Financial Efficiency April 20, 2015

What can Improved Energy Efficiency do for Your ROIC

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Shareholders and investors are always looking for new and more accurate ways of tracking a company’s financial efficiency and viability. Measuring the company’s ability to spend wisely can be one of the measures that often define whether the financial officer gets to keep his job or should be keeping an eye on job-search websites.

Calculating ROIC (Return on Invested Capital) is one of the metrics used to evaluate effectiveness and efficiency. It is chosen over ROI, IRR, ROE and ROA because it filters out a lot of noise that other return calculations fail to remove.

So, what can improved energy efficiency do for your ROIC? As it turns out, quite a bit.

Know Your ROIC

First, let’s analyze what figures get plugged into the equation determining ROIC.

There are only two figures that go into the calculation of ROIC: NOPAT and IC:

ROIC_formula

But then, you have to figure out the formula for both of those figures, which is relatively simple to do.

To calculate NOPAT:

NOPAT_formula

It sometimes helps to think of this number as net income plus interest expense after taxes.

To calculate IC:

Invested_Capital_formula

And finally, in order to ascertain non-cash working capital:

Non_Cash_Working_Capital

Okay, so that’s a lot of facts and figures to calculate. But, knowing your metric of success is half the battle. But, where does a lighting company factor in here? As it turns out, a lot of places.

Putting ROIC in the limelight

Partnering with Utilities Dynamics Inc., we walk through each facility and its various installations and show you exactly where we can help you save and how much. Since utilities are lumped in with your other COGS (cost of goods sold), they can be considered a part of your income-generating assets which is what ROIC is a direct measure of.

To help off-set the cost of the various projects we may find in your facilities, we go above and beyond for our clients to figure out what rebates can be claimed from your specific utility companies. Every utility company is different, and some don’t offer rebates at all. For those that do though, they can offer heavy-hitting incentives that will save you big money.

“But wait,” you might ask, “why would a utility company be willing to make less money?”

Money is Green, Being Green is Better

Utility companies are always looking for ways to increase their own revenue streams. One of their main tools in doing so is through expansion for new customers. When they can take on enough new customers, a utility company typically has to build a new facility to accommodate the workload on their systems.

When you streamline and cut your energy usage, they are capable of taking on new customers more quickly and without the overhead involved in building a new facility. It’s a win-win situation, where you get a utility rebate check and they get to take on new business without the associated cost.

Even without these rebates, the economics of streamlining your overhead costs are more than enough to warrant the short-term expense.

But, don’t take our word for it—have a look below at our free case study. The technical details, which engineers will love, gives you a detailed explanation of the upgrades we installed while also giving more financially-minded readers the real-world numbers Utilities Dynamics saved the company.

Preparing for the future has never seemed more sensible than right now. If you’re ready to take the next steps in helping your business become leaner, greener, and more viable, follow the link below, or get in contact with us today.