ROIC Calculator

Return on invested capital (ROIC) is the profitability or performance ratio. ROIC aims to measure the percentage return that investors in a company are earning from their invested capital. The ratio shows how efficiently a company is using the investors’ funds to generate income. Benchmarking companies use the ROIC ratio to compute the value of other companies.

Return on Invested Capital= Net Operating Profit After Tax / Invested Capital

ROIC example

1. NOPAT (Net Operation Profit after Tax) = EBIT x Tax Rate = $1,000 * 5% = $950
2. Invested Capital = Equity + Debt = $500 + $4,000 = $4,500

Result:          Return on Investment Capital (ROIC) = 21.1%

Note That

A company is healthy and growing, if the ROIC greater than the cost of capital means. Thus, only if the ROIC lower than the cost of capital suggests a viable business model for a company.