ROIC (Return on Invested Capital): Definition and How to Calculate It
Return on Invested Capital (ROIC) measures how well a company turns invested capital into after-tax operating profits. It is a commonly used measure of business quality and capital efficiency.
Formula
Where NOPAT is net operating profit after tax and Invested Capital typically includes equity plus interest-bearing debt minus excess cash. Different implementations adjust for operating leases, capitalized R&D, and other items.
Why it matters
ROIC helps compare companies across industries by showing how efficiently capital is deployed. ROIC above a company's cost of capital (WACC) generally indicates value creation; ROIC below WACC indicates value destruction. Use consistent definitions for NOPAT and Invested Capital when comparing peers.