{% extends 'base.html' %}{% block heading %}Value Creation Lab{% endblock %}{% block content %}
WHAT THIS TOOL HELPS YOU FIGURE OUT

Is this project earning enough on its capital to justify the cost of financing that capital?

Wize spells out the finance terms before it calculates them. The handbook's core comparison is operating return on invested capital versus the weighted cost of debt and equity financing.

Watch the animated finance lessonRead the finance chapter
INPUTS
PROCESS
  1. 1

    Calculate Return on Invested Capital (ROIC) = Net Operating Profit After Tax รท Invested Capital.

  2. 2

    Compare that operating return with the Weighted Average Cost of Capital (WACC).

  3. 3

    Calculate the spread between return and financing hurdle.

  4. 4

    Calculate Economic Profit: operating profit after charging the project for the capital it uses.

  5. 5

    Do not stop there. Check cash-flow timing, uncertainty, assumptions and alternatives.

{% if result %}
{{'%.2f'|format(result.roic)}}%Return on Invested Capital (ROIC)
{{'%.2f'|format(result.wacc)}}%Weighted Average Cost of Capital (WACC)
{{'%+.2f'|format(result.spread)}}%Return minus cost-of-capital spread
{{'%.2f'|format(result.economic_profit)}}Economic Profit

{{'Potential economic value creation' if result.creates else 'Potential economic value destruction'}}

{{'Return on Invested Capital is above the financing hurdle.' if result.creates else 'Return on Invested Capital is below the financing hurdle.'}} This is a decision signal, not a guarantee. Before acting, review Net Present Value, cash-flow timing, risk, competitor response, and whether the assumptions are realistic.

Convert this conclusion into a NeedTest uncertainty next
{% endif %}{% endblock %}