Maximizing Return on Invested Capital (ROIC) to Drive Growth in Consumer Products
Learning from the past, preparing for the future
The recent economic downturn has taken its toll on consumer products (CP) companies. Higher commodity costs and a sluggish U.S. economy are expected to limit the sector’s growth in the coming years. As a result, revenue for U.S. consumer products companies is forecast to grow less than 5 percent from 2008 to 2011.
Considering this outlook, how do CP companies steer their organizations to growth amid sagging consumer confidence, a credit crunch, and rising unemployment? To understand what CP companies can learn from their predecessors to better prepare for and drive success in the upturn, Deloitte analyzed the return on invested capital (ROIC) performance, which assesses how a company allocates capital toward investments, of Fortune 1000 consumer products companies before, during and after the prior two recessionary periods, one in the early 1990s and the other in the early 2000s.
The result is a new publication entitled, “Maximizing ROIC to drive growth in consumer products: Learning from the past, preparing for the future.” In this report, we analyze why ROIC is a better measure of economic profitability than accounting-based performance measures like return on assets or return on equity. It explores actions taken by several CP companies during the hard times that resulted in strong results during and after the recovery periods and discusses strategies CP companies can leverage to prepare for the approaching upturn.