Economic Spread

If an investor wants to know what a company’s “economic spread” is, they’re not talking about their soft cheese platter. They’re talking about how good the company is at making money off of its investments.

Economic spread is the difference between a company’s WACC, or it’s weighted average cost of capital (weighted capital investments), and its ROIC: return on invested capital (returns). If a company’s WACC is out of whack and their returns (ROIC) are lower than their investments (WACC), that looks bad. A negative economic spread means there’s more money going out than coming in. Either their choice of capital investment was a poor one, or the company is inefficient. Or a bitter cocktail of both.

A positive economic spread means a company is making more than it's spending...you know, what most businesses try to do. On average.