Return On Investment Capital (ROIC)
A calculation used to assess a company's potential to be a quality investment by determining how well (i.e. in terms of profitably) a company's management is able to allocate capital into its operations. Comparing a company's ROIC with its cost of capital (WACC) reveals whether invested capital was used effectively.
The general equation for ROIC is as follows:
Investopedia Says:
Total capital includes long term debt, common and preferred shares. Because some companies receive income from other sources or have other conflicting items in their net income, net operating profit after tax (NOPAT) will be used instead.
This is always calculated as a percentage. Invested capital can be in buildings, projects, machinery, other companies etc. One downside of ROIC is that it tells nothing about where the return is being generated. For example, it does not specify whether it is from continuing operations or from a one-time event, such as a gain from foreign currency transactions. Related Terms:
Cash Return On Capital Invested - CROCI
Common Stock
Long Term Debt
Net Income
Net Operating Profit After Tax - NOPAT
Preferred Stock
Profitability Ratios
Return On Gross Invested Capital - ROGIC
Return On New Invested Capital - RONIC |