Gates Industrial Corporation plc (NYSE:GTES) has a Return on Invested Capital (ROIC) of 5.35%, below its Weighted Average Cost of Capital (WACC) of 12.50%.
Comparative analysis shows varying capital efficiency among peers, with Frontdoor, Inc. (FTDR) leading with the highest ROIC to WACC ratio of 3.31.
Gates Industrial’s ROIC/WACC ratio of 0.43 indicates a need for reassessment of capital allocation strategies to enhance financial performance.
Gates Industrial Corporation plc (NYSE:GTES) is a global manufacturer of power transmission and fluid power solutions. The company provides a wide range of products, including belts, hoses, and hydraulic components, serving industries such as automotive, construction, and agriculture. In the competitive landscape, Gates Industrial faces competition from companies like JELD-WEN Holding, Inc., Enerpac Tool Group Corp., SPX Technologies, Inc., Helios Technologies, Inc., and Frontdoor, Inc.
In evaluating Gates Industrial’s financial performance, the Return on Invested Capital (ROIC) is a key metric. GTES has a ROIC of 5.35%, which is notably lower than its Weighted Average Cost of Capital (WACC) of 12.50%. This results in a ROIC/WACC ratio of 0.43, indicating that the company is not generating returns that exceed its cost of capital. This suggests that Gates Industrial may need to reassess its capital allocation strategies to improve its financial performance.
Comparatively, JELD-WEN Holding, Inc. (JELD) has a negative ROIC of -2.61% and a high WACC of 19.55%, resulting in a ROIC/WACC ratio of -0.13. This indicates that JELD is also struggling to generate returns above its cost of capital, similar to Gates Industrial. On the other hand, Enerpac Tool Group Corp. (EPAC) shows a strong performance with a ROIC of 14.94% and a WACC of 9.35%, leading to a ROIC/WACC ratio of 1.60, suggesting efficient capital utilization.
SPX Technologies, Inc. (SPXC) and Helios Technologies, Inc. (HLIO) also demonstrate better capital efficiency compared to Gates Industrial. SPXC has a ROIC of 13.37% and a WACC of 9.79%, resulting in a ROIC/WACC ratio of 1.37. Meanwhile, HLIO has a ROIC of 4.57% and a WACC of 9.00%, with a ROIC/WACC ratio of 0.51. Both companies are generating returns that exceed their cost of capital, indicating more effective use of their invested capital.
Frontdoor, Inc. (FTDR) stands out with the highest ROIC to WACC ratio of 3.31, driven by a ROIC of 28.91% and a WACC of 8.74%. This highlights Frontdoor’s strong capital efficiency and suggests that it is well-positioned for growth compared to its peers. The company’s ability to generate returns significantly above its cost of capital makes it a noteworthy performer in the industry.
