0. 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

1. ROIC DISTRIBUTION FOR NONFINANCIAL COMPANIES
Annual ROIC without goodwill,
Approximately 50% of the sample
within ROIC range of 5-15%
Percent of sample
ROIC
<-10.0
-5.0
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
Percent of observations below ROIC level 5 7 11 15 25 42 56 66 74 80 84 87 89 92 94 95
100
84% of the sample had ROIC below 20%
Source: Compustat, McKinsey & Company’s corporate performance database

2. ROIC BY INDUSTRY GROUP*
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ROIC BY INDUSTRY GROUP*
Percent
Annual ROIC without goodwill**
Pharmaceuticals and biotechnology
Household and personal products
Software and services
Media
Commercial services and supplies
Semiconductors and semiconductor equipment
Health care equipment and services
Food, beverage, and tobacco
Hotels, restaurants, and leisure
Technology hardware, and equipment
Automobiles and components
Capital goods
Food and staples retailing
Consumer durables and apparel
Retailing
Total sample
Materials
Energy
Transportation
Telecommunication services
Utilities
* Based on S&P Global industry classification standard, excluding financial companies
** Average of annual medians
Source: Compustat; McKinsey & Company’s corporate performance database

3. ROIC SEGMENTED BY SIZE AND GROWTH
Annual ROIC without goodwill,
Percent
Revenues M
500-1,000 M
1,000-2,500 M
<200 M
>2,500 M
3.3
7.0
5.2
6.0
6.5
<0%
8.0
7.7
8.0
8.1
9.1
0-5%
ROIC increases with higher growth rate
8.9
9.3
9.6
9.5
10.3
3-year real growth rate
5-10%
10.8
10.9
11.2
10.9
11.8
10-15%
11.9
11.1
11.7
11.5
11.9
15-20%
12.4
11.6
11.9
11.8
11.8
>20%
No clear relation between size and performance
Source: Compustat, McKinsey & Company’s corporate performance database

4. ROIC DECAY ANALYSIS: NONFINANCIAL COMPANIES
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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

5. ROIC DECAY ANALYSIS: CONSUMER STAPLES
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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

6. ROIC TRANSITION PROBABILITY, 1994-2003
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ROIC TRANSITION PROBABILITY,
Percent, 3-year average of ROIC without goodwill
ROIC in 2003
Total
ROIC in 1994
<5
5-10
10-15
15-20
>20
<5
100
5-10
100
10-15
100
15-20
100
>20
100
Source: Compustat; McKinsey & Company’s corporate performance database

7. REVENUE GROWTH FOR NONFINANCIAL COMPANIES
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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

8. REVENUE GROWTH BY INDUSTRY GROUP*
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REVENUE GROWTH BY INDUSTRY GROUP*
Percent
Annual real revenue growth**
Software and services
Semiconductors and semiconductor equipment
Health care equipment and services
Technology hardware and equipment
Pharmaceuticals and biotechnology
Commercial services and supplies
Telecommunication services
Hotels, restaurants, and leisure
Energy
Media
Retailing
Transportation
Food and staples retailing
Total sample
Automobiles and components
Household and personal products
Capital goods
Consumer durables and apparel
Utilities
Food, beverage, and tobacco
Materials
* Based on S&P Global Industry Classification Standard
** Geometric mean of annual median
Source: Compustat; McKinsey & Company’s corporate performance database

9. AGGREGATE EPS FORECASTS FOR S&P 500 CONSTITUENTS
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EPS (US cents)
Source: IBES; McKinsey analysis

10. REVENUE GROWTH DECAY ANALYSIS
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REVENUE GROWTH DECAY ANALYSIS
Revenue growth
Percent
Median growth of portfolio*
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

11. Years from entrance into Fortune 50
REVENUE GROWTH RATE FALLS DRAMATICALLY FOR COMPANIES REACHING FORTUNE 50
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Before entrance to Fortune 50
After entrance to Fortune 50
Average annual real revenue growth rate
Percent -5 -4 -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Years from entrance into Fortune 50
Source: Corporate Executive Board, “Stall Points: Barriers to Growth for the Large Corporate Enterprise”, 1998

12. REVENUE GROWTH TRANSITION PROBABILITY 1994-2003
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REVENUE GROWTH TRANSITION PROBABILITY
Three-year rolling average of real revenue growth rate
Percent
Revenue growth in 2003
<5
5-10
10-15
15-20
>20
Total
<5
100
5-10
100
Revenue growth in 1994
10-15
100
15-20
100
>20
100
Source: Compustat; McKinsey & Company’s corporate performance database