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ROIC Formula:
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Return On Invested Capital (ROIC) is a profitability ratio that measures how effectively a company uses its capital to generate profits. It shows the percentage return that a company earns on the capital invested in its business.
The calculator uses the ROIC formula:
Where:
Explanation: The formula calculates what percentage return a company generates from the capital invested in its operations. A higher ROIC indicates more efficient use of capital.
Details: ROIC is a crucial metric for investors and analysts to evaluate a company's efficiency at allocating capital to profitable investments. Companies with consistently high ROIC typically create more value for shareholders.
Tips: Enter NOPAT and Invested Capital values in dollars. Both values must be positive, and Invested Capital must be greater than zero.
Q1: What is considered a good ROIC?
A: Generally, a ROIC above 10-12% is considered good, but this varies by industry. It's best to compare a company's ROIC to its industry peers.
Q2: How is NOPAT different from net income?
A: NOPAT excludes the tax benefits of debt financing and non-operating items, providing a clearer picture of operating performance.
Q3: What constitutes invested capital?
A: Invested capital typically includes equity, debt, and any other long-term funding sources used to finance operations and investments.
Q4: Why is ROIC important for investors?
A: ROIC helps investors identify companies that generate high returns on invested capital, which often correlates with strong competitive advantages and superior long-term performance.
Q5: How frequently should ROIC be calculated?
A: ROIC is typically calculated quarterly or annually as part of financial statement analysis to track performance trends over time.