Smart Investments for College & Retirement
The Johnsons, while financially comfortable with $2.1M in retirement accounts, are facing the dual pressure of funding three children's college educations and maximizing their retirement savings. They were concerned one of their larger stock holdings wasn't delivering adequate returns compared to its invested capital, hindering their ability to meet both goals efficiently.
By inputting the company's net income and invested capital into the ROIC Calculator, we determined the company's Return on Invested Capital was only 4.5%, significantly below industry averages. Further analysis, using our debt-to-asset calculator, revealed the company was taking on too much debt to inflate earnings. This prompted a discussion about reallocating the $150,000 invested in this stock to a higher-performing asset.
The ROIC Calculator accurately computed the return on invested capital, factoring in all relevant financial data. This result, combined with debt-to-asset ratio findings, was presented in a clear, visual format, facilitating informed decision-making during our client meeting.
$35,000 potential gain over 5 years by reallocating capital to an investment with an anticipated ROIC aligning with the industry average for comparable companies.
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