Return on Invested Capital (ROIC)

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Motley Fool  Apr 30  Comment 
With no big surprises in its latest report, ROIC continues to deliver.
Motley Fool  Jan 21  Comment 
Here's why return on invested capital is one of the best financial ratios for long-term investors.
OilVoice  Nov 25  Comment 
At the Extraordinary General Meeting of 3Legs Resources plc held today Resolutions number 1 and 2 contained in the Notice of Extraordinary General Meeting and put to the meeting were duly approved. A
Forbes  Aug 11  Comment 
Microsoft recently released its 2014 10-K and our analysts found some interesting items digging through the footnotes. MSFT currently earns our neutral rating, but if new CEO Satya Nadella can halt the company’s declining return on invested...




 
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Return on Invested Capital (ROIC) is used to judge how well companies generate earnings from capital invested in their business. It is essentially the return a company earns on each dollar invests in itself. ROIC is defined as Net Operating Profits Less Adjusted Taxes (NOPLAT) divided by the sum of Working Capital and fixed assets. Return on capital invested is a key driver of a business value (the higher it is, the higher the value) as it represents the return a company earns on its projects relative to its cost of capital.

ROIC = NOPLAT ÷ (Working Capital + Fixed Assets)


- Or -


ROIC = (EBIT * (1-T)) ÷ (Working Capital + Fixed Assets)


When a company's return on invested capital is greater than their cost of capital (commonly measured as the weighted average cost of capital, or WACC) they are creating value by investing in their projects. When this is not the case and company's WACC is greater than their ROIC they are said to be destroying value by investing capital in their business.

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