American Express Company (NYSE: AXP) is a global financial services corporation known for its credit card, charge card, and travel-related services. It competes with major players like Visa, Mastercard, and financial institutions such as Wells Fargo. Analyzing its Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC) provides insights into its financial efficiency.
American Express boasts a ROIC of 106.28%, significantly higher than its WACC of 10.36%. This results in a ROIC to WACC ratio of 10.25, indicating that the company is using its capital efficiently and generating strong profits. This efficiency is a key indicator of the company's ability to create value for its shareholders.
In comparison, Visa Inc. has a ROIC of 29.89% and a WACC of 8.26%, resulting in a ROIC to WACC ratio of 3.62. While Visa is profitable, its capital efficiency is lower than that of American Express. Mastercard also shows strong performance with a ROIC of 43.98% and a WACC of 8.73%, leading to a ratio of 5.04, which is still below American Express.
Wells Fargo & Company, on the other hand, has a ROIC of 3.24% and a WACC of 11.36%, resulting in a low ROIC to WACC ratio of 0.29. This indicates that Wells Fargo is not utilizing its capital as effectively as its peers, which could impact its profitability.
