Source: Gordon Thompson
Unpacking Capital Efficiency: A Look at Gartner, Inc., Mettler-Toledo, and ANSYS, Inc.
When evaluating investment opportunities, it’s crucial to assess a company’s efficiency in capital management. Two key indicators offer insights into this area: Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). These metrics, when viewed together, can provide a comprehensive overview of a company’s ability to generate returns and manage the cost of its capital.
Let’s dive into the financials of three companies: Gartner, Inc. (NYSE: IT), Mettler-Toledo International Inc., and ANSYS, Inc. We’ll analyze their ROIC and WACC figures to understand their capital management effectiveness.
Gartner, Inc.: A Leader in Capital Management?
Gartner, Inc. (NYSE: IT) is a renowned research and advisory firm, providing expert advice and practical solutions in IT, finance, HR, customer service, and support. The company competes with several firms, including CDW Corporation, FLEETCOR Technologies, Mettler-Toledo International, Jack Henry & Associates, and ANSYS, Inc.
Gartner’s financials reveal an impressive ROIC of 24.87% and a WACC of 8.07%. This translates to a ROIC to WACC ratio of 3.08, signaling that Gartner is effectively deploying its capital to generate returns surpassing its cost of capital. This efficient capital management might be appealing to investors, as it indicates robust capital management, which could contribute to increased shareholder value over time.
Assessing The Competition: CDW Corporation and FLEETCOR Technologies
When comparing Gartner’s performance with its peers, CDW Corporation shows a ROIC of 19.21% and a WACC of 7.30%, resulting in a ROIC to WACC ratio of 2.63. While CDW’s ratio is slightly lower than Gartner’s, it still suggests effective capital usage. On the other hand, FLEETCOR Technologies exhibits a lower ROIC to WACC ratio of 1.36, with a ROIC of 11.70% and a WACC of 8.59%. This lower ratio indicates less efficient capital utilization, which could be a potential area for improvement.
Mettler-Toledo: A Standout Performer
Mettler-Toledo International Inc. distinguishes itself with a high ROIC of 37.77% and a WACC of 9.74%, resulting in a leading ROIC to WACC ratio of 3.88 among the peers. This high ratio indicates that Mettler-Toledo is generating significant returns on its investments relative to its cost of capital. It signifies that Mettler-Toledo is utilizing its capital exceptionally well, making it a potential attractive investment for those seeking efficient capital usage.
Jack Henry & Associates and ANSYS, Inc: A Closer Look
Lastly, Jack Henry & Associates and ANSYS, Inc. have ROIC to WACC ratios of 2.34 and 0.88, respectively. Jack Henry’s ratio indicates efficient capital management, while ANSYS’s lower ratio suggests that the company’s returns are not covering its cost of capital. This could be a red flag for potential investors and may indicate a need for strategic improvements in ANSYS’s capital management.
In summary, both Gartner and Mettler-Toledo demonstrate strong capital efficiency with Mettler-Toledo taking the lead among the group. These analyses serve as a reminder of the importance of paying close attention to companies’ ROIC and WACC figures when considering investment opportunities. These metrics can provide valuable insights into a company’s ability to manage its capital effectively and generate returns, which are crucial factors in assessing a company’s potential for long-term value creation.