Question

2. For which type of company is additional growth likely to create more value: a high ROIC company in a mature market or a low ROIC company in a fast growing market? Give reasons for your answer.

Answer 1

Additional growth in a high-ROIC company in a mature market is less likely to create more value than in a fast-growing market because competitors will retaliate more if they feel like the are loosing market shares. Indeed, in a fast-growing market, even if a company is creating more growth, the competitor might still grow strongly enough to not retaliate but in mature market the competitors will fear that they will lose market share so they will be more aggressive to fight against their competitors.

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