medium · Corporate Credit Analysis cca-core
In a comparative analysis, Firm A has an EBITDA margin of 25% and Firm B has an EBITDA margin of 15%.
However, Firm B has a significantly higher ROIC than Firm A. What is the most likely explanation for this divergence?
- Firm B is in an asset-light industry with much lower invested capital requirements.
- Firm A is likely in the 'Trough' phase of the credit cycle while Firm B is at the 'Peak'.
- Firm A has much higher interest expense, which depresses its ROIC.
- Firm B has higher depreciation, which inflates its EBITDA relative to Firm A.
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