Return on Invested Capital (ROIC) Calculator

Calculate and analyze your company's Return on Invested Capital (ROIC) over time.

Current Year: 2024
Historical Data (Optional)

ROIC Analysis

Current ROIC

7.50%

Historical Average ROIC

6.65%

ROIC Chart

Understanding ROIC

Return on Invested Capital (ROIC) is a profitability ratio that measures how efficiently a company uses its capital to generate profits. It is calculated as:

\[ROIC = \frac{NOPAT}{\text{Invested Capital}} \times 100\%\]

Where:

  • NOPAT (Net Operating Profit After Taxes) = EBIT × (1 - Tax Rate)
  • EBIT is Earnings Before Interest and Taxes
  • Tax Rate is the effective tax rate
  • Invested Capital = Debt + Equity

Expanding the formula, we get:

\[ROIC = \frac{EBIT \times (1 - \text{Tax Rate})}{\text{Debt} + \text{Equity}} \times 100\%\]

A higher ROIC indicates that a company is using its capital more efficiently to generate profits.

Interpreting ROIC:
  • ROIC > Cost of Capital: The company is creating value
  • ROIC < Cost of Capital: The company is destroying value
  • ROIC = Cost of Capital: The company is breaking even
Limitations of ROIC:
  • Does not account for the company's growth prospects
  • Can be affected by accounting practices and one-time events
  • May not be suitable for comparing companies across different industries
  • Does not consider the risk associated with generating returns

While ROIC is a valuable metric, it's important to consider it alongside other financial measures for a comprehensive view of a company's financial health and performance.