A lot of people seem pretty confused about ROIC and growth.
Since this is a slightly more technical topic and involves concepts such as ROIIC, WACC and the reinvestment rate, I thought it would be useful to bring these ideas down to earth.
I don’t think the basic idea that “growth only creates value when a company can reinvest capital at returns above its cost of capital” is fully understood. At least not in detail.
A lot of people use simple ROIC for this calculation or forget to compare it against the WACC. Also, everyone tells you the conclusion, but almost nobody explains how to get there.
I’ve tried to explain it from first principles in a way that is reasonably accessible to everyone.
You can read the article here:
[https://www.jeravalue.com/en/blog/wacc-roic-growth](https://www.jeravalue.com/en/blog/wacc-roic-growth)
Let me know if I’ve missed anything!
