Answer to the ROCE Riddle...
About a week ago I posted this question:
Can a negative ROCE/ROIC be a good thing ?
if yes , how ?
I received several e-mails. And I am glad 80% were right.
Abitofvalue summed it up in a simple and direct way :
Negative ROIC can be a great thing as long as the negative is coming from the denominator - i.e. from the invested capital. So if EBIT is positive and the company has a large negative working capital with no fixed assets, the answer will be a negative ROIC. But this is a good thing - in someways its much better than having a high positive ROIC even.
He is right .
In other words, other investors are paying you to run your business.
You are using their capital to run your concern.
