What are the benefits and disadvantages of a company that increase s t
QUESTION
What are the benefits and disadvantages of a company that increase s the spread between ROIC and WACC?
There is no disadvantage of increasing the spread between ROIC and WACC (assuming ROIC is greater than WACC) sans illegal activities, or increasing short-term spreads at the expense of future returns. Simply put, WACC is the cost of capital, while ROIC is the return on capital. Therefore, if the return is > than
the cost, youre making some equitable returns, otherwise you are not gaining enough returns. The benefits of an increasing spread between ROIC and WACC is obvious, youre growing the firm at an exponential rate.
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