Return on invested capital (ROIC)

Also called: return on invested capital, quality, moat

How much after-tax operating profit the company makes for every 1 of money invested in it. One of the best tests of business quality.

Formula

ROIC = NOPAT ÷ Invested capital

Worked example

1. NOPAT = $2.0bn EBIT × (1 − 21.1% tax) = $1.6bn
2. Invested capital = $8.0bn equity + $5.0bn debt − $2.0bn cash = $11.0bn
3. ROIC = $1.6bn ÷ $11.0bn

Result: 14.4%

How to read it

ROIC above the company's cost of capital (often 8–10%) means it creates value as it grows. Consistently above 15% suggests a strong competitive advantage.

Worked example uses made-up figures for 'Example plc'

See it with real numbers: Any company page → (free account)