Value is driven by expected cash flows discounted at a cost of capital. Cash flow, in turn, is driven by expected returns on invested capital and revenue growth. Companies create value only when ROIC exceeds their cost of capital.Further, higher-ROIC companies should typically prioritize growth over further improving ROIC, as growth is a more powerful value driver for them.
In contrast, lower-ROIC companies should prioritize improving ROIC, as it is a stronger value driver.
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