ROIC FOR NONFINANCIAL COMPANIES
Percent
Annual ROIC without goodwill
Average
15.3
9.0
5.0
Years
Annual ROIC with goodwill
13.6
8.3
4.7
Years
Source: Compustat, McKinsey & Company’s corporate performance database
ROIC DISTRIBUTION FOR NONFINANCIAL COMPANIES
Annual ROIC without goodwill, 1963-2003
Approximately 50% of the sample
within ROIC range of 5-15%
18
16
Percent of sample
14
12
10
8
6
4
2
0
ROIC
<-10.0 -5.0
Percent of
observations 5
below ROIC
level
7
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
30.0
35.0
40.0 >40.0
11
15
25
42
56
66
74
80
84
87
89
92
94
95
84% of the sample
had ROIC below 20%
Source: Compustat, McKinsey & Company’s corporate performance database
100
ROIC BY INDUSTRY GROUP*
Percent
Annual ROIC without goodwill**
1963-2003
1994-2003
Pharmaceuticals and biotechnology
18.4
Household and personal products
15.2
Software and services
15.0
Media
14.7
Commercial services and supplies
21.8
18.8
18.1
14.3
12.8
Semiconductors and semiconductor equipment
13.2
11.9
Health care equipment and services
11.3
Food, beverage, and tobacco
11.0
12.4
14.8
11.9
Hotels, restaurants, and leisure
10.3
Technology hardware, and equipment
10.3
10.3
Automobiles and components
9.9
10.5
Capital goods
9.9
Food and staples retailing
9.6
Consumer durables and apparel
9.5
9.2
11.8
9.6
10.8
Retailing
9.0
9.5
Total sample
9.0
9.5
8.4
Materials
Energy
7.7
7.9
7.6
Transportation
6.9
Telecommunication services
6.5
5.7
Utilities
6.2
6.1
* Based on S&P Global industry classification standard, excluding financial companies
** Average of annual medians
Source: Compustat; McKinsey & Company’s corporate performance database
7.6
ROIC SEGMENTED BY SIZE AND GROWTH
Annual ROIC without goodwill, 1963-2003
Percent
Revenues
5001,0001,000 M 2,500 M >2,500 M
<0%
3.3
5.2
6.0
6.5
7.0
0-5%
8.0
7.7
8.0
8.1
9.1
5-10%
8.9
9.3
9.6
9.5
10.3
10-15%
10.8
10.9
11.2
10.9
11.8
15-20%
11.9
11.1
11.7
11.5
11.9
>20%
12.4
11.9
11.8
11.8
11.6
No clear relation between size
and performance
Source: Compustat, McKinsey & Company’s corporate performance database
ROIC increases with
higher growth rate
3-year real growth rate
200<200 M 500 M
ROIC DECAY ANALYSIS: NONFINANCIAL COMPANIES
Median ROIC of portfolio*
Percent
ROIC
Percent
>20
15-20
10-15
5-10
<5
Number of years following portfolio formation
* At year 0, companies are grouped into one of 5 portfolios, based on ROIC
Source: Compustat; McKinsey & Company’s corporate performance database
ROIC DECAY ANALYSIS: CONSUMER STAPLES
Median ROIC of portfolio*
Percent
ROIC
Percent
>20
15-20
10-15
5-10
<5
Number of years following portfolio formation
* At year 0, companies are grouped into one of 5 portfolios, based on ROIC
Source: Compustat; McKinsey & Company’s corporate performance database
ROIC TRANSITION PROBABILITY, 1994-2003
Percent, 3-year average of ROIC without goodwill
Total
ROIC in 2003
ROIC
in 1994 <5
<5
10-15
43
5-10
10-15
5-10
28
31
15-20
18
>20
19
12
40
21
15-20
6
17
25
19
5
>20
7
25
20
13
Source: Compustat; McKinsey & Company’s corporate performance database
100
11
100
6
11
17
13
100
18
100
25
50
100
REVENUE GROWTH FOR NONFINANCIAL COMPANIES
3-year rolling average of real revenue growth
Percent
CAGR
Percent
15.4
6.3
-0.2
Source: Compustat; McKinsey & Company’s corporate performance database
REVENUE GROWTH BY INDUSTRY GROUP*
Percent
Annual real revenue growth**
1963-2003
1994-2003
Software and services
Semiconductors and
semiconductor equipment
Health care equipment and services
19.9
15.4
10.1
9.9
Commercial services and supplies
9.4
Telecommunication services
9.3
Hotels, restaurants, and leisure
8.5
Energy
8.3
Media
7.7
Retailing
7.6
Transportation
7.4
Food and staples retailing
6.3
Total sample
6.3
Automobiles and components
15.6
11.0
18.5
8.0
14.8
9.2
8.6
6.8
5.3
8.0
5.9
Household and personal products
5.4
7.9
4.6
5.1
4.8
Utilities
4.5
Food, beverage, and tobacco
4.3
Materials
13.8
10.5
Pharmaceuticals and biotechnology
Consumer durables and apparel
16.1
13.1
Technology hardware and equipment
Capital goods
20.1
3.9
* Based on S&P Global Industry Classification Standard
** Geometric mean of annual median
Source: Compustat; McKinsey & Company’s corporate performance database
5.9
4.6
4.2
3.3
3.8
AGGREGATE EPS FORECASTS FOR
S&P 500 CONSTITUENTS
EPS (US cents)
Source: IBES; McKinsey analysis
REVENUE GROWTH DECAY ANALYSIS
Median growth of portfolio*
Percent
Revenue
growth
Percent
>20
15-20
10-15
5-10
<5
Number of years following portfolio formation
* At year 0, companies are grouped into one of 5 portfolios, based on ROIC
Source: Compustat; McKinsey & Company’s corporate performance database
REVENUE GROWTH RATE FALLS DRAMATICALLY FOR
COMPANIES REACHING FORTUNE 50
Before entrance to Fortune 50
After entrance to Fortune 50
Average annual real revenue growth rate
Percent
28.6
20.0
15.0
13.5
9.5 9.0
2.1 2.8
0.7 1.2 0.1
2.0 1.4
5.1 4.5
-0.1
-0.7 -0.7
-5
-4
-3
-2
-1
0
1
2
3
4
5
-1.6
6
7
8
9
10
11
12
Years from entrance into Fortune 50
Source: Corporate Executive Board, “Stall Points: Barriers to Growth for the Large Corporate Enterprise”, 1998
13
-3.9
14 15
REVENUE GROWTH TRANSITION PROBABILITY 1994-2003
Three-year rolling average of real revenue growth rate
Percent
Revenue growth in 2003
<5
5-10
<5
5-10
Revenue
growth in
1994
67
64
10-15
61
15-20
59
>20
56
10-15
15
8
15-20
>20
Total
3
7
100
5
100
16
12
3
15
11
4
9
100
5
11
100
13
100
11
13
Source: Compustat; McKinsey & Company’s corporate performance database
14
10
8