Since the free cash flow of a firm technically belongs to the company's owners or its shareholders, in order for diversification to create value, a company's future ROIC must be less than the value shareholders would reap by returning the cash to them.

Question

Quizplus · Accepted Answer

For diversification to create value, a company's future Return on Invested Capital (ROIC) must be greater than the cost of capital, indicating that the company can generate higher returns on the new investments than shareholders could achieve by investing the distributed cash on their own.

Since the Free Cash Flow of a Firm Technically Belongs