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stubbornpunjabi@hotmail.com

  • 3 years ago

Which type of business, a software company or an electric utility, would benefit more from improving ROIC than from increasing growth? Why?

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  1. business1
    • 3 years ago
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    focus on value. any company would benefit greater under circumstances of maximum wealth creation, be it from existing assets or from growth assets. ideally from both.

  2. stubbornpunjabi@hotmail.com
    • 3 years ago
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    but industry does have a certain impact on the ROIC of a business

  3. CHAITanya.kekre
    • 3 years ago
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    Typically a Electric utility is a regulated entity in most parts of the world, in such a scenario it would be guaranteed some minimum ROIC that gives a descent return to providers of Capital. The regulator also sees that the ROIC must not be two high either, as a result for a Electric Utility greater Value creation can happen by pursuing Growth (building new power plants, buying existing power plants) doing Backwards integrations serves little purpose (unless supply of Fuel can be a problem... as it may be in Emerging Markets) compared to these strategies. For a software company... assuming it is already enjoying huge Growth in its business additional growth wont add same amount of value as additional ROIC. At worst Growth can also destroy value if the Company is not even recovering its WACC (Weighted Average Cost of Capital). Thus a high growth software company must focus on ROIC.

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