FY2020: Management indicators that investors and companies place importance on

According to questionnaire survey (multiple answers allowed) for the Life Insurance Association of Japan conducted in FY2020 targeting 502 listed companies and 101 institutional investors. Investors are focusing on ROE (85%), while companies are 56%. Regarding ROIC, investors are about 49%, companies are about 8%, and the cost of capital is about 37% for investors and about 3% for companies.

It can be seen that while companies are interested in sales and profit margin, investors expect a return on their investment.

ROE is an index that shows how much shareholders' equity has led to corporate profits. (Calculated by net income / equity capital x 100%)

The idea that "generally the purpose of a company is to maximize its corporate value, and the role of management is to continuously improve its corporate value" is become popular in Japan.

According to the Ito report released by the Ministry of International Trade and Industry in 2014,Japan has suggested that ROE is at a lower level than in Europe and the United States (5.3% in Japan, 22.6% in the United States, 15.0% in Europe), and the lowest line should be 8%, aiming for a higher level.

The Ito report concludes that the challenge for Japanese companies is earning power, and that it is the expectation of investors to improve ROE by increasing this earning power.

ROIC is an index to measure how much profit you have made in your main business against the capital invested by a company for its business activities.(Calculated by profit after tax / invested capital x 100%)

Relationship between ROE and ROIC

ROE can be broken down into ROIC and financial leverage.

CCC (cash Conversion Cycle) is an index to see the safety of the company from the ability to pay cash.

Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding

CCC is a driver of ROE and ROIC.

Companies with improved CCC tend to improve ROE as a whole, and companies with worsened CCC tend to have worse ROE.

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