ROIC vs. Cost of Capital

Methodology

Universe is the full S&P 500. For every constituent, Alpha Vantage's INCOME_STATEMENT and BALANCE_SHEET endpoints (quarterly) supply the trailing four quarters needed for a trailing-twelve-month (TTM) NOPAT and a latest-quarter balance-sheet snapshot. NOPAT is TTM EBIT (Alpha Vantage's direct ebit field, falling back to operating income when that's missing) × (1 − effective tax rate), where the effective rate is TTM income tax expense ÷ TTM pre-tax income, clamped to 0–50% and falling back to the 21% US statutory rate whenever a company's own reported rate is negative, zero, or missing (a one-time tax benefit or an NOL carryforward can otherwise produce a nonsensical multi-hundred-percent "effective rate"). Invested capital is latest-quarter total debt (preferring Alpha Vantage's combined shortLongTermDebtTotal field) plus total shareholder equity, minus cash & equivalents. ROIC is TTM NOPAT ÷ invested capital.

Cost of equity uses CAPM: the 10-year Treasury yield (risk-free rate) plus each company's Alpha Vantage-reported beta × a market equity-risk-premium assumption — the same market-wide median earnings-yield-based ERP already computed on Equity Risk Premium by Sector, reused here rather than introducing a third, unrelated ERP estimate (a company with no beta on file is shown with an assumed beta of 1, flagged in the per-company data). Cost of debt is TTM interest expense ÷ total debt, after-tax at the same effective rate used for NOPAT; a levered company that reports no interest expense across the trailing year falls back to the risk-free rate plus a flat 1.5 percentage-point spread, rather than implying free debt. WACC weights the two by book value of debt and equity (not market value — a deliberate simplification flagged here rather than pulling in a third data source just to mark equity to market). Spread is ROIC minus WACC.

Companies with non-positive book shareholder equity are excluded entirely, not shown with a distorted ratio — this is a real limitation, not an edge case: aggressive, sustained buyback programs (McDonald's, Starbucks, and a number of other well-known names) can drive book equity negative, which breaks both the invested-capital denominator and the debt/equity weighting this page's WACC calculation depends on. A company is also excluded if any of the trailing four quarters' EBIT, or the latest quarter's debt or equity figures, aren't available.

The two regression tests are single-snapshot cross-sections (no accumulated history needed, unlike a forward-return test): spread vs. beta asks whether the market's own risk-return logic actually shows up in realized economic profitability, and spread vs. 3-month relative price return (reusing Relative Strength Leaders/Laggards' own weekly price data rather than a second price sweep) asks whether the market currently rewards value creation with relative price performance. Both use the same Pearson-and-Spearman two-method check as Factor Analysis.

One-time snapshot — no recurring schedule, matching every other full-universe fundamentals sweep added to this site since mid-September 2026. Re-run manually for a fresh pass; quarterly fundamentals don't move day to day. Sector and company name come from the same weekly metadata sweep that backs Sector Beeswarm.