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Corporate Finance, Performance Article, performance strategy
Article at a glance:

How to choose between growth and ROIC

  • One key to creating value is understanding how to manage the subtle balance between growth and returns on invested capital. Empirical evidence suggests that companies enjoying strong ROIC can afford to let it decline over the short term to pursue growth—and that companies with low returns are better off improving ROIC than emphasizing growth.
This article contains the following exhibits:
  • Exhibit 1: For companies that already have high returns on invested capital (ROIC), growth generates higher returns to shareholders (TRS) than further improvements to ROIC.
  • Exhibit 2: Companies with medium ROIC must maintain their growth and improve their ROIC.
  • Exhibit 3: For companies with low ROIC, improvement in it is clearly more important than growth.

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