Don’t forget how you get to ROE or ROIC….
It’s not make-believe. You get a better investment if:
1) Your earn more on every dollar of sales
2) You make more sales with every dollar of capital
3) You get more assets with every dollar of equity investment
A margin story, an organic growth or accretive acquisition story, or a balance sheet story (recapitalization) – stock-buybacks, etc.
As an example – WCN
-Margins are going to improve as increased gas costs get passed along to customers
– Asset Turnover will improve as recent high levels of Cap-Ex start reaping benefits by higher utilization of landfills
– Higher Equity Leverage will come into play as the company continues to buy back stock (~$100m a year) and Invested Capital Declines.
All three factors will help improve ROE and ROIC.