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Which type of business, a pharmaceutical firm or an electric utility, would benefit more from improving...

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

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Answer #1

If ROIC increases, it generates higher cashflows by keeping all other constant. If ROIC is less than the cost of capital then the increase in growth rate may leads to decrease in companys value.

In the given case the pharmaceutical firm will be having huge investments in Research & development, so it will be benefited more from improving ROIC. When coming about to electricity company it will have limited resources to invest and will benefit only if the growth rate increases.

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