3rd ICAI 2024

International Conference on Automotive Industry 2024

Mladá Boleslav, Czech Republic

Analysis of the relationship between return on invested capital, WACC, and growth rate

Lucie Jahodová 1 , Michaela Křížová 2 Prague University of Economics and Business 1, 2 Faculty of Finance and Accounting, Department of Corporate Finance W. Churchill Sq. 1938/4, Prague 3, 130 67 Czech Republic e-mail: lucie.jahodova@vse.cz 1 , krim18@vse.cz 2

Abstract In our research, we quantitatively analyzed the relationship between return on invested capital (ROIC), weighted average cost of capital (WACC), and growth rate. We investigated the automotive sector in the U.S. market, primarily using the Capital IQ database. We focused on an 11-year period from 2009 to 2019 on a sample of 19 firms. In our research, we analyzed the relationships and correlations between these indicators using statistical methods. This research aims to understand the financial dynamics in the U.S. automotive sector and provide insights for investors and other stakeholders to help them make strategic decisions. Keywords: automotive, growth rate, return on invested capital, weighted average cost of capital JEL Classification: G30, G32, L62 1. Introduction We can say that the automotive market has existed for almost 140 years - since the first automobile (Hubáček, 2016), and still represents a relevant segment of the economy with the potential for further development. In 2009, a decline in sales in the motor vehicle market of approximately 50% was recorded due to the financial crisis in 2008 (Statista [online], 2024). This is also confirmed by Su and Chu (2010), according to whom the automotive industry was one of the hardest hit sectors in the U.S. in the 2008 crisis. Frieske and Stieler (2022) report that the automotive industry was also hit hard by the Covid-19 pandemic. These informations suggest that economic crises have a significant impact on the automotive market. As of 2021, there is a resumption of the upward trend in production (Statista [online], 2024), but future trends in motor vehicle production will depend on a number of factors, including technological advances, regulatory changes, and global economic trends. The automotive market still has a lot to offer and a lot to move forward. In recent years, for example, we have seen a big boom in electro-mobility, autonomous driving, shared mobility and connected cars (Stoean, 2019). Stoean goes on to say that thanks to new technologies, today’s car is close to a “data centre with wheels” and so companies would do well to consider where their investments are going. The importance of innovation as

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