Wheaton Precious Metals - ROICs alive

Return on invested capital (ROIC) is a calculation used increasingly by investors to assess a company's efficiency at allocating the capital under its control. In general, a comparison between a company's ROIC and its weighted average cost of capital (WACC) may be said to reveal whether invested capital is being used effectively and, as a result, many companies are being tempted to quote specific targets for returns. Like many financial ratios, however, ROIC must be applied thoughtfully. Used as a relative measure of a company’s performance, we believe that it poses few risks to investors. However, as an absolute measure of capital efficiency, we believe that ROIC has certain very definite (and material) deficiencies when applied to streaming companies in general and Wheaton in particular. This note explains why.