Economic Profit (Fixed & Labeled) — Rated + Peers

FRAC (Fundamental-Rated-Asset-Calculate)

FRAC is a fundamentals-driven tool designed to measure whether a company is creating or destroying shareholder value. Unlike surface ratios, FRAC uses Economic Profit (ROIC – WACC) as its engine, showing whether a business truly outperforms its cost of capital.

🔹 What FRAC Does

Calculates ROIC (Return on Invested Capital) vs. WACC (Weighted Average Cost of Capital).

Shows whether a company is creating or destroying shareholder value.

Uses tiered color coding for clarity:

🔵 Superior (Aqua Blue) → Top tier; best of the best.

🟣 Elite (Purple) → Strong value creation.

🟢 Positive (Green) → Solid, creating shareholder value.

🟡 Marginal (Yellow) → Barely covering cost of capital.

🔴 Negative (Red) → Value destruction.

🔹 Composite Ranking System (1–4)

FRAC also assigns each company a Composite Rank so you can compare multiple names side by side. The rank works like this:

Rank 1 → Superior (🔵 Aqua Blue)

Best possible rating; wide gap between ROIC and WACC.

Rank 2 → Elite (🟣 Purple)

Strongly positive; above-average capital efficiency.

Rank 3 → Positive (🟢 Green)

Creating value but only moderately; not a top compounder.

Rank 4 → Marginal/Negative (🟡/🔴)

Weak or destructive; either barely covering WACC or losing money on capital.

✅ How to Use the Ranks

When comparing a set of peers (e.g., NVDA, AMD, INTC):

FRAC will display each company’s color rating + composite rank (1–4).

You can instantly see who is strongest vs. weakest in the group.

Best decisions = overweight Rank 1 & 2 companies, avoid Rank 4 names.

🔹 Key Inputs Explained

Risk-Free Asset → Typically the 10-Year US Treasury yield (US10Y).

Corporate Tax Rate → Effective tax rate for the company’s country (e.g., USCTR).

Expected Market Return → Historical average ~8–10%, adjustable.

Beta Lookback Period → Controls how far back Beta is calculated (longer = more stable, shorter = more reactive).

👉 These must be set correctly for FRAC to calculate WACC accurately.

🔹 Example Comparison

NVDA: ROIC 25% – WACC 7% = +18% → 🔵 Superior → Rank 1

AMD: ROIC 17% – WACC 8% = +9% → 🟣 Elite → Rank 2

INTC: ROIC 11% – WACC 9% = +2% → 🟢 Positive → Rank 3

FSLY: ROIC 5% – WACC 10% = –5% → 🔴 Negative → Rank 4

🔹 Why It Matters

Buffett said: “The best businesses are those that can consistently generate returns on capital above their cost of capital.”
FRAC turns that into a visual + numeric rating system (1–4), making comparisons across peers simple and actionable.

🔹 Credit

FRAC was created by Hunter Hammond (Elite x FineFir), inspired by corporate finance models of Economic Profit and Economic Value Added (EVA).



⚠️ Disclaimer: FRAC is a research framework, not financial advice. Always pair with full due diligence.