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