1. What is Return On Invested Capital (ROIC)?

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 operations.

2. How Does the Calculator Work?

The calculator uses the ROIC formula:

Where:

• \( NOPAT \) — Net Operating Profit After Tax ($)
• \( Invested\ Capital \) — Total capital invested in the business ($)

Explanation: The formula calculates the return percentage by dividing NOPAT by the total invested capital, providing insight into how efficiently capital is being used to generate profits.

3. Importance of ROIC Calculation

Details: ROIC is a crucial metric for investors and analysts to evaluate a company's efficiency in allocating capital to profitable investments. A higher ROIC indicates better performance and more effective use of capital.

4. Using the Calculator

Tips: Enter NOPAT and Invested Capital in Australian dollars. Both values must be positive numbers, with Invested Capital greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROIC value?
A: Generally, a ROIC above 10-12% is considered good, but this varies by industry. It's best to compare against industry averages and historical performance.

Q2: How does ROIC differ from ROI?
A: ROIC specifically measures return on the capital invested in the business operations, while ROI is a broader measure of return on any type of investment.

Q3: Why is ROIC important for Australian businesses?
A: ROIC helps Australian businesses and investors assess capital efficiency in the local market context, considering specific economic conditions and industry standards.

Q4: Can ROIC be negative?
A: Yes, if NOPAT is negative (the company is operating at a loss), ROIC will be negative, indicating poor capital allocation.

Q5: How often should ROIC be calculated?
A: ROIC should be calculated regularly, typically quarterly or annually, to track performance trends and make informed business decisions.