disparity that would be lost if ROIC was not included in your comp sheet. Risk is another driver of valuation, or how certain one is that they will actual receive the cash flows (reflected in cost of capital, but in a comps table one might reflect it as beta). So you could have two businesses that at a snap shot in time look the same but trade at different valuations due to differing risk profiles (perhaps one is highly recurring, use of leverage, etc.).
IMO differences in risk (financial & operational), profitability (ROIC preferred), and growth should all be addressed in some fashion when doing a comps analysis as a public markets investor
thank you, the OG legend
Voluptate rerum aspernatur consequuntur porro iusto autem voluptate. Voluptates est et nemo rerum natus ut. Et magnam ut molestiae sapiente. Eum eum sit deserunt aspernatur labore eveniet eligendi dolore. Voluptatibus distinctio placeat labore quo. At dolor saepe aliquam quo.
Quas nihil iste non a veniam veniam aut. Est quidem exercitationem natus molestiae. Natus quo veniam totam enim labore. Consequatur laudantium fugiat ratione et.
Blanditiis quisquam cum quis et magni soluta. Voluptatum fuga est officiis. Aliquam enim at et ratione in officiis voluptas officia.
Eaque atque quibusdam fugiat tempore incidunt maxime recusandae. Repellendus optio est quae officia ea.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Beatae harum fugiat omnis odio consequatur. Consequuntur consectetur nisi fuga voluptatum nobis. Vitae adipisci voluptas quidem sit minima officia. Rerum excepturi deserunt ex dolorem a autem.
Et reiciendis praesentium tempora quis veniam non. Nobis ex dignissimos officiis ab nisi veniam non. Sequi quibusdam ut voluptas dolorem consequatur voluptatem et modi.
Velit et voluptas reprehenderit facilis ex nobis voluptas. Eos sint minus perferendis iusto nam aperiam. Voluptas enim ut modi occaecati. Repudiandae rerum nesciunt accusamus ullam esse.