GlossaryAdvanced
Return on Invested Capital (ROIC)
A profitability ratio measuring how efficiently a company generates returns on all the capital invested in it, both debt and equity.
Return on Invested Capital (ROIC) divides a company's net operating profit after tax by its total invested capital (both debt and equity combined), measuring how efficiently it converts all the capital invested in the business into profit — a broader measure than ROE, which only considers equity.
ROIC is commonly compared against a company's cost of capital: a ROIC exceeding that cost suggests the company is genuinely creating value from its invested capital, while a ROIC below it suggests the opposite. See Kaavon's dedicated ROIC article for the full calculation.
Examples
- ROIC exceeding a company's cost of capital is commonly read as evidence the company is genuinely creating economic value, not just generating accounting profit.
- Unlike ROE, which only considers equity, ROIC accounts for the full capital base, including debt, giving a broader efficiency picture.