Family Dollar Stores (FRA:FAY) ROC % : 11.57% (As of May. 2015)

Family Dollar Stores ROC % Chart

Family Dollar Stores Annual Data
	Trend	Aug05	Aug06	Aug07	Aug08	Aug09	Aug10	Aug11	Aug12	Aug13	Aug14
ROC %		Get a 7-Day Free Trial					25.74	23.77	22.46	18.01	11.13

Family Dollar Stores Quarterly Data
	Aug10	Nov10	Feb11	May11	Aug11	Nov11	Feb12	May12	Aug12	Nov12	Feb13	May13	Aug13	Nov13	Feb14	May14	Aug14	Nov14	Feb15	May15
ROC %	Get a 7-Day Free Trial															11.65	5.21	6.30	11.49	11.57

Family Dollar Stores ROC % Calculation

Family Dollar Stores's annualized Return on Capital (ROC %) for the fiscal year that ended in Aug. 2014 is calculated as:

where

Family Dollar Stores's annualized Return on Capital (ROC %) for the quarter that ended in May. 2015 is calculated as:

where

Note: The Operating Income data used here is four times the quarterly (May. 2015) data.

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

Family Dollar Stores  (FRA:FAY) ROC % Explanation

ROC % measures how well a company generates cash flow relative to the capital it has invested in its business. It is also called ROIC %. The reason book values of debt and equity are used is because the book values are the capital the company received when issuing the debt or receiving the equity investments.

There are four key components to this definition. The first is the use of operating income or EBIT rather than net income in the numerator. The second is the tax adjustment to this operating income or EBIT, computed as a hypothetical tax based on an effective or marginal tax rate. The third is the use of book values for invested capital, rather than market values. The final is the timing difference; the capital invested is from the end of the prior year whereas the operating income or EBIT is the current year's number.

Why is ROC % important?

Because it costs money to raise capital. A firm that generates higher returns on investment than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, Family Dollar Stores's WACC % is 0.00%. Family Dollar Stores's ROC % is 10.67% (calculated using TTM income statement data). Family Dollar Stores generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.

Be Aware

Like ROE % and ROA %, ROC % is calculated with only 12 months of data. Fluctuations in the company's earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective.

Family Dollar Stores ROC % Related Terms

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Family Dollar Stores (FRA:FAY) Business Description