Return On New Invested Capital (RONIC)
A calculation used, either by a firm or investors, to determine the amount of return that a firm could earn on additional contributed capital. The calculation measures the return generated when a company converts its capital into capital expenditures, which generate revenues from core operations. A higher RONIC equates to a relatively efficient firm. Investopedia Says:
Return on new invested capital is very useful when compared to the weighted average cost of capital (WACC) of the same firm. WACC summarizes the cost of funds acquired through equity or debt issuance. If a company's RONIC, and/or return on invested capital (ROIC) is higher than the WACC, the company should move forward with the capital project because it will add value. Related Terms:
Contributed Surplus
Cost Of Capital
Economic Spread
Economic Value Added - EVA
Market Value Added - MVA
Return On Investment Capital - ROIC
Shareholder Value Added - SVA
Weighted Average Cost Of Capital - WACC |