Return on Invested Capital (ROIC)

RECENT NEWS
Forbes  May 12  Comment 
GAAP-based ROIC is based on a simplified after-tax profit (NOPAT) and invested capital that can easily be calculated using only the income statement and balance sheet.
Forbes  Mar 28  Comment 
Last week, our analysts parsed 127 10-K filings and collected 16,552 data points. In total, they made 2,964 forensic accounting adjustments with a dollar value of $1.7 trillion.
newratings.com  Jan 27  Comment 
27 JANUARY 2017 NORTHERN INVESTORS COMPANY PLC UPDATE ON RETURN OF CAPITAL The Company confirms that, in accordance with the Return of Capital approved by Shareholders on 19 January 2017, details of which were set out in a Circular...
newratings.com  Dec 21  Comment 
21 December 2016 NORTHERN INVESTORS COMPANY PLC Proposed Return of Capital and Notice of General Meeting Northern Investors Company PLC (the "Company") reported on 15 November 2016, in the half-yearly financial report for the six months...




 
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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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