If ROIC is less than WACC, what is the outcome?

When the return on invested capital (ROIC) is less than the weighted average cost of capital (WACC), it indicates that the company's investments are generating returns that do not meet the costs of the capital used to fund those investments. Essentially, this means the company is not creating sufficient value to cover the expenses associated with its capital structure.

In this scenario, the company is likely experiencing value destruction because the capital that is being employed is producing returns that are inadequate compared to what investors expect as a return for their risk. Investors typically seek returns that exceed WACC, as this represents the minimum required return to satisfy their risk tolerance. When ROIC falls short, it signals that the investments are underperforming, which can lead to a decrease in overall company value. This situation may also provoke concerns among investors regarding management's efficiency in allocating capital, which can further impact the company's market perception and valuation negatively.