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 ... 
Weighted Average Cost Of Capital ...
Weighted average cost of capital (WACC) is a calculation of a ... 
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 ... 
Return On Capital Gains
The return that one gets from an increase in the value of a capital ... 
Capital Appreciation
A rise in the value of an asset based on a rise in market price. ...

Fundamental Analysis
The Return On Invested Capital (ROIC)
Return on Invested Capital, or ROIC, is a fundamental method of determining a company's financial performance. It is used to measure how well a company is investing its capital. ROIC is calculated ... 
Economics
Explaining Cost Of Capital
Cost of capital is the cost of funds used to finance a business. 
Professionals
Weighted Average Cost Of Capital (WACC)
This important calculation helps figure out the cost of capital. 
Bonds & Fixed Income
Investors Need A Good WACC
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality. 
Investing
Weighted Average Cost Of Capital (WACC)
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality 
Markets
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By David Harper, (Contributing Editor  Investopedia Advisor) Contact David As we performed a sequence of calculations to find Disney's (DIS) 2004 economic profit, we discovered that despite ... 
Markets
EVA: Pulling It All Together
By David Harper, (Editor In Chief  Investopedia Advisor) Contact David By working through the components of economic profit over the previous chapters, we've been building an economic profit ... 
Term
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A return of capital is an investment return that is not considered income. 
Professionals
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Fundamental Analysis
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By Ben McClure Contact Ben Having projected the company's free cash flow for the next five years, we want to figure out what these cash flows are worth today. That means coming up with an appropriate ...

What is the difference between the cost of capital and required return?
Take a look at the primary conceptual differences between an investor's required rate of return and an issuing company's ... Read Answer >> 
What does a high weighted average cost of capital (WACC) signify?
Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is ... Read Answer >> 
What is the lowest capitalization rate before an investment becomes unprofitable?
Learn about different levels of profitability associated with investments featuring similar capitalization rates. Explore ... Read Answer >> 
How do interest rates affect the weighted average cost of capital (WACC) calculation?
The interest rate is one of many external factors that can change the inputs in the weighted average cost of capital (WACC) ... Read Answer >> 
What are some examples of return on investment capital?
Read about some basic examples of return on investment capital for publicly traded companies and companies that have a handful ... Read Answer >> 
How do you calculate the ratio between debt and equity in the cost of capital
Discover how to calculate the ratio between debt and equity when making cost of capital estimations using the weighted average ... Read Answer >>