ROIC Keeps Falling In 2Q23

Trailing-twelve-month (TTM) return on invested capital (ROIC) for the NC 2000 fell quarter-over-quarter (QoQ) in 2Q23. As I mentioned in last quarter’s analysis, over the last several quarters, there’s a clear trend that ROIC peaked in 2Q22. The continuing decline this quarter suggests that the corporate sector of the economy is slowing. More importantly, tepid earnings forecasts for 2H23 suggest that ROIC will not move materially higher from current levels for the foreseeable future.

Despite the overall decline in the NC 2000’s ROIC, seven out of eleven NC 2000 sectors saw a QoQ rise in ROIC in 2Q23. However, the rise in ROIC in these sectors was small relative to the sectors with declining ROIC. The decline in the NC 2000’s ROIC comes from a deterioration in net operating profit after tax (NOPAT) margins while invested capital turns remained flat.