DEFINITION of 'Economic Spread'
1. A performance metric that is equal to the difference between a company's weighted average cost of capital (WACC) and its return on invested capital (ROIC).
2. The difference between the real rate of return on an investment and the rate of inflation in the economy.
BREAKING DOWN 'Economic Spread'
1. Economic spread is a measure of a company's ability to make money on its investments. If the cost of capital exceeds the return on invested capital, the company is losing money: what the company is doing with the capital is not providing enough to cover the cost of borrowing or using it.
2. Economic spread is important for evaluating the returns of a pension plan. The value of its invested funds may be increasing at what seems to be a acceptable level, but if the invested capital is not growing at a rate above inflation, the investment is actually losing its value on an annual basis. This nominal loss results from the fact that the invested capital will not be able to buy as much for the investor in the future as it can in the present time.

Return On Invested Capital  ROIC
A calculation used to assess a company's efficiency at allocating ... 
Return On New Invested Capital ...
A calculation used, either by a firm or investors, to determine ... 
Return Of Capital
A return from an investment that is not considered income. The ... 
Capital Appreciation
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Return
The gain or loss of a security in a particular period. The return ... 
Real Rate Of Return
The annual percentage return realized on an investment, which ...

Options & Futures
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Fundamental Analysis
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Economics
Explaining Cost Of Capital
Cost of capital is the cost of funds used to finance a business. 
Bonds & Fixed Income
Investors Need A Good WACC
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Markets
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Term
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A return of capital is an investment return that is not considered income. 
Markets
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Fundamental Analysis
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Term
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A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors. 
Economics
Understanding Capital
Capital has a variety of meanings, but it generally refers to financial resources.

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